The government said in a statement it would continue negotiations with the EU and called on the bloc to approve the accord at its General Affairs Council in Luxembourg on June 12.

The accord, the first upgrade of the original trade accord signed in 1975, comes at a time when Israel is struggling to narrow its trade deficit.

Israel has a $7.8 billion deficit with the EU, its largest trading partners.

Israel urged the EU to take measures to correct the trade imbalance and laid out several conditions for approving the accord.

One of its main demands is that the EU grant it observer status at committee meetings that determine outlays for research and development -- a demand that Trade Commissioner Manuel Marin said last week had already been granted.

Israel said it would continue negotiations relating to European government tenders, particularly in telecommunications. Israel wants permission for its companies to participatein such tenders.

Israel will also continue negotiations on import tariffs levied on its agricultural products and said it agreed to consider EU demands that it further open its markets to EU agricultural products.

The final Israeli demand relates to "outward processing traffic", which refers to European products manufactured outside of the EU using Israeli inputs. Israel said these goods should be given preferential treatment in EU markets.