Palestinian children walk outside of the United Nations
PHOTO: JAAFAR ASHTIYEH/AFP/AFP/Getty Images
Palestinian children walk outside of the United Nations' school in the Askar refugee camp, near Nablus in the Israeli occupied West Bank, on January 17, 2018 after the White House froze tens of millions of dollars in contributions. The agency provides Palestinian refugees and their descendants across the Middle East with services including schools and medical care, but Prime Minister Benjamin Netanyahu has long accused it of hostility toward Israel and called for its closure. / AFP PHOTO / JAAFAR ASHTIYEH (Photo credit should read JAAFAR ASHTIYEH/AFP/Getty Images)
Now playing
00:54
What UNRWA does, and why it matters
TOPSHOT - Palestinian protesters pull a metal cable as they try to take down a section of barbed wire during clashes with Israeli forces on April 20, 2018, east of Khan Yunis, in the southern Gaza Strip during mass protests along the border of the Palestinian enclave, dubbed "The Great March of Return," which has the backing of Gaza
PHOTO: SAID KHATIB/AFP/AFP/Getty Images
TOPSHOT - Palestinian protesters pull a metal cable as they try to take down a section of barbed wire during clashes with Israeli forces on April 20, 2018, east of Khan Yunis, in the southern Gaza Strip during mass protests along the border of the Palestinian enclave, dubbed "The Great March of Return," which has the backing of Gaza's Islamist rulers Hamas. (Photo by SAID KHATIB / AFP) (Photo credit should read SAID KHATIB/AFP/Getty Images)
Now playing
02:11
The history of Gaza in 2 minutes
dpatop - Palestinian protesters use slingshots to hurl stones towards Israeli security forces during clashes along the Israel-Gaza border, on the 70th anniversary of Nakba Day (Day of the Catastrophe), which marks the displacement that preceded and followed the Israeli Declaration of Independence in 1948, in Khan Yunis, Southern Gaza Strip, 14 May 2018. Photo by: Wissam Nassar/picture-alliance/dpa/AP Images
PHOTO: Wissam Nassar/picture-alliance/dpa/AP Images
dpatop - Palestinian protesters use slingshots to hurl stones towards Israeli security forces during clashes along the Israel-Gaza border, on the 70th anniversary of Nakba Day (Day of the Catastrophe), which marks the displacement that preceded and followed the Israeli Declaration of Independence in 1948, in Khan Yunis, Southern Gaza Strip, 14 May 2018. Photo by: Wissam Nassar/picture-alliance/dpa/AP Images
Now playing
02:06
What sparked the latest Palestinian protests?
An injured Palestinian woman is carried by protesters as they run for cover during clashes with Israeli security forces following a demonstration commemorating Land Day near the border with Israel, east of Khan Yunis, in the southern Gaza Strip on March 30, 2018.
Clashes erupted as thousands of Gazans marched near the Israeli border in a major protest dubbed "The Great March of Return". / AFP PHOTO / SAID KHATIB        (Photo credit should read SAID KHATIB/AFP/Getty Images)
PHOTO: SAID KHATIB/AFP/AFP/Getty Images
An injured Palestinian woman is carried by protesters as they run for cover during clashes with Israeli security forces following a demonstration commemorating Land Day near the border with Israel, east of Khan Yunis, in the southern Gaza Strip on March 30, 2018. Clashes erupted as thousands of Gazans marched near the Israeli border in a major protest dubbed "The Great March of Return". / AFP PHOTO / SAID KHATIB (Photo credit should read SAID KHATIB/AFP/Getty Images)
Now playing
02:21
Palestinians: Over a dozen killed in protests
PHOTO: Abid Katib/OREL COHEN/AFP/Getty Images
Now playing
00:51
What's the Israeli-Palestinian two-state solution?
PHOTO: UNTV
Now playing
01:31
Haley to Abbas: US embassy decision is final
PHOTO: CNN
Now playing
07:22
Spokesman: Deliberate violence in Gaza
jerusalem palestine shuafat refugee camp liebermann pkg_00010911.jpg
jerusalem palestine shuafat refugee camp liebermann pkg_00010911.jpg
Now playing
02:00
Refugee camp island of isolation in Jerusalem
Now playing
02:36
Trump: Good chance for Middle East peace
A picture shows the skyline of Jerusalem with the Dome of the Rock mosque, at the Al-Aqsa mosque compound in the city?s old city, where thousands of Muslim pilgrims crowded for the first Friday noon prayer of Ramadan on September 5, 2008. Israel beefed up its police deployments in Jerusalem as tens of thousands of Muslim faithful were expected to attend the first Friday prayers of Ramadan at the Al-Aqsa mosque compound in the Old City. AFP PHOTO/MARCO LONGARI (Photo credit should read MARCO LONGARI/AFP/Getty Images)
PHOTO: MARCO LONGARI/AFP/AFP/Getty Images
A picture shows the skyline of Jerusalem with the Dome of the Rock mosque, at the Al-Aqsa mosque compound in the city?s old city, where thousands of Muslim pilgrims crowded for the first Friday noon prayer of Ramadan on September 5, 2008. Israel beefed up its police deployments in Jerusalem as tens of thousands of Muslim faithful were expected to attend the first Friday prayers of Ramadan at the Al-Aqsa mosque compound in the Old City. AFP PHOTO/MARCO LONGARI (Photo credit should read MARCO LONGARI/AFP/Getty Images)
Now playing
03:21
How the Six Day War reshaped the Middle East
exp ctw grief of a palestinian mother _00010203.jpg
exp ctw grief of a palestinian mother _00010203.jpg
Now playing
02:52
Israel-Palestine Conflict: Grief of a mother
Israeli forensics search at the scene of an explosion on a bus in Jerusalem on April 18, 2016.
PHOTO: THOMAS COEX/AFP/Getty Images
Israeli forensics search at the scene of an explosion on a bus in Jerusalem on April 18, 2016.
Now playing
01:09
Police: Bus explosion 'no doubt' was an attack
israeli police confirm device in bus fire liebermann_00001307.jpg
PHOTO: Getty Images
israeli police confirm device in bus fire liebermann_00001307.jpg
Now playing
03:05
Israeli police confirm explosive device in bus fire
Jerusalem bus explosion_00005513.jpg
Jerusalem bus explosion_00005513.jpg
Now playing
01:04
Bus catches fire in Jerusalem
(CNN) —  

