Donald Trump has slashed US funding for the Palestinian refugees by more than half.

The cut to the budget of the UN Relief and Works Agency (UNRWA) – criticised as a form of bullying – seems designed to force the Palestinians to the negotiating table, and has been cheered by Israeli Prime Minister Benjamin Netanyahu.

The State Department said on Tuesday that it had put a hold on $65 million of the $125 million now due to UNRWA, which distributes its assistance in the Gaza Strip and the West Bank, as well as to refugee camps in Jordan, Syria and Lebanon.

It is believed that, had US Secretary of State Rex Tillerson not intervened, that amount would have been even less.

Trump and Nikki Haley, his bombastic ambassador to the United Nations, have said that UNRWA needs to change, otherwise all future monies will stop.

However, State Department spokeswoman Heather Nauert, announcing the cut to the United Nations Relief and Works Agency, said the decision had more to do with what the Trump administration sees as an imbalance in the U.S. contributions.

“Our main point today is asking other countries to step up to the plate, not asking the United States to be the single largest donor,” she said, briefing reporters.

Asking other nations to increase funding for international endeavours is consistent with a number of other Trump administration initiatives, notably in demanding greater non-U.S. funding for the NATO alliance.

Last year, the United States paid about 30 percent of UNRWA’s funding, $370 million — more than twice the second largest donor, the European Union.

Israeli Prime Minister Benjamin Netanyahu has said that long term, UNRWA’s mission should be transferred to other agencies, but has stopped short of endorsing an immediate cut in funding. Israeli security officials see the agency’s role as critical in preventing a collapse of Palestinian society, particularly in the Gaza Strip.

Nauert said administration officials rejected freezing the entire transfer because it would “have a negative impact.”

The US is the agency’s biggest donor, giving 30 percent of its total budget, but Tillerson and Defence Secretary James Mattis are concerned about regional instability, especially in allies such as Jordan, if UNRWA ceases to function.

On 2 January, Trump tweeted: “We pay the Palestinians HUNDREDS OF MILLIONS OF DOLLARS a year and get no appreciation or respect. But with the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?”