June 23 (Bloomberg) -- Israeli Prime Minister Benjamin Netanyahu should freeze West Bank settlements as part of an effort to revive the Middle East peace process, Italian Prime Minister Silvio Berlusconi told his Israeli counterpart today.

Netanyahu, on his first trip to Europe since becoming prime minister in April, is trying to temper criticism of his West Bank settlement policy, while pushing allies for stronger sanctions against Iran. He meets French President Nicolas Sarkozy tomorrow in Paris.

We discussed “the necessity to give significant signals about freezing settlements that otherwise would represent an obstacle to peace,” Berlusconi said at a press conference with Netanyahu. He reiterated his call for a “Marshall plan” to rebuild the Palestinian territories and offered to host a new round of peace talks in Sicily.

Netanyahu said today that “we will not build new settlements, we will not expropriate more land for existing settlements,” while stopping short of a freeze on expanding them on existing land.

The premiere’s visit comes nine days after the Israeli leader mapped out his strategy for pursuing peace with the Palestinians, recognizing for the first time a two-state solution, while maintaining his refusal to stop construction in existing settlements. While the White House called the statement “an important” move, Europe’s reaction has been more muted.

‘Small Step’

“Prime Minister Netanyahu made a small step forward the other day when he mentioned the possibility of a state for the Palestinians, but obviously, significantly more needs to be done on that side,” Carl Bildt, the Swedish foreign minister who takes over the EU’s six-month presidency on July 1, said yesterday.

Given the reservations toward his policies, Netanyahu made a shrewd decision in picking the more friendly capitals of Rome and Paris for his visit, said Guy Harpaz, an assistant professor at Hebrew University’s department of international relations.

Netanyahu praised Berlusconi for his support of Israel and invited him to visit Jerusalem and address the Knesset, the nation’s parliament. Berlusconi said that the Palestinians must recognize Israel’s right to exist and that he supported the demilitarization of the Palestinian territories as part of a broader peace plan.

The EU has put an offer of closer trade ties on hold until Israel recommits to the peace road map drawn up by the U.S., the UN, the European Union and Russia, by taking steps that include a halt to settlement construction.

Trading Partners

“The upgrading, we will see how that moves forward,” Bildt said. “It will, of course, to some extent be dependent upon developments.”

Harpaz said Netanyahu “may face a lot of Euro-blah-blah and a lot of declaratory pressure, but I am not certain about the ability of Europe to link politics with the upgrading of relations.”

Europe is Israel’s chief foreign trade partner, with a volume of $40 billion in 2008, according to government figures. Exports to Europe made up 32 percent of a total of $3.7 billion in exports in May, the Central Bureau of Statistics said on June 18.

Netanyahu’s trip to Europe also comes amid continued unrest in Iran. Hundreds of thousands of Iranians have opposed the re- election of Mahmoud Ahmadinejad as president, engaging in the largest demonstrations since the Islamic Revolution that ousted the shah in 1979. At least 17 protesters have been killed in rioting, according to the government.

Courageous Demonstrators

Netanyahu said today that the Iranian government’s crackdown is exposing the leadership’s “true nature” and he praised the “courage demonstrated by the Iranian people.”

Eytan Gilboa, a political scientist from Bar Ilan University outside Tel Aviv, said Netanyahu would exploit his European visit to emphasize the need to stop Iran’s nuclear program before the country gains military capability.

“His argument will be, ‘how much can you expect from negotiations with a regime that rigged elections, is lying and cheating to the people and is cutting Iran off from the rest of the world,” Gilboa said in a telephone interview.

The U.S. and Israel suspect that Iran’s nuclear program is aimed at building an atomic bomb. Iran says the program is for peaceful means.

To contact the reporters on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net.

Last Updated: June 23, 2009 11:50 EDT