Palestinians rely heavily on the $320 million in aid money they receive each year, which experts say helps bring some security to the volatile region.
"[Trump] doesn't want to give any additional funding until the Palestinians agree to come back to the negotiation table, and what we saw with the resolution was not helpful to the situation", Haley said at the United Nations on Tuesday.
"The president is a master dealmaker and is as committed to trying to achieve the ultimate peace deal as ever but he will not tolerate falsehoods being spread about America and our positions - and he certainly will not spend taxpayer dollars to subsidize those who spread them", said the official.
Mr Trump's blunt comments represented a tougher tone toward the Palestinians than he has generally taken, suggesting that he is moving toward pressuring them to come to the table by threatening punishment rather than enticing them with promises of a deal that would benefit them. If the Palestinians don't show some interest in coming to a truce, Trump is ready to cut their aid.
It all seems that President Donald Trump appears to be on course to punish the United Nations after the majority of world countries refused to endorse his recognition of Jerusalem as the Israeli capital.
Last month, US President Donald Trump recognized Jerusalem as the capital of Israel, prompting outcry from Palestinians, Middle East leaders and the wider worldwide commmunity, and setting off regional protests.
Trump also addressed foreign aid to Pakistan in the tweets, writing that the USA pays the country "billions of dollars to for nothing". The United Nations has long considered Jerusalem's status as a negotiating point in a two-state solution.
"As we've said all along, the vice president is going to the Middle East in January", said Pence spokeswoman Alyssa Farah.
The Palestinians have long demanded East Jerusalem for the capital of their future state.
"With the Palestinians no longer willing to talk peace, why should we make any of these massive future payments to them?" he added.
The issue is among the most contentious in the Israeli-Palestinian conflict.
Fawzi Barhum, a Hamas spokesperson, said Donald Trump "has adopted low political blackmail against the Palestinian people". Washington is the agency's biggest donor; it sends around $300 million a year to the agency, roughly a third of which is designated for aid to residents of refugee camps in the West Bank and Gaza.