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The Trump administration announced on Friday it would cease all funding of an agency that provides services to more than 5 million Palestinian refugees.

"By endorsing the most extreme Israeli narrative on all issues including the rights of more than 5 million Palestinian refugees, the USA administration has lost its status as peacemaker and is damaging not only an already volatile situation but the prospects for future peace in the Middle East", Zomlot said in a statement.

And in a major blow to the Palestinians earlier this year, President Trump officially recognized Jerusalem as the capital of Israel - a change long sought by Prime Minister Benjamin Netanyahu and much of the Israeli establishment. Several countries, including Jordan, Egypt, Sweden, Qatar, and the UAE have shown leadership in addressing this problem, but the overall global response has not been sufficient.

In her statement, Nauert said that the UNWRA's business model and fundamental practices were "unsustainable". In an email Kushner sent to the US President's Middle East peace envoy Jason Greenblat and other officials, he reportedly wrote that it was important "to have an honest and sincere effort to disrupt UNRWA".

A spokesman for UN Secretary General Antonio Guterres' office released a statement late Friday regretting the Trump administration's decision to cut UNRWA funding, saying the UN has appreciated years of U.S. support for the agency.

For over 70 years, UNRWA has funneled money to Palestinian organizations in various Middle Eastern countries, including Israel, Jordan, Syria and Lebanon. Palestinian officials have countered that the Trump administration has come up with "nothing of substance" in trying to end the decades-old conflict despite the USA president's stated confidence of securing what he calls "the ultimate deal".

The agency was founded in 1949 after the first Arab-Israeli war, in the wake of the exodus of around 700,000 refugees who fled or were driven out of Israel on its founding as a state.

Many Palestinians, however, say the USA is cutting the aid to pressure them into going along with the Trump administration's so-called "deal of the century" peace plan, and to strip the majority of Palestinians of their refugee status, erasing the issue of right of return altogether.

The "right of return" is one of the key core issues of dispute in the Israeli-Palestinian conflict.

The State Department said it would begin discussing new approaches for providing aid to Palestinian refugees with the United Nations, host governments and worldwide stakeholders.

UNRWA also slammed the U.S. decision, dismissing Nauert's characterization of the agency.

U.S. Ambassador to the U.N. Nikki Haley has advocated for cutting funding to the UNRWA, saying on Tuesday that Palestinians "continue to bash America". She called on Middle East nations to increase aid.

The move ends decades of United States funding for the agency and comes a week after the country slashed bilateral aid for projects in the West Bank and Gaza despite global concerns over deteriorating humanitarian conditions there. "They deserve to be able to plan for the future".

The US is stopping its funding for a United Nations organisation that helps Palestinian refugees, calling it an "irredeemably flawed operation".