U.S. aid to the Palestinians has changed more dramatically in calendar year 2018 than at any time since 2007, when it was restructured to respond to the takeover of the Gaza Strip by the Sunni Islamist group Hamas (for more background, see Appendix A ). The Trump Administration has taken several steps to reduce U.S. funding for programs benefitting Palestinians. The President's statements suggest that the Administration may seek to persuade the Palestine Liberation Organization (PLO) to participate in U.S.-led diplomacy on the Israeli-Palestinian peace process (see " 2018 Administration Actions " below). PLO Chairman and Palestinian Authority (PA) President Mahmoud Abbas broke off diplomatic contacts with the Administration in December 2017 after President Trump recognized Jerusalem as Israel's capital and announced his intention to relocate the U.S. embassy there from Tel Aviv. In August and September 2018, the Administration announced that it would reprogram at least $225 million of FY2017 bilateral economic aid initially allocated for the West Bank and Gaza (from the Economic Support Fund, or ESF, account, including some amounts designated as ESF-Overseas Contingency Operations, or ESF-OCO). The amounts reprogrammed are estimated to be $231.542 million (see " Reprogramming FY2017 Bilateral ESF " below). Also in September, the Administration announced that it was ending all U.S. humanitarian contributions to the U.N. Relief and Works Agency for Palestine Refugees in the Near East (UNRWA). Bilateral, nonlethal security assistance from the International Narcotics Control and Law Enforcement (INCLE) account is the only major stream of U.S. funding to the Palestinians that has continued unabated. This assistance helps train and equip PA security forces and officials from the PA's justice sector. The Administration's actions regarding FY2017 ESF have raised questions about future-year funding (including FY2018 and FY2019) for the Palestinians, such as whether existing aid programs will continue. Media reports suggest that many of the organizations that have implemented ESF programs in the West Bank and Gaza are suspending or preparing to suspend operations unless funding resumes. The status of ESF programs and of UNRWA's operations could affect the region's security and its economic and humanitarian situations. The Administration's actions also have sparked debate over how cuts in U.S. bilateral and multilateral assistance will affect U.S. political leverage with the Palestinians (see " Political Strategy and Leverage " below), and whether other countries will step in to replace U.S. funding and—potentially—U.S. influence. Regardless of the Administration's actions in 2018, it is unclear how much FY2017 ESF would have been available for the Palestinians. Congress suspended all ESF that "directly benefits" the PA in March via the Taylor Force Act (Title X of the Consolidated Appropriations Act, 2018, or P.L. 115-141 ). In October, U.S. government officials clarified that they would have been legally required to withhold $165 million in FY2017 ESF even if the Administration had not reprogrammed the entire $231.542 million. The same requirement to suspend ESF will apply to future-year funding unless and until Palestinian governing entities stop payments to individuals imprisoned for or killed while allegedly committing acts of terrorism, or to these individuals' families. Some reports have suggested that the Anti-Terrorism Clarification Act of 2018 (ATCA, P.L. 115-253 ), which became law in October 2018, could indirectly lead to a complete end of U.S. bilateral aid for the Palestinians absent further congressional action (see " Anti-Terrorism Clarification Act of 2018: Possible Complete End to Bilateral Aid "). Changes in U.S. policy on various types of funding for the Palestinians have unfolded throughout 2018. In an August 28 press briefing, the State Department spokesperson said Earlier this year…the President directed an overall review of U.S. assistance to the Palestinian Authority in the West Bank and also in Gaza…. The decision was then made, and we sent out a statement to this effect [on August 24], that that money at this time is not in the best interests of the U.S. national interest and also at this time does not provide value to the U.S. taxpayer. Various statements from President Trump, as well as observations from other sources, suggest that U.S. actions on aid may seek to persuade the Palestinians to participate in U.S.