The EU couldn't care less if these "settlers" are Jewish, Muslim, Buddhist or Rastafarians. They are - every single one of them - "colonists", and therefore Israel's policies is best defined as Colonial Expansionism. That's what the EU objects to, and that's what the EU is responding to.
Kuwait backs alliances against Islamic State, but no troops (Reuters)
from the article: EU: Future agreements with Israel won't apply to territories