BERLIN -- The European Union Friday endorsed the creation of a Palestinian state by next year, a decision angrily denounced by Israeli Prime Minister Benjamin Netanyahu.

EU leaders seemed to be trying to compensate Palestinian leader Yasser Arafat for his apparent willingness to postpone a unilateral declaration of statehood in the West Bank and Gaza Strip beyond May 4, the end of the five-year period of Palestinian autonomy.At the end of a summit in Berlin, EU leaders issued a statement urging Israel to wrap up talks with the Palestinians on their status within a year.

The declaration appears to leave open the possibility that if a final Israeli-Palestinian peace agreement is not in place by then, the Europeans may recognize a unilaterally declared Palestinian state -- despite Israel's vehement objections.

Palestinians have an unqualified right to self-determination, "including the option of a state," the EU said.

The European bloc said it is "convinced the creation of a democratic, viable and peaceful sovereign Palestinian state on the basis of existing agreements and through negotiations would be the best guarantee of Israeli security."

The statement drew praise from Palestinian leaders, but Netanyahu said the EU seriously undercut its chances of ever becoming a Mideast mediator.

"The Europeans, on whose soil one-third of the Jewish people perished, now are telling Israel 'accept the solution that you oppose and that we say you should have by the year 2000,"' he told reporters during a meeting in Jerusalem Friday with European conservative leaders.

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