GAZA  The American State Department has withdrawn all Fulbright grants to Palestinian students in Gaza hoping to pursue advanced degrees at American institutions this fall because Israel has not granted them permission to leave.

Israel has isolated this coastal strip, which is run by the militant group Hamas. Given that policy, the United States Consulate in Jerusalem said the grant money had been “redirected” to students elsewhere out of concern that it would go to waste if the Palestinian students were forced to remain in Gaza.

A letter was sent by e-mail to the students on Thursday telling them of the cancellation. Abdulrahman Abdullah, 30, who had been hoping to study for an M.B.A. at one of several American universities on his Fulbright, was in shock when he read it.

“If we are talking about peace and mutual understanding, it means investing in people who will later contribute to Palestinian society,” he said. “I am against Hamas. Their acts and policies are wrong. Israel talks about a Palestinian state. But who will build that state if we can get no training?”