BRUSSELS, Dec 10 (Luke Baker/Reuters) - Senior European figures, including half a dozen former leaders, urged the European Union on Friday to take a firmer approach in dealing with Israel in the Middle East peace process, saying time was being lost.

In a seven-page letter, the group of 25 politicians, including ex-foreign ministers and the EU's last foreign affairs chief, said the EU needed to make a strong statement calling for a rapid and dramatic move to halt Israeli settlement building on occupied land, among other issues.

It is eminently clear that without a rapid and dramatic move to halt the ongoing deterioration of the situation on the ground, a two-state solution, which forms the one and only available option for a peaceful resolution of this conflict, will be increasingly difficult to attain, the letter said.

We believe the EU should at the December 2010 Council meeting set a date at which it will take further action, the letter said, referring to a summit of EU leaders on Dec. 16-17.

It could for example say that if there is no progress by its next meeting scheduled for April 2011, this will leave the Council with no alternative but to refer the matter to the international community, a reference to the United Nations.

The letter reflects the deep frustration felt in some corners of Europe at the inability to play a more influential role in the Middle East dispute, where the external process has largely been driven by the United States for decades.

Palestinian Prime Minister Salam Fayyad said he also feels frustrated and left in the lurch by Washington and Europe.

I have to admit, I am tired and frustrated. The international community indeed supports our approach to build up the institutions for a future state, the Western-backed former World Bank economist told the Austrian daily Die Presse.

But the United States and Europe have left us in the lurch in the negotiations with Israel. They are not doing anything about the fact that our country is being built upon, or that radical settlers are destroying our fields and felling olive trees, Fayyad told the newspaper.

Coordinated by Chris Patten, a former British minister and European commissioner, and Hubert Vedrine, a French ex-foreign minister, the Brussels letter focuses on a statement made by EU leaders at a summit a year ago in which they called on Israel and the Palestinians to resume negotiations on final status issues, including borders, and a halt to settlement building.

And it addresses Fayyad's point.

The government of Israel continues to undertake unilateral measures on the ground that will prejudge the outcome if not prevent the possibility of substantive negotiations on many of the final status issues, the letter said.

EU'S ASHTON REPLIES

Catherine Ashton, the EU's foreign affairs chief, replied to the letter on Friday, defending the work the EU was doing in trying to get Israel and the Palestinians to return to negotiations and for both sides to meet their obligations.

The European Union will continue to be at the forefront of efforts to advance the peace process and engage with both the Palestinians and the Israelis to find a way to resolve the conflict, she wrote to Patten and Vedrine.

The issue of settlements remains a source of great concern. I met with representatives of civil society in East Jerusalem and I have consistently underscored the EU position with regard to settlements, including in East Jerusalem. It is also important to note that the EU does not grant preferential treatment to products originating in the settlements.

Efforts to restart Middle East peace talks have consistently been set back over the past year, largely over the issue of Israel's unwillingness to extend a freeze on building settlements in the West Bank and East Jerusalem, land that Palestinians want for an independent state and capital.

US officials said this week they had dropped efforts to persuade Israel to stop settlement construction on captured land, a signal that the peace process has ground to a halt.

EU foreign ministers meet in Brussels on Monday and will discuss the Patten letter and EU efforts to expand border openings to allow more Palestinian-produced goods to leave the Gaza Strip and be exported, boosting the Palestinian economy.

EU sources said that while the Patten letter would be discussed on Monday, it was unlikely to be put on the agenda for the EU leaders summit on Dec. 16-17.