A row about how to name the Israeli-occupied Palestinian territories has scuppered a 43-nation scheme for managing Mediterranean water resources.
The Mediterranean Union conference in Barcelona had hammered out 99% of a draft text, delegates said.
But the deal failed when Israel and Arab countries disagreed over how to describe the Palestinian territories.
Israel objected to "occupied territories", while "territories under occupation" did not suit the Arab bloc.
The United Nations has warned that almost 300 million people in the Mediterranean region will face water shortages by 2025.
The Mediterranean Union was launched by France during its EU presidency in 2008, to foster co-operation between European states, and countries in the Middle East and North Africa bordering the Mediterranean.
In Barcelona on Tuesday the Union's secretary-general, Ahmad Masadeh from Jordan, called for urgent action to guarantee access to water for all the region's residents.
Spain, the conference host, warned that the Mediterranean was prone to cyclical floods and droughts that required a "common strategy for a scarce resource".
Palestinians in the West Bank, including East Jerusalem, have lived under Israeli occupation since 1967. The settlements that Israel has built in the West Bank are home to around 400,000 people and are deemed to be illegal under international law, although Israel disputes this.
Israel evacuated its settlers from the Gaza Strip in 2005 and withdrew its forces, but Israel and Egypt maintain an economic blockade on the Palestinians living there.
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