The European Union has pledged an additional €42.5m (£37m) aid package for the Palestinian occupied territories following Donald Trump’s decision to cut US support to the would-be state.

The new money comes weeks after the US President decided to withhold $65m (£45.8) of a $125m aid package to the UN agency in Palestine, arguing that America gets “no appreciation or respect” for its payments.

Federica Mogherini, the EU’s foreign affairs chief, announced the package on Wednesday in Brussels, warning Mr Trump that the US would jeopardise the Israeli-Palestinian peace process by going it alone in the region.

“Any framework for negotiations must be multilateral and must involve all players – all partners – that are essential to this process. A process without one or the other would simply not work, would simply not be realistic,” Ms Mogherini told reporters in Brussels. “Nothing without the United States, nothing with the United States alone.”

The new aid package includes €14.9m to “preserve the Palestinian character of East Jerusalem”, which has been encroached on by Israeli settlements in recent years, including 176 new settler homes signed off in October last year.

Ms Mogherini restated the EU’s commitment to a two-state solution with Jerusalem as the capital of both an Israeli and Palestinian state. Observers have warned that illegal Israeli settlements in Palestinian land would make it even harder to draw a future Palestinian state and jeopardise the peace process.

The money also includes €27.6m towards building institutions for a “democratic and accountable Palestinian state”.

Announcing the aid at the joint press conference with Norway's foreign minister Ine Marie Eriksen Soreide, Ms Mogherini said the EU was “thinking, first and foremost, to the population in Gaza”.

“The daily life of citizens has been very difficult for too long a time and this is despite large international humanitarian help, including from the European Union,” she said.

Palestinians protest against aid cuts outside the United Nations Relief and Works Agency office in Rafah in the southern Gaza Strip (Reuters)

She added that the new support would be on top of an additional €107m the EU is providing for the UNWRA, the UN agency that faced funding cuts from Mr Trump.

EU Commissioner for Europe’s neighbourhood policy, Johannes Hahn, said: “With this new assistance package the EU continues to support the Palestinians on their way towards the establishment of their own state as part of the two-state solution, with Jerusalem as capital of both Israel and Palestine.

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“The European Union is, and will remain, Palestine's most reliable and important donor, investing in businesses, youth and schooling, helping to provide access to clean water in Gaza, strengthening civil society and investing on education and health.”