That decision* was a subject for concern, scorn and/or applause for quite some time, so I wouldn't waste your time on deriding (or lauding, deity forbid) the infinite wisdom of EU officials, blessed be their jobs. If you want to find this or other material on the subject - happy googling.
I am glad to introduce a less routine response that - verily life is full of surprises - comes from a Russian social site ВКонтакте ("In touch" - a Russian version of Facebook) and many other Russian sites. The author, Alexandr Lisovsky, is apparently located in Israel, though. So here it goes:
Regarding the marking by EU of products produced by Jews in Jerusalem, Judea, Samaria and Golan Heights: below is shown an example of a product produced by Jewish settlers in Bethlehem, Judea.
(*) Especially this part of that text:
Since the Golan Heights and the West Bank (including East Jerusalem) are not part of the Israeli territory according to international law, the indication ‘product from Israel’ is considered to be incorrect and misleading in the sense of the referenced legislation.