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.
Mexico: Death toll 27 after truck hits religious procession (AP)
from the article: EU: Future agreements with Israel won't apply to territories