-led diplomacy on the Israeli-Palestinian peace process. In January 2018, shortly after PLO Chairman Abbas broke off diplomatic contacts with the United States in response to its new policy on Jerusalem, President Trump said that the hundreds of millions of dollars of aid that Palestinians receive "is not going to them unless they sit down and negotiate peace." In September, President Trump said that he stopped "massive amounts of money that we were paying to the Palestinians" and that the United States would not resume payments "until we make a deal." Later in September, an article examining U.S. aid policy toward the Palestinians stated The broad push to cut all funding to Palestinian civilians is promoted by Jared Kushner, the son-in-law of President Trump and the top White House adviser on the Middle East. Mr. Kushner has been working on a peace proposal for the Israelis and Palestinians, and is seeking maximum negotiating leverage over the Palestinians. For more on this topic, see " Political Strategy and Leverage " below. The Administration appears to have reprogrammed all FY2017 bilateral economic aid originally intended for the West Bank and Gaza. Based on congressional notifications it made in September 2018, USAID reprogrammed an estimated $231.542 million of ESF (including some designated as ESF-OCO) from the West Bank and Gaza for other purposes. To use the funds, USAID was required to obligate them by the end of FY2018 (September 30, 2018). Pursuant to an August 24 statement, a State Department official said that the President directed the reprogramming of $200 million in FY2017 ESF to "high-priority projects elsewhere." On September 8, a State Department official announced a similar reprogramming of approximately $25 million originally planned for the East Jerusalem Hospital Network. Additionally, in September, executive and legislative branch sources disclosed the Administration's decision to bar Palestinians from participating in a Conflict Management and Mitigation program (CMM) funded by USAID and the U.S. embassy in Israel. According to Section 7060(g) of P.L. 115-141 , CMM's funds (which come from either the ESF or the Development Assistance accounts) are intended to "support people-to-people reconciliation programs which bring together individuals of different ethnic, religious, and political backgrounds from areas of civil strife and war." According to media reports, $10 million of $26 million allocated by the Administration for CMM in FY2017 had initially been set aside for initiatives involving Israeli Jews—either with Palestinians from the West Bank or with Arab citizens of Israel. The Administration's September decision reportedly halted the awarding of new grants for initiatives involving West Bank Palestinians. A congressional aide was quoted as saying that USAID "decided to support programs that involve Israeli Jews and Israeli Arabs" to avoid having the Israel-based part of the program shut down. Congress began funding Israeli-Palestinian CMM projects in FY2004, and up through FY2012 had annually earmarked $10 million for initiatives in the Middle East. Some former U.S. officials have expressed concern that the program changes will reduce U.S. influence and credibility in the region. On August 31, 2018, the State Department announced that the United States will not make further contributions to UNRWA: The Administration has carefully reviewed the issue and determined that the United States will not make additional contributions to UNRWA. When we made a U.S. contribution of $60 million in January, we made it clear that the United States was no longer willing to shoulder the very disproportionate share of the burden of UNRWA's costs that we had assumed for many years. Several countries, including Jordan, Egypt, Sweden, Qatar, and the UAE have shown leadership in addressing this problem, but the overall international response has not been sufficient. Beyond the budget gap itself and failure to mobilize adequate and appropriate burden sharing, the fundamental business model and fiscal practices that have marked UNRWA for years – tied to UNRWA's endlessly and exponentially expanding community of entitled beneficiaries – is simply unsustainable and has been in crisis mode for many years. The United States will no longer commit further funding to this irredeemably flawed operation. We are very mindful of and deeply concerned regarding the impact upon innocent Palestinians, especially school children, of the failure of UNRWA and key members of the regional and international donor community to reform and reset the UNRWA way of doing business. These children are part of the future of the Middle East. Palestinians, wherever they live, deserve better than an endlessly crisis-driven service provision model. They deserve to be able to plan for the future. Accordingly, the United States will intensify dialogue with the United Nations, host governments, and international stakeholders about new models and new approaches, which may include direct bilateral assistance from the United States and other partners, that can provide today's Palestinian children with a more durable and dependable path towards a brighter tomorrow. The U.S. decision to end contributions could greatly affect UNRWA, which provides education, health care, and other forms of humanitarian assistance for around 5.4 million Palestinian refugees registered in the West Bank, Gaza Strip, Jordan, Lebanon, and Syria. The United States has been a major contributor to UNRWA since its establishment shortly after the 1948 Arab-Israeli War, and provided approximately one-third of UNRWA's annual budget in 2017.