The question of punishing illegal settlements in occupied Palestinian territory was considered separately in Europe and Israel last week, with only superficial differences in the conclusions reached. Israel’s near half-century occupation is in no immediate danger, either at home or abroad.

Some 16 European foreign ministers sent a letter to the European Union’s foreign affairs chief Federica Mogherini, calling for the EU to label clearly Israeli products from settlements to alert shoppers to their true provenance.

Yair Lapid, Israel’s former finance minister and widely regarded as a moderate, angrily phoned Ms Mogherini to warn that major European states were calling for a “de facto boycott of Israel”. He described the letter as “a stain” on the EU, adding that Israel’s economy could face “disaster”.

EU foreign ministers were no less persuaded of the punitive nature of their proposal. Labelling settlements goods would, they wrote, be “an important step in the full implementation of EU long-standing policy” and vital to preserving the two-state solution.

In truth, however, the letter simply continues Europe’s feeble and muddle-headed policy in the face of Israel’s intensifying efforts to entrench the occupation.

After years of internal debates, only a small majority of the 27 EU states have been able to agree on the most ineffectual measure imaginable against products made on land and using resources stolen from the occupied Palestinian population.

Labelling might give conscientious consumers useful information to target settlement goods but, in the unlikely event that a significant number of shoppers chose to act, it would barely dent Israel’s economy.

In fact, even if the EU went much further and agreed to enforce a full-fledged boycott of the settlements – something that’s not on its agenda – it would have little more than a psychological impact.

The reason is that, while on the one hand the EU ponders symbolic gestures against the settlements, it actively subsidises the very state that has been expanding the settlements for almost 50 years.

It does so both through a special trade agreement that makes Europe Israel’s largest export market, and by handing over large sums of aid annually to the Palestinian Authority, which maintains order in the occupied territories on Israel’s behalf.

The pressing need for Europe to show some backbone was underscored last week when Israel’s supreme court considered the question of boycotts.

Israeli human rights groups had petitioned the country’s highest court, long considered a lone outpost of moderation, over a controversial law passed four years ago. The law imposes heavy damages on any Israeli individual or organisation that calls for a boycott of either Israel or the settlements.

The Israeli right’s goal in passing the legislation was clear: to silence internal critics of the occupation, especially those who have backed growing international calls for Israel to face BDS (boycott, divestment, sanctions). A similar campaign of isolation turned the tide against Apartheid South Africa.

However, by a narrow majority, the court backed the law. Several judges described calls for boycott as “political terror”; one said BDS stood for “bigoted, dishonest, shameful”. Observers were surprised that the court refused to make a distinction between boycotting Israel and the settlements. Effectively, the judges kosher-stamped the occupation, equating a non-violent political protest against the settlements with “terror”.

Lara Friedman of Americans for Peace Now observed that in doing so the court had codified Israel’s “de facto annexation” of the West Bank. In practice, the ruling will bar Israelis from showing any solidarity with Palestinians living under oppression. As the Israeli paper Haaretz noted, lobbying to stop theatre companies and musicians from performing in the large settlement of Ariel, in the heart of the West Bank, is now effectively outlawed with the court’s approval.

Uri Avnery, leader of the small Israeli peace group Gush Shalom, which for many years has called unsuccessfully on the EU to boycott settlement products, claimed at the weekend that the ruling proved the judges were simply “afraid” of the growing power of the right.

Without a supreme court prepared to back basic civil rights like free speech, the Israeli right’s hold is unchallenged. Israeli commentator Gideon Levy lamented on Sunday: “We’re about to get our most nationalist government – and there is no one to stop its laws.”

The court’s ruling only highlighted the EU’s shameful cowardice in failing to confront Israel. It is precisely as Israeli political institutions – from Benjamin Netanyahu’s government to the judiciary – make common cause with the settlements that Europe needs to find its voice.

The few Israelis prepared to break out of the domestic consensus and stand up for Palestinian rights to dignity and justice need all the help they can get. Not least they need the solidarity of European governments, which should be joining them in calling for harsh – not paltry – penalties against Israel.