Leaders of the 25-member European Union have gathered in Brussels for a two-day summit that has exposed bitter divisions within the bloc over its long-term budget. The dispute, pitting Britain on one side and France and Poland on the other, threatens to deepen the crisis of confidence that has shaken the union since French and Dutch voters rejected the EU's proposed constitution earlier this year.

Britain, ending its turn at the rotating EU presidency, finds itself cornered between the demands of its EU partners that it give up its lucrative annual rebate from the bloc's coffers and political pressure at home from Euro-skeptical politicians and the news media that it fight to keep the refund.

The rebate was negotiated nearly 20 years ago by former Prime Minister Margaret Thatcher, when Britain was one of the poorest EU members.

Now, however, it is one of the richest, and although Prime Minister Tony Blair has offered to reduce the size of the rebate as of the year 2007, he is demanding that the EU agree to review its overall spending, including the bloc's farm subsidies that make up 40 percent of the union's budget.

That idea is anathema to France, the main beneficiary of the farm subsidies, and an EU summit six months ago broke down because neither Britain nor France was willing to compromise.

The French say it would be wrong to renegotiate the farm subsidy program because all members, including Britain, agreed only two years ago to a revised agricultural policy that is supposed to be in force until 2013.

The British have proposed making cuts to their rebate but, with the French holding firm on farm subsidies, the reductions would come at the expense of the new, mostly former communist states that joined the union last year. They would see less money available in the budget for the agricultural and infrastructure aid they need to bring their level of development up to that of their richer, western partners.

Poland has joined France in criticizing the British proposal as unacceptable. And Jose Manuel Barroso, the head of the European Commission, says that, if the bloc cannot agree on a budget, the union's credibility will be affected.

"The lack of an agreement between the member states will send a very negative message to the citizens and, also, to our partners in the world," he said. "The message will be that Europe is deadlocked and it cannot make progress even if the challenges are clearly defined."

Those challenges include high unemployment, slow economic growth, a declining birthrate and fears of globalization. But with public opinion in Britain skeptical about further European integration, Foreign Secretary Jack Straw signaled that his country prefers no deal to one that it believes is not in its national interest.

"Budget negotiations have never been easy," he said. "We in the United Kingdom are working extremely hard for a deal this time, but I'm clear that no deal is preferable to a bad one."

Failure to clinch an agreement on long-term spending at this summit would mean the EU will have to work out its budget each year. It would also delay urgently awaited investment in development projects in eastern Europe and isolate Britain within the union.