We are developing a Web application consisting of two Eclipse projects. One project is an HTTP-based RESTful Web service; the other project is a Web site. Both
Separation of concerns
Actually creating a third project and adding project dependencies is the best way, because Separation of concerns isn't only a principle for classes but also for software modules. It creates some advantages:
Project Structure
Make sure you're not creating one big "utility" project, but rather domain-specific projects, like user management or addressbook.
In your case, it could be
Other Build Systems
When moving to continuous integration you'll need to use a better build system than Eclipse, but the principles are the same. You'll create small modules with minimal dependencies.
The most popular Build Systems for Java projects are Maven, Ant and Gradle. Each has its own way to define module dependencies.
Project references in Eclipse
To tell Eclipse about project dependencies, right click on the project, open the properties and switch to the project references. Here you could mark dependencies, so that code changes will take effect immediately without copying a JAR file manually.