The US is UNWRA's largest donor, supplying nearly 30 percent of its budget.
Washington: The Trump administration has cut tens of millions of dollars in money for Palestinian refugees, demanding that the UN agency responsible for the programs
undertake a "fundamental re-examination," the State Department said.
In a letter on Tuesday, the State Department notified the UN Relief and Works Agency that the US is withholding USD 65 million of a planned USD 125 million funding installment to the body. The letter also makes clear that additional US donations will be contingent on major changes by UNRWA, which has been heavily criticized by Israel.
"We would like to see some reforms be made," said State Department spokeswoman Heather Nauert, adding that changes are needed both to the way the agency operates and is funded.
"This is not aimed at punishing anyone."
The State Department said it was releasing the rest of the installment -- USD 60 million -- to prevent the agency from running out of cash by the end of the month and closing
The US is UNWRA's largest donor, supplying nearly 30 percent of its budget. The agency focuses on providing health care, education and social services to Palestinians in the West Bank, Gaza Strip, Jordan, Syria and Lebanon.
Hundreds of thousands of Palestinians either 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.
The US donated USD 355 million to UNWRA in 2016 and was set to make a similar contribution in this year; the first installment was to have sent this month. But after a highly critical January 2 tweet from Trump on aid to the Palestinians, the State Department opted to wait for a formal policy decision before sending its first installment.
Trump's tweet expressed frustration over the lack of progress in his attempts to broker peace between Israel and the Palestinians, and he pointed the finger at the
"We pay the Palestinians HUNDREDS OF MILLIONS OF DOLLARS a year and get no appreciation or respect," he said. "But with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?"
Israelis accuse the UN agency of contributing to Palestinian militancy and allowing its facilities to be used by militants. They also complain that some of UNRWA's staff are biased against Israel.
Nauert said the United States believes there need to be more "burden-sharing," a regular Trump complaint about multilateral organizations dependent on significant
contributions of US cash.
"We don't believe that taking care of other nations and other people have to be solely the United States' responsibility," she said.
The US plan to withhold some, but not all, of the money was backed by Secretary of State Rex Tillerson and Defense Secretary James Mattis, who offered it as a compromise to demands for more drastic measures by UN Ambassador Nikki Haley, officials said.
Haley wanted a complete cutoff in US money until the Palestinians resumed peace talks with Israel that have been frozen for years. But Tillerson, Mattis and others argued that
ending all assistance would exacerbate instability in the Mideast, notably in Jordan, a host to hundreds of thousands of Palestinian refugees and a crucial US strategic partner.
Eliminating or sharply reducing the US contribution could hamstring the agency and severely curtail its work, putting great pressure on Jordan and Lebanon as well as the
Palestinian Authority. Gaza would be particularly hard hit.
Some officials, including Israelis, warn that it might push people closer to the militant Hamas movement, which controls Gaza.