Britain is preparing to announce one of the most significant UK foreign policy interventions in Israel and the occupied West Bank, with sanctions against businesses and settlers linked to illegal Israeli settlements.

Foreign Secretary Ed Miliband is expected to set out measures designed to protect the viability of a future Palestinian state and deter Israel’s advanced settlement plans, including the sensitive E1 area next to Jersusalem.

While Labour MPs and other figures have told The National that they welcome the step, it is clear that it will lead to a further decline in diplomatic ties with Israel and potentially antagonise the White House

“There has been a significant hardening of the view towards Israel in parliament in general, and the parliamentary Labour Party specifically,” said Labour MP John Slinger, who previously worked in Middle East communications.

“The actions of the settlers and of the Israeli government haven’t done anything to change that. If anything, recent actions have just made it more likely that parliament will be even more resolute.”

In his view, the moral argument now outweighs the looming diplomatic consequences. “There comes a point in international affairs where you’ve got to do what’s right morally and accept that there could be consequences.”

But the sanctions must be carefully “calibrated”, he added. “There is legitimate trade with Israel, and we don’t want to penalise British businesses. But if we allow this government, which contains extremists, to dictate the future of the region, it impacts on the whole world. So it’s in the national security interest for the UK as well.”

Tom Tugendhat, the Conservative shadow foreign secretary, has warned of the importance of British-Israeli intelligence co-operation in preventing terrorist attacks.

However, Richard Pater, director of the British-Israeli BICOM think tank, believes that the intelligence relationship should survive the political dispute. “It’s clearly in both sides’ interest to maintain intelligence sharing, and the ideal scenario would be that the professional echelon remains beyond the boundaries of a political spat.”

There is also a question about whether sanctions will actually work. “They’re a blunt instrument, and they make noise, but I don’t think they will curb the most difficult and challenging behaviour,” Mr Pater added.

He also warned that they could provide ammunition to Israel’s hard right. “It’s not inconceivable that right-wing parties can seize upon this and say, ‘Look how the world is against us.’”

Charlotte Leslie, director of the Conservative Middle East Council, argued that the political message matters more. “Sanctions will have some material impact, but I doubt it will be felt very much in the settlements themselves. The value of this is really more in what it says about Britain’s treatment of the rule of law.”

She called the move “good” and “long overdue”, and said that Britain has lost trust in the region by appearing weak on international law. “I think it’s a really good thing for the perception of the UK among Arab states,” she says. “It will go some way to reassure them that Andy Burnham will take bold moves on the global stage.”

With the sanctions looming, the US ambassador to Israel, Mike Huckabee, has accused Britain of “Jew hate”, prompting a sharp response from the UK.

The question now is whether the new government of Andy Burnham will be willing to stick to its principles, appease his backbenchers and go hard on the illegal settlements while risking rupture with Israel and opprobrium from the US.