Citing diplomatic sources in Jerusalem, Israel's top-selling daily said the plan was intended to "bring about the establishment of a Palestinian state on the basis of the 1967 lines with east Jerusalem as its capital."
The plan will include "clear timetables for the completion of the negotiations on all the core issues in the course of 2013."
The newspaper said the plan is expected to be presented around March, to give time for the formation of a new Israeli government after the general election on January 22.
The newspaper said the plan "apparently will also include a demand to freeze all construction in the settlements."
The report said the British and French foreign ministries are sponsoring the initiative, which is also backed by Germany and could be adopted by the full EU.
"There's a lot in the works behind the scenes," the newspaper quoted high-ranking Israeli political officials as saying.
"The Europeans don't have the capability to force an agreement on us, but they definitely may embarrass us," they added.
"It is reasonable to assume that the Palestinians will accept a document of that sort, but Israel will be hard put to do so. That's going to paint us into a corner."
Observers have long speculated that the international community would renew its efforts to restart direct peace talks, on hold since late September 2010, after the Israeli election.
And on Saturday, Israeli opposition candidate and former foreign minister Tzipi Livni appeared to allude to the potential EU plan, warning that "in March the world will put a peace plan on the table."
"Either we can have it imposed upon us or we can initiate a plan of our own," she said.
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