Portugal says Israel undermining Palestinian state through settlement expansion

LISBON, Sept 14 (Reuters) - Portugal's foreign minister said on Monday that Israeli settlement expansion and economic pressure in the occupied West Bank and East Jerusalem were undermining prospects for a viable Palestinian state.

• Foreign Minister Paulo Rangel said Israel's E1 settlement plan was "extremely pernicious" because it would divide the West Bank, isolate East Jerusalem and was incompatible with a two-state solution.

• Israel's withholding of Palestinian tax revenues amounted to a "brutal strangulation" of the Palestinian Authority's finances, preventing the economy from functioning, he said after meeting Palestinian Foreign Minister Varsen Aghabekian Shahin in Lisbon.

• Rangel also cited the closure of Christian schools in East Jerusalem as evidence of worsening conditions there.

• Portugal recognised the State of Palestine a year ago.

• Rangel said the two-state solution was the only way to guarantee peaceful coexistence between Israelis and Palestinians.

• Israel said last week it was closing Britain's consulate in East Jerusalem in response to plans by the UK, France and Canada to block imports from Israeli settlements in the West Bank.

(Reporting by Sergio Goncalves; editing by Charlie Devereux and Ros Russell)