Sanctioning UNRWA: A High-Stakes Move That Could Reshape Middle East Aid 

The Trump administration’s unprecedented consideration of designating UNRWA, the UN agency for Palestinian refugees, as a terrorist organization represents a critical policy crossroads, pitting serious allegations of institutional links to Hamas against the agency’s documented role as an essential humanitarian lifeline for millions.

This potential move, stemming from accusations that some staff participated in the October 7 attacks, threatens to cripple the primary provider of food, schooling, and healthcare in Gaza and other regions, despite UN internal investigations that led to staff dismissals but found insufficient evidence for broader institutional culpability.

Sanctioning a major UN agency would trigger severe legal and financial isolation under U.S. law, create a grave humanitarian crisis for vulnerable refugee populations, and set a diplomatically contentious precedent, forcing a stark choice between addressing security concerns through punitive measures or preserving a neutral aid infrastructure that multiple investigations have described as vital for regional stability.

Sanctioning UNRWA: A High-Stakes Move That Could Reshape Middle East Aid 

Executive Summary 

The Trump administration’s advanced internal discussions on designating the United Nations Relief and Works Agency (UNRWA) as a terrorist entity represent a potential watershed moment in Middle East policy. This unprecedented consideration to apply counter-terrorism sanctions to a major UN humanitarian agency has sparked intense legal debates and grave humanitarian warnings. At its core, the controversy pits longstanding U.S. and Israeli allegations of institutional links between UNRWA and Hamas against the agency’s role as the primary aid provider for millions of Palestinian refugees across five territories. With UNRWA already facing a severe funding crisis following the U.S. decision to freeze contributions in January 2024, such sanctions could cripple operations that provide schooling, healthcare, and social services to one of the world’s most vulnerable populations. 

Table: The Core Conflict Over UNRWA 

From Largest Donor to Potential Adversary: The U.S.-UNRWA Relationship 

The potential sanction represents the dramatic culmination of a deteriorating relationship. For decades, the United States served as UNRWA’s most significant donor, contributing nearly $1 billion since 2021 alone, including $296 million in 2023. This funding came with stringent conditions requiring UNRWA to “take all possible measures” to prevent U.S. contributions from benefiting individuals or organizations associated with terrorism. 

The rupture began in January 2024 when Israel accused approximately twelve UNRWA staff members of direct involvement in the October 7 Hamas attacks that killed approximately 1,200 people. The U.S. responded by immediately freezing all funding—a move that created immediate operational challenges for the agency. By October 2025, Secretary of State Marco Rubio had escalated rhetoric dramatically, publicly characterizing UNRWA as “a subsidiary of Hamas”. 

This trajectory reflects a broader strategic shift within the Trump administration regarding Palestinian institutions. The administration has maintained that Israel has “ample grounds to question UNRWA’s impartiality” and supported Israel’s refusal to work with the agency despite an International Court of Justice ruling. This position was formalized in a February 2025 executive order in which President Trump stated that “UNRWA has reportedly been infiltrated by members of groups long designated by the Secretary of State as foreign terrorist organizations”. 

The UN’s Internal Investigation: A Nuanced Picture 

Amid these allegations, the UN conducted its own thorough investigation through the **Office of Internal Oversight Services (OIOS)**—the highest investigative body in the UN system. The findings, completed in August 2024, presented a more complex picture than initial allegations suggested. 

The OIOS examined 19 specific cases of UNRWA staff alleged to have been involved in the October 7 attacks. Their investigation revealed: 

• Nine staff members were dismissed because evidence “indicated that the UNRWA staff members may have been involved” 

• Nine other cases where “the evidence obtained by OIOS was insufficient to support the staff members’ involvement” 

• One case where no evidence was found to support the allegations 

A significant limitation noted by investigators was their inability to independently authenticate much of the information provided by Israeli officials, as it “remained in Israeli custody”. This technical point highlights the challenges of conducting cross-border investigations in conflict zones. 

UNRWA Commissioner-General Philippe Lazzarini acted decisively on the findings, terminating all nine staff members against whom evidence existed. He reiterated UNRWA’s “condemnation of the 7 October attack in the strongest possible terms” while emphasizing the agency’s commitment to implementing recommendations from an independent review panel led by former French Foreign Minister Catherine Colonna. 

The Mechanics of Sanctioning a UN Agency 

Designating UNRWA as a Foreign Terrorist Organization (FTO) would trigger severe legal and financial consequences under U.S. law. As outlined by the Treasury Department’s Office of Foreign Assets Control (OFAC), such designation would: 

• Prohibit all financial transactions between U.S. persons and the agency 

• Require blocking (freezing) of all UNRWA property and interests in property under U.S. jurisdiction 

• Subject anyone providing material support to criminal penalties 

The unprecedented nature of designating a UN agency cannot be overstated. The United States serves as both a founding UN member and the host nation of the organization that created UNRWA in 1949. This creates potential diplomatic contradictions and legal complexities that State Department lawyers are reportedly examining closely. 

