While saying the decision would sustain schools and health services, the U.S. official echoed U.S. President Donald Trump in calling on other nations to provide more funds because he believes the United States pays more than its share.
The decision to keep back some money is likely to compound the difficulty of reviving Israeli-Palestinian peace talks and to further undermine Arabs' faith that the United States can act as an impartial arbitrator, particularly following Trump's Dec. 6 announcement reversing decades of U.S. policy and recognise Jerusalem as Israel's capital.
A Palestinian official quickly criticized Washington's decision to keep back some of the money and United Nations Secretary-General Antonio Guterres said he was unaware of any change on aid but he was "very concerned" about the possibility of a cut in funding.
The U.S. official, who spoke on condition of anonymity, said the United Nations Relief and Works Agency for Palestinian Refugees (UNRWA) that will receive the money needed to be fundamentally reevaluated "in the way it operates and the way it is funded."
"Without the funds we are providing today, UNRWA operations were at risk of running out of funds and closing down. The funds provided by the United States will prevent that from happening for the immediate future," the official said, saying the additional "$65 million will be held for future consideration."
In a Twitter post on Jan. 2, Trump said that Washington gives the Palestinians "HUNDRED OF MILLIONS OF DOLLARS a year and get no appreciation or respect."
"They don't even want to negotiate a long overdue peace treaty with Israel ... with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?" Trump added in his tweet.
While the U.S. official did not link the U.S. decision to Trump's tweet, he made a point often advanced by the president by saying the United States had been UNRWA's single largest donor for decades and demanded other nations do more.
"It is time other countries, some of them quite wealthy, step in and do their part to advance regional security and stability," the official said.
"This decision confirms the U.S administration is continuing in wiping out the rights of the Palestinian people," Palestine Liberation Organization official Wasel Abu Youssef told Reuters.
"First was declaring Jerusalem as the capital of Israel and today the refugee issue," he said.
Historically, U.S. administrations had said the status of Jerusalem must be decided in Israeli-Palestinian peace talks. The city is holy to three major monotheistic faiths.
At the United Nations, Guterres told reporters that the services provided by UNRWA were "of extreme importance, not only for the wellbeing of these populations ... but also in my opinion and an opinion that is shared by most international observers, including some Israeli ones, it is an important factor of stability."
"So if UNRWA will not be in a position to provide the vital services and the emergency forms of support that UNRWA has been providing this will create a very, very serious problem and we will do everything we can to avoid this situation," he said.
(Reporting By Arshad Mohammed; Additional reporting by Matt Spetalnick in Washington, Nidal al-Mughrabi in Gaza and Michelle Nichols at the United Nations; Editing by Cynthia Osterman and Grant McCool)
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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