The Federal Government has defended its foreign aid program, following criticism from former prime minister Tony Abbott of the money sent to help the Palestinian Authority.

Key points: Mr Abbott says moving embassy could be a way "for Australia to demonstrate its unswerving support for Israel"

Mr Abbott says moving embassy could be a way "for Australia to demonstrate its unswerving support for Israel" DFAT will spend $43.6 million in foreign aid to the Palestinian Territories in 2016/2017

DFAT will spend $43.6 million in foreign aid to the Palestinian Territories in 2016/2017 Australia should reconsider aid unless Palestinian Authority stops paying pensions "to terrorists and their families", Mr Abbott says

Mr Abbott has also suggested relocating Australia's embassy in Israel, a move rejected by Foreign Minister Julie Bishop.

He made the remarks following his return from a recent trip to the Middle East as part of the Australia-Israel-UK Leadership Dialogue.

Mr Abbott criticised the Palestinian Authority, telling the Spectator magazine it kept paying pensions "to terrorists and their families".

He said Australia should reconsider the $40 million in aid it provided unless the Palestinian Authority stopped the payments, following an investigation into claims funding had been diverted to the hard-line Islamist group Hamas.

But Ms Bishop said Australia's aid program has "robust risk management" and due diligence applied to all of its partner agencies and governments.

"Australian aid to the Palestinian Territories is under review after the aid program for World Vision in the Palestinian Territories was suspended last year," Ms Bishop said in a statement.

"The Australian Government has a zero tolerance policy with regard to fraud and corruption."

Immigration Minister Peter Dutton said there were tough checks and balances in place with Australia's foreign aid program, and that any organisation found misusing that funding would have their aid cut.

"If people are doing the wrong thing, they will have their aid cancelled, but at the moment I think the foreign minister has got the balance right." Mr Dutton told 2GB.

The Department of Foreign Affairs and Trade (DFAT) will spend $43.6 million in foreign aid to the Palestinian Territories in 2016/17, which is distributed via a number of non-government organisations and the United Nations.

It suspended funding to World Vision in August after one of its employees in the Gaza Strip was arrested by the Israeli Government.

Abbott suggests moving embassy from Tel Aviv to Jerusalem

Mr Abbott suggested moving Australia's embassy from Tel Aviv to Jerusalem if the US followed suit.

"Another way for Australia to demonstrate its unswerving support for Israel, as the Middle East's only liberal, pluralist democracy, might be to join any move by the Trump administration to move its embassy to Jerusalem," Mr Abbott said.

It followed a pledge made by US President-elect Donald Trump during the 2016 campaign.

Ms Bishop said it is a proposal the Federal Government is not considering.

"The Australian Government does not have any plans to move the Australian Embassy from Tel Aviv to Jerusalem," Ms Bishop said.

The governance of Jerusalem is at the core of the decades-long international dispute, with almost all nations with diplomatic ties to Israel establishing their embassies in Tel Aviv, 70 kilometres away.

Previous bids by the US to move the country's embassy to Jerusalem have failed due to concerns about the diplomatic ramifications with other Middle Eastern nations.

Professor Greg Barton from Deakin University said moving Australia's embassy to Jerusalem could deal Australia out of any negotiations to resolve the lengthy dispute.

"East Jerusalem is contested as occupied territory in the eyes of the international community," he said.

"Australia potentially can play a role in helping to negotiate some sort of way forward.

"If we went ahead and moved our embassy, following suit after the Americans to Jerusalem, we would be closing off doors of opportunity to play that mediating role.

"It wouldn't be a wise move."

Ms Bishop in December distanced Australia from a UN resolution condemning settlements in the West Bank and East Jerusalem, but said the Federal Government remained "firmly committed" to a two-state solution.

Mr Abbott, who formed part of a Parliamentary delegation to the Middle East, said it should also be easier for people and goods to move from the Palestinian Territories into Israel and Jordan.

The delegation met with Israeli and Palestinian officials prior to Christmas.

DFAT said the Palestinian Territories was one of the poorest regions in the Middle East.