Relations between the United States and Israel have soured during President Barack Obama's administration, reaching a low point late last month when Washington cleared the way for a UN resolution demanding an end to Israeli settlements, and declaring all building in the West Bank and eastern Jerusalem as illegal.
Obama's secretary of state, John Kerry, has said the settlement program threatened Middle East peace and described a two state solution as being in "serious jeopardy". Trump has said he will pursue more pro-Israel policies after taking office on January 20.
"The reality is just that right now there is no such thing that one can call a peace process for Israel and Palestine. And it's a very big risk that the world is taking," Pierre Kraehenbuehl, UNRWA commissioner-general, told a news briefing.
He said re-investing in a meaningful political process should be "the absolute top priority".
Kraehenbuehl's remarks came a day after a Palestinian terrorist ploughed a truck into a group of Israeli soldiers on a popular promenade in Jerusalem, killing four. Prime Minister Benjamin Netanyahu said the attack was likely inspired by ISIS.
Kraehenbuehl declined to comment on Trump's pronouncements but hoped the United States would continue to be the top donor to his agency that helps 5.2 million Palestinian refugees.
Among them, the 1.2 million refugees in the Gaza Strip and West Bank faced "the most critical situation of their prolonged displacement" which began in 1948, Kraehenbuehl said.
He said it was a scandal that the number of Palestine refugees receiving food aid in Gaza had increased ten-fold to 911,000 since 2000. On Monday UNRWA appealed for $813 million for Palestinian refugees in the territories and Syria.
More than half of all Palestinians were born after the 1993 Oslo peace accords that were meant yield a two state solution, Kraehenbuehl said.
"They were told since they were born that if you embark on negotiated processes ... there will be a reward at the end of the road, which is a stable state of Palestine living in peace and security side-by-side with Israel," he said.
"This has not happened and of course can lead to further serious and significant developments."