The EU two-state policy concerning the Palestinian-Israeli conflict is failing, despite a half-century of strenuous EU efforts expending tens of billions of euros to implement it. The reality of policy failure is discomforting but must be acknowledged.Failure should provoke reflection: reasons need to be understood to avoid repeated mistakes and to construct a more successful policy for the future. The reasons for failure of the EU Two State Policy are serious but surprisingly obvious. At the base of the EU two-state policy lie 3 false assumptions of wishful thinking: the Palestinian-Israeli conflict is territorial and not existential; East Jerusalem and the West Bank legally belong to the Palestinians; and the establishment of a democratic Palestinian state at peace beside Israel is realistic and feasible.This report challenges these assumptions and makes recommendations for a new approach to enabling Palestinian autonomy, Israeli security and regional stability.Palestinian rights to self-determination must be respected, but they may not be allowed to conflict with the fair and non-discriminatory application of international law, nor be allowed to undermine Israeli sovereignty or regional stability. Peace will never be achieved through agendas aimed at destruction.The EU should focus on ensuring rejection of extremism and mutual acceptance; the fair and equal application of international law to all actors in the region; and strengthening institutions of government based on the rule of law. The authors of this report seek to stimulate vigorous debate on the EU approach to the Palestinian-Israeli conflict and a better way forward for Europes engagement in the Middle East.