The cuts come as the international community seeks to reach an agreement to deliver significant humanitarian aid to the poverty-stricken Gaza Strip, where most residents rely on external handouts.

The US has long been the largest single donor to UNRWA, providing more than US$350 million a year. At the same time, Washington gives billions of dollars to Israel in aid.

The agency provides support to Palestinians who fled their homes in the 1948 war surrounding the creation of Israel, as well as their descendants.

Israel and the US object to Palestinians passing their refugee status onto their children, and want the number of refugees covered by UNRWA to be reduced.

The Palestinians accuse the US of blatant bias and of trying to strip them of their rights.

A week earlier, the US government ended Palestinian funding by USAID, which amounted to more than US$200 million a year.

In December, the US recognised Jerusalem as Israel’s capital, breaking decades of international consensus that the status of the disputed city should be negotiated between Israelis and Palestinians.

Palestinians freeze ties with Israel after violent clashes over shrine in Jerusalem

The May opening of the US embassy in the city, which coincided with the 50th anniversary of the creation of Israel, triggered Palestinian protests that saw dozens of demonstrators in Gaza shot dead by Israeli soldiers.

A European diplomat said on Saturday the US moves, taken in conjunction with an American pledge to veto any motions criticising Israel at the UN Security Council, were emboldening Israel’s government, considered the most right-wing in the country’s history.

Israel is increasingly convinced it has a free hand to accelerate settlement growth and even advocate for annexing parts of the West Bank, the diplomat said.

‘No innocent people in Gaza’: Israeli Defence Minister Avigdor Lieberman defends soldiers after clashes left 30 Palestinians dead

Trump’s team, led by his son-in-law Jared Kushner and Middle East envoy Jason Greenblatt, has been pushing for what the US leader has called the “ultimate deal”, but the Palestinians have boycotted his administration since its Jerusalem announcement.

The cuts mean the US is providing very little aid to Palestinians, and another European diplomat said the move weakened Trump’s hand.

“When you have no money left to threaten them with, you have reduced your leverage,” he said.

Palestinian economist Nasser Abdel Kareem said the cuts would hurt Palestinians but have little impact on the government.

The cut “will not harm the treasury of the Palestinian Authority,” Kareem said.

‘Making Israel great’: security tight as Trump’s transfer of US embassy to Jerusalem begins

Nadia Hijab, president of Palestinian think tank Al-Shabaka, said returning to negotiations would be extremely unpopular among Palestinians.

But she fears that with full US support, Israel will have free reign to increase settlement growth.

“If the PA goes back and talks to the Americans it is giving them a green light to do whatever they want to do, and if they don’t go back, they are going to do what they want to do,” she said. “At the moment it is a lose-lose situation.”

Hijab and many Palestinians do not believe the US is trying to get the Palestinian leadership back to the table.

Instead, she said, they believe the US is trying to help Israel “end the conflict on its terms and legalise its occupation”.

Israel-made hacking tools come under the microscope in lawsuits

That would mean stripping refugees across the region of their rights, specifically the idea they could one day return to historic Palestine.

In both Jordan and Lebanon, Palestinian refugees have fewer rights than citizens and rely on UNRWA services for education, health care and other basic services.

Thousands join rally against Israel’s ‘Jewish state’ bill

In Gaza, run by the Islamist movement Hamas, most of the 2 million residents are refugees, meaning the UNRWA cuts will hit particularly hard.

Job losses for a few hundred of the agency’s staff have already sparked major protests.

The Gaza Strip suffers from desperate poverty and is largely sealed off by both Israel and its other land neighbour, Egypt, which also receives billions in US military aid.