The United States is ending all funding to the United Nations agency tasked with supporting Palestinian refugees, the US State Department said Friday, describing the body as “irredeemably flawed.”

The United States has long been the biggest single donor to the United Nations Relief and Works Agency for Palestine Refugees in the Near East, known as UNRWA, donating more than $350 million to the agency in 2017.

The agency offers educational, health and social services across the West Bank, Gaza, Jordan, Syria and Lebanon to more than 5 million registered Palestinian refugees. It educates about 500,000 children in nearly 700 schools and its doctors see more than 9 million patients in nearly 150 primary health clinics every year.

Palestinian children walk outside the Askar refugee camp, near Nablus in the West Bank, in January 2018.
PHOTO: JAAFAR ASHTIYEH/AFP/AFP/Getty Images
Palestinian children walk outside the Askar refugee camp, near Nablus in the West Bank, in January 2018.

In January this year, the United States said it would withhold $65 million, from an initial installment of $125 million it was expected to hand over to UNRWA at the start of the year. The US said it wanted UNRWA to reform and believed other countries should increase the amounts they contributed to the agency.

“When we made a US contribution of $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,” State Department spokeswoman Heather Nauert said in a statement Friday.

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

Nauert criticized the agency’s business model and fiscal practices as “unsustainable” and having been in “crisis mode” for many years.

“The United States will no longer commit further funding to this irredeemably flawed operation,” she said. “We are very mindful of and deeply concerned regarding the impact upon innocent Palestinians, especially school children, of the failure of UNRWA and key members of the regional and international donor community to reform and reset the UNRWA way of doing business.”

Chris Gunness, spokesman for UNRWA, voiced “deep regret” over the US decision and pushed back against its criticism of UNRWA’s work.

“We reject in the strongest possible terms the criticism that UNRWA’s schools, health centers, and emergency assistance programs are ‘irredeemably flawed,’” he said.

“These very programs have a proven track record in creating one of the most successful human development processes and results in the Middle East. The international state community, our donors and host countries have consistently praised UNRWA for its achievements and standards.”

Foreign Policy first reported the Trump administration’s decision to end funding for the UN agency, which was established by the UN General Assembly in 1949.

A senior administration official told CNN the decision was made at a meeting between Jared Kushner, US President Donald Trump’s son-in-law and a White House senior adviser, and Secretary of State Mike Pompeo, but that US Ambassador to the UN Nikki Haley had also been pushing for the move.

The Trump administration will also call for a large reduction in the number of Palestinians considered to be refugees, the administration official and a regional diplomat briefed on the decision told CNN.

The White House did not immediately return a request for comment on the decision.

A senior administration official criticized the agency in a statement to CNN earlier this month, saying that it “has perpetuated and exacerbated the refugee crisis and must be changed so the Palestinian people can reach their full potential.”

The statement followed a Foreign Policy report in early August that revealed leaked emails in which Kushner pressed fellow officials to engage in “an honest and sincere effort to disrupt UNRWA.”

’Right of return’

Removal of Palestinians’ refugee status would effectively mean they would lose the “right of return” to homes that are now in Israel and reclaim lost property – a move that would have enormous significance for the approximately 5.3 million Palestinian refugees registered with UNRWA.

