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The European Union will decide what to do about a frozen upgrade in ties with Israel once Israel unveils its Palestinian strategy review, EU foreign policy chief Javier Solana said on Wednesday.

Solana said "not much has advanced" in a meeting with Foreign Minister Avigdor Lieberman in Prague and the Israeli side was fully aware of the EU's position, which insists on a two-state solution.

"They are in the process of review," he told reporters. "They have to see how they can make something that is compatible with that."

Solana said the Israeli side said it would have clearer ideas on the Palestinian policy around the middle of May.

Lieberman was in Europe to try to allay concern about the new Israeli government's policy on peace with the Palestinians, after Prime Minister Benjamin Netanyahu worried international mediators by refusing to embrace a vision of a Palestinian state alongside Israel.

Aides said the aim of the visit was to buy time until the month-old government formed a regional strategy.

While the world waits to see U.S. President Barack Obama's next steps on the conflict, the 27-nation European Union has linked an unfreezing of plans to upgrade ties with Israel to Netanyahu committing to negotiate a two-state accord.

This has drawn rebukes from Israel, where officials said the EU risked undermine its peacemaking clout.

Merkel, before Lieberman visit: Only solution is two statesGerman Chancellor Angela Merkel said on Wednesday that a two-state solution was the only path to peace in the Middle East and urged the new Israeli government to move quickly to begin talks with the Palestinians.

Merkel was speaking ahead of Lieberman's visit to Berlin on Thursday. Lieberman has voiced opposition to the creation of a Palestinian state alongside Israel.

"As far as Middle East peace is concerned, we want to continue to focus on a two-state solution," Merkel told reporters at a joint newsconference with Jordan's King Abdullah.

She described the coming months as "decisive" and said progress between Israel and the Palestinians was essential for the success of western efforts to reach a deal with Iran over its disputed nuclear program.

Abdullah said the goal was to get Israel and the Palestinians to sit down at the negotiating table in the coming months.

Lieberman began his tour of European countries on Monday in Italy, where he described Iran's nuclear work as a "destabilizing factor for the entire world".

He is viewed with scepticism by the government in Berlin, where he is due to meet members of the foreign affairs committee of the German parliament and dine with Foreign Minister Frank-Walter Steinmeier but not make any public statements.

On Monday, Lieberman argued that a break from Israel's past policies is necessary to stabilize the region.

"Nothing has come from this whole 'peace industry' except for conferences in five-star hotels and a waste of money," Lieberman told his Italian counterpart, Franco Frattini, during their meeting in Rome on Monday.

Lieberman told Frattini that between five and seven years are needed to reach a solution to the Israeli-Palestinian conflict.