It comes as US President Donald Trump and his Middle East pointmen, Jared Kushner and Jason Greenblatt, prepare for the roll-out of a much-vaunted but as yet unclear peace plan for Israel and the Palestinians, and it could intensify Palestinian suspicions that Washington is using the humanitarian funding as leverage.

The Palestinian leadership has been openly hostile to any proposal from the administration, citing what it says is a pro-Israel bias, notably after Trump recognised Jerusalem as Israel’s capital in December and moved the US embassy there from Tel Aviv in May.

The Palestinian Authority broke off contact with the US after the Jerusalem announcement.

In 2016, the US donated US$355 million to the UNRWA, which provides health care, education and social services to Palestinians in the West Bank, Gaza Strip, Jordan, Syria and Lebanon, and it was set to make a similar contribution this year.

In January the Trump administration released US$60 million in funds but withheld a further US$65 million it had been due to provide. The remaining amount – around US$290 million – had yet to be allocated.

“When we made a US contribution of US$60 million in January, we made it clear that the United States was no longer willing to shoulder the very disproportionate share of the burden of UNRWA’s costs that we had assumed for many years,” the statement said.

“Several countries, including Jordan, Egypt, Sweden, Qatar, and the UAE (United Arab Emirates) have shown leadership in addressing this problem, but the overall international response has not been sufficient.”

The statement criticised the “fundamental business model and fiscal practices” of UNRWA, and what the department characterised as the “endlessly and exponentially expanding community of entitled beneficiaries”.

Hundreds of thousands of Palestinians fled or were forced from their homes during the war that led to Israel’s establishment in 1948.

Today, there are an estimated 5 million refugees and their descendants, mostly scattered across the region – a figure that has become a point of contention. Palestinian leaders assert the right of those refugees to return to land now under Israeli control.

Last Friday, the State Department announced the US was cutting more than US$200 million in bilateral aid to the Palestinians, following a review of the funding for projects in the West Bank and Gaza.

Palestinian President Mahmoud Abbas’ spokesman called that US decision an attempt to force the Palestinians to abandon their claim to Jerusalem.

Speaking before the announcement on UNRWA, its representative in Washington, Elizabeth Campbell, said the withdrawal of US funding would leave the agency facing a financial crisis, but noted that Saudi Arabia, Qatar, the United Arab Emirates and others have provided more than US$200 million in new funding to help cover its budget this year.

In recent days, senior Trump administration officials publicly expressed dissatisfaction with UNRWA but stopped short of saying the US would defund the agency.

On Tuesday, Nikki Haley, the US ambassador to the United Nations, complained that “Palestinians continue to bash America” although it is the main donor for UNRWA.

Speaking at the Foundation for Defence of Democracies think tank, Haley also said, “we have to look at right of return” of those classified as Palestinian refugees. She called on Middle East nations to increase aid.

There is deepening international concern over deteriorating humanitarian conditions in the West Bank and Gaza.

The State Department statement said the US will intensify dialogue with the United Nations, host governments and international stakeholders about new models and new approaches to help Palestinians, especially schoolchildren, which may include direct bilateral assistance from the US and others.