The Church of Scotland is preparing to discuss "economic leverage" to halt the continued expansion of Israel which could threaten the Kirk’s support for the two state solution.

Jewish leaders said they are "puzzled and concerned" by a report going before the forthcoming Church of Scotland General Assembly attacking "the increased expansion of settlements which are illegal under international law and an obstacle to peace".

The Assembly will be asked to approve "a strategic review" of the Kirk’s considerable assets in the region to examine "the most effective use…in the pursuit of a just peace in Israel/ Palestine".

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The report states: "The Palestinian Christian community has asked us to consider how we might creatively resist the occupation of Palestinian territory and yet the Church of Scotland has not yet considered fully the primary way in which they have suggested we do this: through the means of economic leverage."

The report discusses the complexities of a boycott on Israeli goods, warning that it could also harm the Palestinian economy and Israeli pacifists.

But it notes that the the Assembly "has already endorsed the principle that the money of the Church, and its members, should reflect its mission" with its South African boycott during apartheid, and its promotion of fair trade and disinvestment from fossil fuels.

It adds: "There is a widespread view that the ongoing illegal settlement expansion is making any talk of a two state solution almost impossible…if this trajectory continues then the time may come for the Church to reconsider its support for the two state solution, exploring other pragmatic approaches that might help to ensure the human rights of all in Israel/Palestine."

The Kirk has had a presence in the region since the 1830s, and its assets now include St Andrew’s Scots Memorial Church and Scots Guesthouse in Jerusalem, St Andrew’s Church and Scots Hotel in Tiberias, and Tabeetha School in Jaffa.

The review coincides with the centenary of the Balfour Declaration, the British government’s controversial declaration of support for a Jewish home in Palestine in 1917.

The Kirk is preparing for the centenary in November with trepidation and will write to the Scottish and UK governments insisting public commemorations should be conducted “sensitively, and always in the context for calling for peace and justice”.

The modern Kirk has also distanced itself from its early 20th Century parishioners — including the evangelical foreign secretary and former prime minister Arthur Balfour who signed the document — and their belief that the return of the Jews to Israel was “the fulfilment of the promises of the Old Testament prophets”.

A Church of Scotland spokesman said the Jewish community in Scotland and Jerusalem contributed to the report but noted "there are clearly things that are seen differently".

He said: “The report does not move away from the long standing Church of Scotland position of supporting a two-state solution, but it does highlight that the increase of settlements on Palestinian land, illegal under international humanitarian law, makes that solution increasingly unrealistic.

“The Church of Scotland has not endorsed economic leverage."

He noted that the report highlights the complexities and divisions over the use of economic leverage to inform discussion at the Assembly.

“The report seeks to help the Church as a whole to hear all perspectives, to better understand the issues, and to come to its own mind," he said.

“It does not commit the church to a particular side or outcome."