TEL AVIV—The United Nations on Wednesday called on countries to bolster funding to Palestinian refugees, warning of a collapse in health-care and education services, after the White House withheld about half its pledged financial aid to a key institution that supports the displaced people.
The U.S. move adds further pressure on Palestinian leaders, who have accused President Donald Trump of aligning with Israel and are now scrambling for a strategy to achieve statehood after diplomatic setbacks such as a White House policy change on Jerusalem.
On Tuesday, the U.S. said it would give $60 million to the U.N. Relief and Works Agency after previously agreeing to deliver $125 million in its first installment this year. The cut followed complaints by Mr. Trump that the U.S. pays Palestinians millions of dollars a year but receives no “respect” in return.
The U.S. is the largest donor to Unrwa, contributing $368 million last year to an international budget of $1.24 billion.
Unrwa said the U.S. move presents it with a “formidable challenge” in upholding its international mandate to support displaced Palestinians in Jordan, Syria, Lebanon and the Israeli-controlled Palestinian territories.
“Palestinian refugees and children’s access to basic humanitarian services [are] not a bargaining chip but a U.S. and international obligation,” the Palestine Liberation Organization, the body that negotiates with Israel in peace talks, said late Tuesday.
Relations between the U.S. and Palestinians are at the lowest point in years, with the move to withhold aid coming after a series of clashes between the White House and Palestinian leaders.
In December, Mr. Trump said he would recognize Jerusalem as Israel’s capital and move the U.S. Embassy there from Tel Aviv, a decision that infuriated the Palestinians. The U.N. in response overwhelmingly rejected the U.S. move in a nonbinding vote.
Earlier this week, Palestinian Authority President Mahmoud Abbas also rejected Mr. Trump’s Jerusalem decision and his desire to launch peace talks, calling his efforts the “slap of the century.” His speech mocked the U.S. leader, who previously said he would achieve the “deal of the century” via Israeli-Palestinian peace.
Israeli Prime Minister Benjamin Netanyahu said Mr. Abbas’s words underscored that the Palestinians are unwilling to seek peace as they reject any Israeli right to the land in Israel or the Palestinian territories.
Mr. Abbas’s speech didn’t outline new policies for the Palestinian leadership to achieve statehood and Western diplomats believe the Palestinians have few options without U.S. involvement in talks.
The Palestinian leader has long called on peaceful means to secure a Palestinian state based on Israel’s borders before the 1967 Arab-Israeli war, with East Jerusalem as its capital.
But Israel and the Palestinians have repeatedly failed to achieve that goal in multiple rounds of U.S.-brokered peace negotiations, and Mr. Netanyahu is unwilling to widen mediation beyond the White House to other nations.
In a less-dramatic speech in Cairo on Wednesday, Mr. Abbas reiterated that the Palestinians wouldn’t work with the U.S. in peace negotiations.
Unrwa acts as a de facto welfare state for millions of refugees and their descendants. It provides food assistance and health services, and runs 700 schools, with a full-time staff of 30,000 doctors, nurses, teachers and laborers.
The body is one part of a mix of institutions and political factions that administer Palestinians in the Middle East, including the Palestinian Authority.
Write to Rory Jones at rory.jones@wsj.com
