RAMALLAH (Palestinian Territories) • United States President Donald Trump's swingeing cuts to aid for Palestinians will advance Israel's interests but risk compromising a US-led peace push and raise tensions in the Middle East, analysts and diplomats have said.

The US administration said last Friday that it would no longer provide any funding to the UN Relief and Works Agency for Palestine Refugees in the Near East (UNRWA), a week after cutting more than US$200 million (S$274 million) in separate aid to Palestinians.

Israeli Prime Minister Benjamin Netanyahu yesterday lauded the US decision, arguing that the body perpetuates the problem instead of solving it.

"The US has done a very important thing by halting the financing for the refugee perpetuation agency known as UNRWA," he said, adding that the money must be "used to genuinely help rehabilitate the refugees".

The aid 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. 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 the fact that Palestinians can pass refugee status to their children, and want the number of refugees covered by UNRWA to be sharply reduced.

The Palestinians accuse the US of blatant bias and of seeking 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.

Last 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.

The opening in May of the US embassy in the city triggered Palestinian protests that saw dozens of demonstrators in Gaza shot dead by Israeli forces.

A European diplomat last Saturday said that the US moves, taken in conjunction with Washington's pledge to veto any motions criticising Israel at the UN Security Council, were emboldening the Israeli government.

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.

Mr Alan Baker, a former Israeli diplomat-turned-analyst, said the aim of the aid cuts was also to force the Palestinians back to the negotiating table.

Mr 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.

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

Mr Hugh Lovatt, a policy fellow at the European Council on Foreign Relations, agreed. "If anything, the Palestinians will now double down on their current approach, which is to boycott the US administration and attack the yet-to-be unveiled US peace plan," he said.

UNRWA supports some five million registered Palestinian refugees and provides schooling to 526,000 children in the Palestinian territories as well as in camps in Lebanon, Syria and Jordan.

AGENCE FRANCE-PRESSE