Theresa May has been urged to cut British aid to the Palestinian Authority by 14 per cent unless it stops funding families involved in violence against Israelis.
Labour Friends of Israel has written to the Prime Minister to call for the government to take a new approach to the issue.
LFI wants the money to be diverted instead to a peace fund which would be donated to Palestinian youngsters.
Britain is currently engaged in an aid programme which will see £125 million of funding given to the PA by 2021.
In a letter to Mrs May this week, Joan Ryan, LFI chair, and her fellow MP, Ian Austin, called for a tougher line from Britain and accused ministers of being “asleep at the wheel”.
The JC understands that LFI wants to step up pressure on the government as scrutiny of the distribution of UK aid money increases.
The group said the PA spent seven per cent of its budget on payments to “terrorist prisoners and the families of so-called ‘martyrs’” last year. It wants UK money to be cut back by double that amount until the PA payments to terrorists’s families stop.
LFI called on Mrs May to publish an annual review run by the Department for International Development into the PA’s compliance with agreed guidelines on non-violence and human rights — the “partnership principles” set out by Britain as a condition of the funding.
“The public have an absolute right to know that money is being spent appropriately and that it is achieving its intended purposes,” the Labour MPs told the Prime Minister.
In the letter, Ms Ryan and Mr Austin said ministers had failed to fully answer questions about 20 specific examples of incitement which had been raised with them.
The MPs also cited two cases relating to Palestinians who had carried out attacks on British citizens and had been paid “thousands of pounds” by the PA.
They want Mrs May to order ministers to reveal to Parliament full details of their discussions with the PA over incitement in the past year.
“There are no signs of any let up in the drumbeat of hate, glorification and incentivisation of terrorism pumped out by the PA,” the MPs said.
Their letter to Mrs May added: “British cash to the PA effectively frees up other money for Ramallah to incentivise terrorists.
“The government must take a new, more transparent and tougher approach.”
Downing Street had not responded to the letter when the JC went to press.