(Recasts with statement from EU states)

By David Brunnstrom

BRUSSELS, Dec 10 (Reuters) - The European Union joined the United States on Monday in expressing concern about new Israeli settlement activity, saying it could undermine U.S.-brokered peace efforts.

"The EU notes with concern that the Israeli Government has authorized the construction of 307 dwellings in the Har Homa settlement in east Jerusalem," the 27 EU states said in a statement issued as foreign ministers met in Brussels.

"The EU considers that this initiative might undermine ongoing efforts in the search for peace and confidence building between the parties, especially at this point in time."

In a rare criticism of Israel, U.S. Secretary of State Condoleezza Rice warned on Friday the settlement plan threatened the U.S.-backed effort to reach peace between Israelis and Palestinians launched last month at a conference in Annapolis.

Post-Annapolis peace talks are due to begin on Wednesday.

Under obligations contained in the 2003 "roadmap" framework for Middle East peace, Israel must cease settlement activity on occupied land.

"The EU urges Israel to honour the commitments under the Road Map and to avoid activities that could prejudge a final status agreement on Jerusalem or undermine progress towards this goal," the statement added.

Israel has said it does not consider the site, known as Jebel Abu Ghneim to Palestinians, as part of the West Bank territory the Palestinians want for a state.

Palestinian Prime Minister Salam Fayyad said after talks with EU External Relations Commissioner Benita Ferrero-Waldner in Brussels settlement activity was inconsistent with commitments made in Annapolis.

He said lifting movement restrictions and an ending to the blockade of the Gaza Strip were essential for economic progress.

Ferrero-Waldner said the European Union had joined the United States and the United Nations in seeking an explanation over Har Homa and also called on Israel to ease restrictions on access and movement for Palestinians.

"I look forward to hearing the reactions of the Israeli authorities," she said.

Fayyad praised the European Union's "steadfast" support for the Palestinians and said the Palestinian Authority would seek a total $5.6 billion assistance at a donors' conference next week in Paris to finance an economic development plan for 2008-10.

Ferrero-Waldner said the European Union, the largest aid donor to the Palestinians, would maintain a high level of commitment. She declined to provide a figure. (Editing by Paul Taylor)

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