"This decision will have a devastating impact on the lives of many Palestinian refugees as the agency could be forced to cut health care, education and social services".
While saying the decision would sustain schools and health services, State Department spokeswoman Heather Nauert echoed Trump in calling on other nations to provide more money because he believes the USA pays more than its share.
Nauert said the us voluntarily pledged $60 million for 2018 to sustain schools and health services but the rest of the money is "being frozen at this time" and "held for future consideration".
Nauert said that a "potential second tranche" in 2018 was also being held. De Croo said the allocation was made in response to the USA funding cut which left UNRWA with a payment of just $60 million for the first of two annual contributions to its budget. "We're not going to reward bad behavior".
Nauert said other countries should shoulder more of the costs for UNRWA.
"It is also creating conditions that will generate further instability throughout the region and will demonstrate that it has no compunction in targeting the innocent", she said.
The services UNRWA provides "are of extreme importance, not only for the well-being of this population, and there is a serious humanitarian concern here", he said.
But the $60 million that was provided can't be used for any other objective.
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UNRWA's secretary-general, Pierre Krähenbühl, said the fundraising appeal would begin in the coming days.
Despite UNRWA's long record of misbehavior: "incitement against Israel, supporting violent attacks on Jews, and corruption, we are prepared to help UNRWA, conditional on it making some reforms", said Daniel Pipes, president of the Middle East Forum.
A statement issued by Hanan Ashrawi of the executive council of the Palestine Liberation Organization accused Washington of seeking to dismantle UNRWA at Israel's behest.
She added that the USA administration is targeting vulnerable Palestinians and "depriving the refugees of the right to education, health, shelter and a dignified life".
But voluntary payments from the United States are the biggest single source of support for the 68-year-old body, and other USA officials opposed an immediate and total suspension. Palestinian refugees number some 7 million, of whom 5.2 million are registered with UNRWA.
The US move threatens the ability of the United Nations agency to meet its major obligations towards the Palestinian refugees.
"We hope that the USA administration and Congress can cooperate in reversing this politically motivated cut in aid before its effects ripple through the Middle East", said Jan Egeland, Secretary General of the Norwegian Refugee Council. Trump and Haley have since threatened to cut off humanitarian assistance to the Palestinians unless the Palestinian Authority agrees to participate in USA -brokered peace talks with Israel.
She also said that the United States would not continue to reward the Palestinian Authority if it continues to reject USA mediation and refuses to engage in peace negotiations. Last year, the United States contributed $350 million to UNRWA, far more than any other country.