TEL AVIV – The European Union on Saturday expressed its “regret” over the U.S. decision to defund the UN agency for Palestinian refugees, and while it pledged to continue to give aid it said the agency must reform the way it operates.

“The regrettable decision of the U.S. to no longer be part of this international and multilateral effort leaves a substantial gap and we hope that the U.S. can reconsider their decision,” the EU said in a statement.

It added its hope that UNRWA “engage in a transformative process” without elucidation on what that might entail.

Foreign Ministers of EU nations would work with their international and regional partners, the statement said, to decide “how to ensure sustainable, continued and effective assistance to the Palestinians, including through UNRWA, at this difficult juncture.”

“UNRWA has recently expanded its donor base and taken internal management measures to increase efficiencies and reduce costs,” the statement continued. “UNRWA should pursue these reforms and further engage in a transformative process. The EU is committed to continue discussing these matters with UNRWA so as to secure the continuation and sustainability of the agency’s work, which is vital for stability and security in the region.”

The statement noted that UNRWA “runs schools for over 500,000 Palestine refugee children,” and other services in the medical and food aid fields. The statement acknowledged that while the U.S. was the biggest single donor to UNRWA, “The EU and its Member States are collectively the largest contributors to UNRWA’s budget.”

On Friday, the U.S. announced a $300 million cut to the UN’s Palestinian refugee agency, and said that going forward it would defund it altogether. Thirty percent of UNRWA’s budget is comprised of U.S. funds. The State Department said in a statement that the U.S. “will no longer commit further funding to this irredeemably flawed operation.”

The EU said: “Education is a fundamental part of the development of a viable Palestinian state, as are also hospitals and other basic services to which UNRWA’s activities make an essential contribution.”

“Our collective efforts in the international community to provide humanitarian and development assistance to Palestinians, in particular the younger generation, are [an] inseparable part of our efforts to reach a negotiated two-state solution and a just and lasting peace between Israelis and Palestinians.”

It added that the Palestinian refugee question should be resolved between Israel and the Palestinians. “The EU will continue its assistance to the Palestinians, including its support to UNRWA’s activities, while we will also continue our efforts to reach a two-state solution — a solution that will include the issue of refugees, which is a final status issue that only the two parties can resolve through negotiations, with the support of the international community,” it said.

Palestinian so-called refugees are the only “refugees” in the world that pass that status on to their descendants in perpetuity. One of the core issues in the conflict is the Palestinian demand for the “right of return” that would see those refugees and their descendants — who now number around 5 million — return to Israel in any final status agreement. Israel has categorically rejected this demand, deeming it a bid to destroy the Jewish state by demographics.

Jordan’s Foreign Minster Ayman Safadi described the U.S.’s move as “dangerous.”

“Disruption of UNRWA services will have extremely dangerous humanitarian, political and security implications for refugees and for the whole region,” Safadi told Reuters.

“It will only consolidate an environment of despair that would ultimately create fertile grounds for further tension. Politically it will also further hurt the credibility of peacemaking efforts.”

UNRWA’s spokesman in the Gaza Strip, Adnan Abu Hasna, echoed that sentiment, saying the Trump administration’s step would be a “gift to terror.”

If UNRWA in Hamas-run Gaza stops its work, he said, “what will happen if there are 300,000 school students in the streets of Gaza?” There would, he said, be “more negative energy — that’s a security danger not only for Gaza … but also for Israel. It won’t help peace; it’s a gift to terror.”

The Palestinian Authority on Saturday slammed the move.

Palestinian Authority President Mahmoud Abbas’ spokesman Nabil Abu Rudeineh said that the Palestinians would consider calling on the UN General Assembly and Security Council to coerce the U.S. into reversing its decision.

He said the step was a “flagrant assault against the Palestinian people and a defiance of UN resolutions.”

Meanwhile, Prime Minister Benjamin Netanyahu hailed the decision to defund what he said was a “refugee perpetuating” agency.

He noted that 70 years ago the UN “created a special institution: not absorbing refugees, and instead perpetuating refugees.”

“That’s why the US did something very important by stopping the funding for the refugee perpetuation agency known as UNRWA,” the prime minister added. “It is finally starting to solve the problem. The funds must be taken and used to genuinely help rehabilitate the refugees, whose true number is a fraction of the number reported by UNRWA.”

“This is a very welcome and important change, and we support it,” he said.

The U.S. is slated to release a report on the refugee question, in which it will claim that there are only half a million refugees instead of the 5 million claimed by UNRWA.