The United States earlier this year cut its aid to UNRWA to $60 million from a promised $350 million for the year, saying the agency needed to make unspecified reforms and calling on the Palestinians to renew peace talks with Israel.
Following a weekly meeting in Ramallah, the Fatah-dominated Palestinian government wanted Hamas to hand over control of the Gaza Strip.
Elor Azaria was caught on videotape shooting dead a Palestinian who was lying wounded in the occupied West Bank city of Hebron in March 2015.
The Israeli security cabinet's decision comes a day after plans for over 1,000 settler homes in the occupied West Bank were announced.
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