By Agence France-Presse
Israel and the United States have accused the nearly 70-year-old agency of maintaining the idea that many Palestinians are refugees with a right to return to the homes from which they fled or were expelled during the 1948 war that accompanied Israel's creation, an idea they both oppose.
On Friday, Washington, which until last year was by far the agency's biggest contributor announced it was ending funding to the "irredeemably flawed operation."
"Israel supports the US move," an official in Prime Minister Benjamin Netanyahu's office said on condition of anonymity.
"Consolidating the refugee status of Palestinians is one of the problems that perpetuates the conflict."
Palestinian ambassador Hossam Zomlot accused the United States of "reneging on its international commitment and responsibility" towards a body that was set by UN General Assembly resolution in 1949.
"By endorsing the most extreme Israeli narrative on all issues including the rights of more than five million Palestinian refugees, the US administration has lost its status as peacemaker and is damaging not only an already volatile situation but the prospects for future peace," he said.
UNRWA now 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.
UN Secretary General Antonio Guterres said the agency had his "full confidence" and called on "other countries to help fill the remaining financial gap, so that UNRWA can continue to provide this vital assistance."
UNRWA spokesman Chris Gunness tweeted: "We reject in the strongest possible terms the criticism that UNRWA's schools, health centres and emergency assistance programmes are 'irredeemably flawed.'"
Washington, which had already frozen $300 million in funding this year throwing the agency into financial crisis, said it would seek ways to prevent its decision from hurting "innocent Palestinians".
Israel expressed support for a new conduit for humanitarian assistance to the Palestinians.
"It would be good to allocate the funds to other elements that would use the money properly for the benefit of the population, and not for perpetuating the notion that they are refugees," the official in Netanyahu's office said.