The upgrade, announced in June 2008 was put on hold because of the spot of bother Israel had with the natives in Gaza earlier this year. It was expected to continue when things had quietened down and the media had moved on. However, post-Obama and post-Nethanyahu, EU positions on Israel have apparently hardened. French Foreign Minister Bernard Kouchner criticised Nethanyahu's statement saying,
"Nothing was said on the settlements ... but this stopping of the settlements is essential," said Kouchner, who in an earlier statement rejected any pre-conditions to peace negotiations.
The full report can be found here: EU postpones upgrading ties with Israel
My take on this - even if Obama isn't doing much on Israel, the fact that the US is seen as not offering unconditional support to Likud might be allowing other former friends to sneak away.