Wrapping up a two-day summit, leaders remained sharply divided on how the EU should deal with its twin crises of the constitutional treaty and promises for further expansion. Leaders merely agreed to continue debate on the constitution -- something they have done for the past year with no evident success. They vowed a final decision on the treaty's fate by the end of 2008.

"We need more time to reflect," said French President Jacques Chirac whose country, along with the Netherlands, rejected the constitution in a referendum last year, putting the document effectively on ice.

All 25 EU members must approve the treaty for it to enter into force. Some countries, such as Germany, want to ram through as much of the text as possible, despite the French and Dutch "no" votes.

But the Dutch government insists the constitution be cut back, reduced in scope and renamed as a mere treaty so it can be put up for a vote in their parliament rather than face another referendum. In any case, no progress is expected on the constitution until after French and Dutch elections in mid-2007.

New enlargement criteria

Turning to enlargement, EU leaders raised hurdles for future applicants by setting new criteria for enlargement: the ability of present member states to absorb any new members which are mainly poorer nations from the western Balkans.

In the past, admission terms were more straightforward and mainly based on applicants conforming to EU laws, rights and norms. This led to the 2004 "big bang" expansion of the bloc to include 10 new states, mainly from former communist eastern Europe. But reacting to a public backlash against fast-track expansion, governments have been losing enthusiasm for taking in further members.

"It is two sides of the same coin.... The candidate must be ready to take all obligations but the Union must be ready to integrate new member states," said Austrian Chancellor Wolfgang Schüssel.

While saying small Balkans states like Croatia had good prospects for joining the EU, Schüssel and German Chancellor Angela Merkel said entry for a country as big as Turkey would be more problematic.

"Turkish membership is a huge challenge. This is obvious," said European Commission President Jose Manuel Barroso.

Swedish Prime Minister Goran Persson, while signing up for the still-to-be-defined principle of "absorption capacity," insisted it must not be used as an excuse to keep out new members.

Euro comes to Slovenia

In other business, EU leaders approved Slovenia joining the euro single currency zone on Jan.1, 2007. The move was hailed by leaders as a "significant and extremely positive step forward" in Europe's monetary integration.

They also confirmed the rejection of Lithuania's bid to join the euro zone next year due to its overshooting inflation targets. Several eastern European states, including the Czech Republic, Hungary, Poland and Slovakia, expressed their anger over the rejection.

Together with Lithuania, they called for a "discussion on the interpretation of the price stability criterion in order to better reflect the economic dynamics of the enlarged European Union."

Palestinian aid package approved

Leaders also endorsed a substantial aid package for the cash-strapped Palestinians, to be paid via a new funding mechanism set to become operational next month.

EU officials said they expected the other members of the Middle East diplomatic quartet -- the United Nations, the United States and Russia -- to also approve the mechanism in coming days.

"We are very close to an agreement," EU External Affairs Commissioner Benita Ferrero-Waldner told reporters as she arrived at a summit of EU leaders in Brussels.

The EU commission has been trying to design a mechanism that would funnel much-needed funds to Palestinians without the money going to the Hamas-led government, which refuses to renounce violence or recognize Israel. The EU package is worth an estimated 100 million euros ($126 million).