An EU decision on whether to require labelling on all products imported from Jewish settlements in the occupied West Bank, east Jerusalem and Golan Heights is expected next week, media reported.
Speaking before a visit to Europe aimed at countering the move, Deputy Foreign Minister Tzipi Hotovely said any such ruling would undermine the chances of peace negotiations.
The two sides have not talked peace for more than 18 months.
"Our (European) friends will realise that at a time when terror is coming only from the Palestinian side, it is very clear this is not the way to promote coexistence," Hotovely said.
Nine Israelis, 68 Palestinians and an Arab Israeli have been killed in a wave of violence since the start of October.
Hotovely told reporters during a visit to the Barkan industrial zone near the West Bank settlement of Ariel that she would visit Spain, France and Germany this week in a last-ditch bid to convince the EU to drop the proposals.
Some members of the 28-member bloc are extremely frustrated at the lack of a peace process, as well as with Israel's continued policy of settlement expansion on territory occupied since 1967.
Such settlements are considered illegal under international law.
The European Commission has been working for months on implementing a plan first mooted in 2012. It is due to issue instructions to food and other industries, including potentially specifying the wording to be used on labels.
Israel calls any such move a boycott, while the EU insists it is merely providing customers with information.
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Hotovely, a member of Prime Minister Benjamin Netanyahu's right-wing Likud party, said she considered the settlements a part of Israel so there was "no difference" between labelling products from them and other areas.
"Labelling, it is very clear to say, is the pure boycotting of Israel," she said.
"There are over 200 territorial disputes around the world. We don't see Europe has the motivation to inform the consumer in Europe on the other 200 areas. Europe is singling out Israel," she later told AFP.
The EU declined to comment.
- 'Open the floodgates' -
Rashid Moghar, a Palestinian who heads an assembly unit at the factory where Hotovely spoke, said he was concerned Arab jobs could be lost.
"The workers in these factories, people just need to make a living. They hardly know anything about politics," he said.
Yossi Mekelberg, associate fellow for the Middle East at the Chatham House think tank, said labelling goods would only have a major effect if it were followed by more steps.
"There is a growing sense (in Europe) that something needs to be done. It is not a huge step... but it could open the floodgates to other proposals," he said.
Among the movements gaining in strength, he said, is the international boycott, divestment and sanctions campaign, which calls for a much wider boycott of Israel.
Asked whether the EU's decision could potentially push Israel's government to change course, Mekelberg said it was unlikely.
"Right now, their instinct is defiance, to blame someone else."