OFAC’s counter-terrorism sanctions framework does include provisions for humanitarian exceptions. Existing general licenses authorize transactions related to agricultural commodities, medicine, medical devices, and certain humanitarian activities even with designated entities. For instance, General Licenses 22A-26A provide specific humanitarian carve-outs for transactions involving Ansarallah in Yemen. However, applying these to an entire UN agency would be legally uncharted territory. 

Table: Potential U.S. Sanction Mechanisms & Implications 

The Humanitarian Calculus: Gaza’s Lifeline in Jeopardy 

The human consequences of sanctioning UNRWA would be immediate and severe across the Palestinian refugee communities it serves. In Gaza alone, where the agency has been described by UN officials as “the backbone of the aid response,” approximately two-thirds of the population relies on UNRWA for basic survival. The agency’s operations extend to the West Bank, Lebanon, Jordan, and Syria, serving millions who have few alternative support systems. 

UN spokesperson Farhan Haq emphasized this reality, noting that a “huge number of UNRWA staff have been taking enormous risks for months, keeping hundreds of thousands of people alive” and that approximately 200 UNRWA staff members have been killed since October 7. The agency provides not just emergency food and shelter but also operates 143 schools serving nearly 310,000 students and health centers that handle millions of patient visits annually. 

William Deere, director of UNRWA’s Washington office, called the potential FTO designation “unprecedented and unwarranted,” pointing to multiple investigations—including one by the U.S. National Intelligence Council—that concluded UNRWA remains “a neutral and essential humanitarian actor”. This tension between allegations against some staff members and the agency’s essential humanitarian function lies at the heart of the debate. 

Diplomatic Ramifications and International Law Considerations 

Sanctioning a UN agency would establish a troubling precedent in international relations. The United Nations has maintained that according to the 1946 Convention on the Privileges and Immunities of the United Nations, UN agencies enjoy legal immunity necessary to perform their functions. While this immunity is not absolute, challenging it through terrorism sanctions would create a significant diplomatic rupture. 

Regionally, the move would likely further complicate the already fragile geopolitics of the Middle East. Jordan and Lebanon, which host large Palestinian refugee populations served by UNRWA, have repeatedly warned that destabilizing the agency could have severe consequences for regional stability. European donors, who have largely maintained their funding despite U.S. withdrawals, would face increased pressure to fill the vacuum or reconsider their positions. 

From an international legal perspective, designating a humanitarian agency as terrorist contradicts fundamental principles of international humanitarian law, particularly the requirement to distinguish between civilian and military objects. The UN Secretary-General has emphasized that “any involvement in these attacks would constitute a major betrayal of trust,” but simultaneously recognized the essential, life-saving work of thousands of UNRWA staff. 

The Oversight Alternative: Audits Versus Sanctions 

Notably, the U.S. government already has substantial oversight mechanisms in place that could address concerns without resorting to blanket sanctions. The State Department’s Office of Inspector General has announced a planned “Audit of Department of State Contributions to UNRWA” with the specific objective “to determine whether Department contributions to UNRWA were administered in a manner to safeguard the funds from inadvertently benefiting terror groups”. 

This audit is part of a broader series examining U.S. assistance in the region, including audits of: 

• Food assistance to Gaza (approximately $600 million in awards) 

• Foreign assistance to Palestinians in West Bank and Gaza ($340 million since 2021) 

• Sanctions policies and practices in the Israel/Gaza context 

These existing oversight mechanisms represent a more targeted approach that could address specific concerns about fund diversion while maintaining humanitarian operations. The choice between strengthening these audit functions versus pursuing sanctions reflects a fundamental policy decision about whether to reform or dismantle the current aid architecture. 

Conclusion: A Decision with Lasting Consequences 

The Trump administration’s consideration of terrorism sanctions against UNRWA represents more than a policy adjustment—it signals a potential transformational shift in how the United States engages with both the Israeli-Palestinian conflict and multilateral humanitarian institutions. With discussions reportedly at an advanced stage but no final decision made, the coming weeks will determine whether the U.S. crosses the unprecedented threshold of designating a UN agency as terrorist. 

The stakes could not be higher for Palestinian refugees who depend on UNRWA for survival, for regional stability in a volatile Middle East, and for the international humanitarian system that operates on principles of neutrality and impartiality. Whatever decision emerges will likely reverberate far beyond the corridors of Washington and Gaza, potentially reshaping the landscape of humanitarian action in conflict zones worldwide. 

As policymakers weigh allegations against individual staff members against the agency’s documented role in preventing mass starvation, they confront the enduring tension between security imperatives and humanitarian obligations—a balance that will define America’s role in one of the world’s most intractable conflicts for years to come.