According to Israel's Channel Two, American officials have informed Israel that any further funding for the UN Relief and Works Agency (UNRWA) would be on US terms.
The US announced on Friday that it will no longer support UNRWA, saying the agency needed to make unspecified reforms as it called on Palestinians to renew "peace" talks with Israel.
Channel Two said that US officials have allegedly allowed Persian Gulf states to fund UNWRA projects in the short term, but the ultimate plan is to close down the agency once and for all.
"US approval for funding would include any future sponsors to UNWRA committing to redefining the status of the agency, as well as the definition of Palestinian refugees, with the ultimate aim of eventually closing down the agency," it said
It is not yet clear which Persian Gulf states have received the green light to partly compensate for UNRWA's budget deficit of $217 million, which has deepened a cash crisis at the agency in the wake of President Donald Trump's decision.
UNRWA supports more than five million Palestinians in Gaza, the West Bank, Jordan, Syria and Lebanon, providing healthcare, education and social services.
Most are descendants of the roughly 700,000 Palestinians who were driven out of their homes or fled a 1948 war that led to Israel's creation.
Palestinian refugees have reacted with anger to the US decision, warning that it would lead to more instability in the Middle East.
Independent observers say the US decision is in line with implementing the Israeli agenda to unilaterally take the Palestinian right of return off the table.
To Palestinians, the right of return is central to their cause and they see the US decision as a new policy shift aimed at undermining it.
Trump had already angered Palestinians by his December recognition of the disputed city of Jerusalem al-Quds as Israel's "capital" and axing more than $200 million in bilateral aid for Gaza and the West Bank.
Founded in 1948, UNWRA was established to deal with the mass displacement of Palestinians to Jordan, Lebanon and Egypt following the establishment of the Israeli regime.
Since then, the descendants of those Palestinians who continue to be displaced have benefited from several UNRWA initiatives, including educational facilities.
According to UNRWA spokesman Chris Gunness, the agency provides health clinics, schooling for 526,000 refugee children and food assistance to 1.7 million people - a million of them in Gaza.
The Washington Post cited officials familiar with the decision as saying that the US redefinition of Palestinian refugees would reduce the current five million figure to fewer than a tenth of that number because it would exclude the descendants.
Israel has warmly welcomed the decision, with Transport Minister Yisrael Katz saying "the American decision is full support for Israel's position, which completely rejects the right of return for the Palestinians."
Source: Press TV