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3. UNRWA in the Crosshairs: U.S. Weighs Unprecedented Sanctions

Outright designation of a UN agency as a terrorist-affiliated entity would set a new precedent, with unpredictable consequences for both the UN system and U.S. multilateral diplomacy.

In the shadow of the Gaza conflict, a quiet but consequential debate is unfolding in Washington over whether the U.S. should designate the United Nations Relief and Works Agency (UNRWA) as a terrorist-affiliated entity and impose sweeping sanctions.

A move once viewed as unthinkable is now the subject of urgent policy deliberations, with senior administration officials, lawmakers, and financial regulators weighing the legal, diplomatic, and humanitarian costs, according to news reports. At stake is not only the fate of an agency that has served as the lifeline for millions of Palestinians for more than seven decades, but also how the U.S. engages with the broader UN humanitarian system.

UNRWA, established in 1949 to aid Palestinian refugees, has long been a mainstay of U.S. foreign aid policy. For decades, bipartisan administrations saw the agency as an imperfect but necessary partner in stabilizing the region.

But that consensus began to fracture in recent years, as Israeli intelligence, U.S. watchdogs, and independent researchers raised alarms about the agency’s susceptibility to infiltration by Hamas and other terrorist groups.  These allegations intensified after October 7, 2023, when Israel claimed to have evidence implicating certain UNRWA employees in the Hamas-led attacks.

Against this backdrop, U.S. Secretary of State Marco Rubio, during a visit to Israel’s Civil-Military Coordination Center in October, delivered a blunt assessment: “UNRWA is a subsidiary of Hamas.” He declared that the agency “is not going to play any role” in the delivery of aid to Gaza, pledging instead to work with “a conglomeration of other UN and humanitarian organizations.”

The International Court of Justice's October 22 ruling that Israel must allow UN agencies, including UNRWA, access to Gaza for humanitarian aid highlighted Washington's disquiet with the relief agency. The State Department sharply condemned the decision as "corrupt," arguing it ignored UNRWA's alleged deep involvement with Hamas.

If the U.S. moves forward with sanctions, it will not be the first time Washington has taken aim at a UN entity over security concerns—but it would mark the most dramatic escalation to date. Outright designation of a UN agency as a terrorist-affiliated entity would set a new precedent, with unpredictable consequences for both the UN system and U.S. multilateral diplomacy.

Sanctions pathways

For the U.S., the legal authority to impose terrorism-related sanctions on entities tied to designated groups like Hamas is robust and well-established. But UNRWA, as a UN agency, presents unique legal and diplomatic complexities.

“There’s no legal conflict that would prevent the U.S. from sanctioning a UN entity like UNRWA,” Hagar Chemali, a former spokesperson for terrorism and financial intelligence at the Treasury Department, told This is Beirut.

“Within the United States, if an organization’s employees are found to support a terrorist group—even if it’s just local staff—the organization can meet the threshold for sanctions. It doesn’t matter if senior leadership is unaware; it’s about the organization’s responsibility to vet its people,” added Chemali, who formerly served as director for Syria and Lebanon at the White House.

The current U.S. position aligns with concerns voiced by Israeli officials, who have maintained since October 2023 that UNRWA’s infrastructure and staff are deeply intertwined with Hamas operations in Gaza.

Chemali said that the question of sanctioning UNRWA predates the current administration. “Both the Trump and previous administrations recognized the risk to U.S. taxpayer dollars.”

“The Treasury doesn’t sanction every organization that technically qualifies, or we’d see a lot more sanctions. It’s a policy question: Do you want to set a new precedent by targeting a UN agency?” she added

Officials at the Treasury Department echo this view. “There’s a growing recognition within Treasury that any future aid mechanism for Gaza must include rigorous safeguards to prevent diversion to terrorist entities. The past structure under UNRWA raised serious red flags in this regard,” said a senior official involved in counterterrorism financing policy.

If the U.S. proceeds, two main designations could be considered: labeling UNRWA as a Foreign Terrorist Organization (FTO) or a Specially Designated Global Terrorist (SDGT). Each carries far-reaching consequences.

“Sanctioning UNRWA as an FTO or SDGT would have a chilling effect globally,” Chemali explains. “Even without secondary sanctions, banks and central banks would likely refuse to do business with them because of the risks, which is exactly the outcome the U.S. would be seeking: to end UNRWA’s role once and for all.”

A decision to blacklist the agency would freeze any U.S.-based assets, prohibit U.S. citizens and organizations from funding or working with UNRWA, and prompt global banks to sever ties. Many non-U.S. partners would likely cut ties as well to avoid penalties. The result would be a sharp and immediate disruption of humanitarian aid, making the search for effective alternative mechanisms critical and urgent.

Post UNRWA framework

U.S. policymakers increasingly believe that the humanitarian mission in Gaza must be fundamentally restructured. "We're willing to work with other UN and humanitarian organizations to deliver aid to the enclave if they can make it work," Rubio said on October 24, underscoring American readiness to back alternatives to UNRWA.

For critics of UNRWA, the agency’s removal is both a moral and strategic imperative. They argue that dismantling UNRWA would not only undercut Hamas’s influence over Gaza’s civilian population but also force the international community to confront the root causes of the protracted refugee crisis. Supporters counter that, absent a viable alternative, the risk of humanitarian catastrophe is too great.

The challenge of building alternatives to UNRWA has already begun. The Biden administration reportedly has quietly encouraged other UN agencies and international NGOs to prepare for a post-UNRWA environment, and is coordinating with regional partners to identify trusted channels for aid distribution.

Chemali acknowledges the complexity of replacing UNRWA: "When it comes to humanitarian issues, the U.S. is clearly not going to use UNRWA as a humanitarian vehicle, but they haven't been for the last couple of years, right? So it's really more a policy question: Do you create a different entity that's not under the UN? There's a lot of argument in favor of that, not just because UNRWA had these employees that are pro-Hamas, but also because UNRWA perpetuates a Palestinian identity as a refugee forever."

Amal Khoury, associate teaching professor in global studies at the University of North Carolina at Charlotte, outlined specific alternatives in an interview with This is Beirut, including redirecting aid through other UN agencies, credible international NGOs and trusted local partners; direct aid provision with strict oversight; and strengthened multilateral cooperation for shared refugee support.

A coalition of UN agencies and NGOs has reportedly started stepping in to address humanitarian needs in Gaza, implementing new protocols intended to reduce the risk of aid being diverted to Hamas. Yet the pace of these efforts – and their ability to deliver at scale – remains uncertain.