During the Arab-Israeli War of 1948/49, which followed the establishment of the State of Israel, about 700,000 Palestinians were expelled from or fled their homes, a period the Palestinians call “Nakba,” meaning catastrophe.

Most Palestinians consider the right of return to be an inalienable right of the Palestinian people. It has long been considered what is called a “final status” issue in peace talks, an acknowledgment that it is among the toughest areas for Israelis and Palestinians to reach agreement.

This would be the second final status issue that the US President has sought to take off the table, the first being Jerusalem.

For decades, US policy was to avoid declaring Jerusalem the capital of Israel in the absence of an Israeli-Palestinian peace deal, as the Palestinians also claim Jerusalem as their capital and its final status was supposed to be left to negotiations. But Trump upended that policy in December when he recognized Jerusalem as Israel’s capital.

Anat Berko, an Israeli lawmaker with the governing Likud party, told CNN she supported the US move on UNRWA and said she hoped other countries would follow suit.

“An end to UNRWA will bring an end to the ‘refugee forever’ status. We cannot solve any conflict with this definition of refugees. Humanitarian aid – yes. But UNRWA – no,” Berko said.

Al-Awda, a Florida-based NGO that advocates for the right of return, talks of the “fundamental, inalienable, historical, legal, individual and collective rights of all Palestinian refugees to return to their original towns, villages and lands anywhere in Palestine from which they were expelled.”

Israeli media outlets have reported concerns in some quarters that serious cuts to UNRWA’s budget could exacerbate tensions on the ground in the Palestinian territories and, by impacting the provision of basic public services, strengthen the hand of the Palestinian militant group Hamas in Gaza.

US orders cut in West Bank, Gaza aid

News that the Trump administration will end all funding to UNRWA comes on the heels of Trump ordering the United States to cut $200 million in aid to Palestinians.

CNN reported last week that the President directed the State Department to withdraw $200 million in aid that was originally planned for programs in the West Bank and Gaza, according to a senior State Department official.

Nauert told reporters Tuesday that a review ordered by Trump earlier this year of US assistance to the Palestinians had established that that money “is not in the best interests of the US national interest and also at this time does not provide value to the US taxpayer.”

Ahmad Shami, a spokesman for Palestinian Authority Prime Minister Rami Hamdallah, accused the Trump administration in a statement earlier this week of seeking to strip millions of Palestinians of their refugee status on top of cutting aid funds.

“After using humanitarian aid to blackmail and pressure the Palestinian leadership to submit to the empty plan known as ‘the deal of the century,’ the Trump administration plans to commit an immoral scandal against Palestinian refugees by giving itself the right to abolish the historical rights of Palestinian refugees without any legitimacy,” he said.

“This is a clear looting of our humanity leading to more chaos in the region.”

Shami called on the international community to “stop the gambling schema of Trump and Netanyahu to endorse colonization, apartheid, and denial of Palestinian fundamental rights.”

Israeli Prime Minister Benjamin Netanyahu has frequently said the work done by UNRWA should be picked up by the UN’s main refugee agency, the UNHCR.

Netanyahu told foreign journalists in January: “The perpetuation of the dream of bringing the descendants of refugees back to Jaffa is what sustains this conflict. UNRWA is part of the problem, not part of the solution.”

Jaffa was one of the largest Arab towns in British Mandate Palestine that would become part of Israel in 1948.

But Gunness told CNN that the UN agency fundamentally rejected Netanyahu’s criticism.

“It is not UNRWA that perpetuates the conflict, it is the conflict that perpetuates UNRWA; it is the failure of the political parties through negotiations to produce an overall peace agreement and thereby resolve the refugee crisis,” said Gunness. “That is what makes UNRWA’s existence necessary.”

UNRWA schools open

Pierre Krähenbühl, Commissioner-General of UNRWA, said this week that the agency’s 711 schools in Syria, Jordan, Lebanon, Gaza and the West Bank, including East Jerusalem, were opening on time for their 526,000 students despite its current “unprecedented” $217 million deficit.

“For decades, donors have recognized that UNRWA is a force multiplier for stability in one of the most the volatile regions around the world,” he wrote in an op-ed on the UNRWA website.

Krähenbühl noted the “regrettable” decision by the Trump administration early this year to cut its planned funding to UNRWA, but also paid tribute to the “strong solidarity” shown by the broader international community whose increased or new donations had gone some way to filling the gap.

The German government pledged Friday to increase significantly its funding to UNRWA, Reuters news agency reported, adding that German Foreign Minister Heiko Maas had made clear that other nations would also need to step in to meet the existing shortfall.

The United States in 2016 agreed to a new 10-year military aid package for Israel worth $38 billion over 10 years, according to congressional and administration sources. That was an increase on an approximately $30 billion decade-long deal that expires this year.

CNN’s Jeremy Diamond, Zachary Cohen, Oren Liebermann, Laura Smith-Spark, Andrew Carey, Richard Roth and Michael Callahan contributed to this report.