U.S. Ambassador to the United Nations Nikki Haley in Washington on Dec. 14, 2017. (Cliff Owen/AP)

The Trump administration is headed for a showdown over whether to follow through on threats by President Trump and U.N. Ambassador Nikki Haley to cut off U.S. funding for Palestinian refugees. It’s a major test case of Trump’s new approach of using aid to punish foreign governments for bad behavior.

On the campaign trail, Trump railed against giving U.S. money to countries that don’t do what America wants, part of his mantra that the United States is getting taken advantage of on the world stage. Now, that idea is being translated into real U.S. policy with unknowable and potentially drastic consequences.

On Monday, the Trump administration decided to hold an as-yet-unscheduled Principals Committee meeting on what do regarding $125 million of U.S. aid to the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) that was scheduled to be delivered Jan. 1 but is now on hold. The meeting will include several Cabinet members, but all eyes will be on Haley, who has been leading the drive to cut the funding.

According to four administration officials who are involved in the debate, Haley has been pushing for a total cut in U.S. funding for UNRWA in response to the Palestinian Authority’s actions following Trump’s Dec. 6 announcement that the United States was officially recognizing Jerusalem as the capital of Israel. In late December, Haley said the Trump administration was “taking names” of those who voted for a resolution condemning the move.

Trump tweeted Jan. 2 that unless the Palestinians return to peace negotiations, U.S. aid could be in jeopardy. Haley and Trump have talked several times about the issue, according to a senior administration official.

“The president is fed up with this phenomena of trashing the United States at the U.N. and then asking us for money. Ambassador Haley shares that view,” the official said. “The process going forward is how to translate that presidential directive into actual policy.”

Concurrently, the Trump administration is holding aid to the Pakistani government until or unless that country does more to combat terrorist havens in its territory. That policy was also announced in a presidential tweet.

The UNRWA dispute is urgent because the organization, which supports schools and humanitarian facilities for refugees in Gaza, Jordan and the West Bank, is already in debt and facing a funding crisis if the money doesn’t come through by the end of January. Inside the bureaucracy, Haley and Trump’s actions on Palestinian funding have caused confusion and spurred backlash by officials at various agencies that deal with UNRWA, refugees and relations with allies, including Jordan. Several government officials told me that Haley’s public and private actions on UNRWA funding have gone far beyond what has been agreed on in the interagency process.

Those against totally cutting off U.S. funding for UNRWA argue that the tactic is unlikely to work. The Palestinians have shown no indication that they will make any concessions in response to U.S. pressure. Also, there is a classified U.S. government analysis that outlines the potential humanitarian cost of cutting aid to the refugees. The Jordanian government has expressed concern about the move, and even the Israeli government is not calling for a total cutoff of funds to UNRWA.

“Haley is well-intentioned, but the practical effects of the position she has taken actually will do harm to the refugees, our ally in Jordan, and will leave the Israelis holding the bag when the s–t hits the fan,” one State Department official said.

Trump officials disputed reports that Haley had already been telling other U.N. member countries that the UNRWA aid is “frozen,” and another senior official told me that no final decisions have been made.

But three administration officials confirmed that at a Jan. 5 interagency meeting in Washington, representatives from the State and Defense departments argued for at least partial funding for UNRWA, while the representative from America’s U.N. mission held firm to Haley’s view that no funding should be provided. The decision is technically that of Secretary of State Rex Tillerson, who has yet to personally weigh in. The upcoming Principals Committee meeting is meant to settle the dispute.

A State Department spokesman told me the administration is considering a range of options that take the peace process, humanitarian consequences and national security into consideration. Officials said one option is to give partial funding; another option is to ask others, such as Saudi Arabia, to foot the bill.

Sources close to Haley said she does not advocate abolishing UNRWA altogether, as some pro-Israel Republicans have long advocated. She simply believes that there can be no more business as usual when it comes to giving aid to countries that oppose U.S. policy. This position is shared by White House Chief of Staff John Kelly, national security adviser H.R. McMaster and Jared Kushner.

If that view prevails, there will be consequences for U.S. aid to countries all over the world. Those governments, including the Palestinian Authority, are unlikely to change their behavior in response to Trump’s new approach. But Trump will be able to claim that money was saved and a campaign promise was fulfilled. That’s good domestic politics but bad foreign policy.