American aid to the Palestinians is in jeopardy over their ties to the terrorist group Hamas, unwillingness to restart negotiations with Israel and push for statehood at the United Nations over U.S. resistance, congressional Republicans and Democrats warned on Tuesday.

Senior Obama administration officials insisted that the assistance — some $550 million requested this year — is critical to peace and stability in the Mideast and to boosting Palestinian security forces and the economy. They cautioned that cutting off aid would have serious repercussions.

“Our assistance to the Palestinian people is an important building block of our efforts to achieve a comprehensive peace in the Middle East that will allow all people there — Israelis, Palestinians and others — to live their lives in peace, in dignity and in security,” Jacob Walles, deputy assistant secretary of state for Near Eastern Affairs, told a House panel.

With Congress likely to decide on foreign aid sometime in the fall, lawmakers signaled that U.S. assistance to the Palestinians could be eliminated as the two rival Palestinian leaderships — the secular Fatah and the Islamist Hamas — reconcile and try to form a new government. Israel and the U.S. consider Hamas a terrorist organization.

“I would suggest to the Palestinian Authority leadership that when you get into a cage with a tiger, you’re not a partner; you’re a lunch,” said Rep. Gary Ackerman of New York, the top Democrat on the House Foreign Affairs subcommittee on the Middle East and South Asia.

A 2006 law conditions aid to the Palestinians based on whether they acknowledge Israel’s right to exist, renounce violence and agree to abide by past agreements.

“As a matter of both law and basic decency, we will never do business with or provide aid to a government controlled by or reporting to terrorists,” Ackerman said.

Walles said the prospects from the agreement between Fatah and Hamas has been “very uncertain,” but if a new government emerges, the U.S. would review the aid and make sure any assistance conforms with the 2006 law.

Further threatening the money is the Palestinians’ drive to seek recognition of an independent state at the United Nations in September. The United States has been unable to persuade the Palestinians to abandon the effort. Israel and the U.S. back an independent Palestine but oppose efforts to create one without negotiations. The showdown in the United Nations could come at the same time Congress is deciding on Palestinian aid.

Signaling that both sides face a “watershed moment” in the U.S.-Palestinian relationship, Rep. Steve Chabot, R-Ohio, chairman of the subcommittee, questioned the administration’s contention that U.S. assistance provides “strong leverage” with the Palestinians when they have reached agreement with Hamas, continue to pursue U.N. recognition and refuse to commit to new peace talks with Israel. Since the mid-1990s, the United States has provided more than $4 billion to the Palestinians.

Late Monday night, the United States, the United Nations, the European Union and Russia were unable after hours of talks to produce a unified statement on how to proceed to negotiations, a modest goal of the meeting.

“Is it that our assistance hasn’t given us leverage in this regard or that we haven’t really used it?” Chabot asked. “The Palestinian Anti-Terrorism Act requires the Palestinian Authority to stop incitement and recognize the Jewish state of Israel’s right to exist if it wants to keep receiving U.S. assistance. Given the Palestinian Authority’s record and given U.S. law, how can we justify continued assistance?”

Walles insisted that U.S. aid does give the administration leverage and he argued that Palestinian Authority, led by President Mahmoud Abbas of Fatah, is committed to a two-state solution and peace with Israel.

The administration officials — Walles was joined by Air Force Lt. Gen. Michael Moeller, the U.S. security coordinator for Israel and the Palestinian Authority, and George Laudato, the administrator’s special assistant for the Middle East at the U.S. Agency for International Development — were unable to tamp down congressional concerns.

“Surely, you all can understand how that is troubling to people in Congress that we — and frankly, I think, to the citizens of this country — that we continue to provide substantial aid and we feel like we are not getting cooperation,” said Rep. Ben Chandler, D-Ky. “That is the situation that I think a lot of us feel cannot continue and, at some point, we’re going to have to just say, you know, if you guys are not going to cooperate, we’re going to have to cut the aid off.”

Last week, the House overwhelmingly backed a resolution calling on the Obama administration to consider suspending aid to the Palestinian Authority in light of the deal between the government and Hamas.

Chabot also pressed Walles on how much Arab countries have contributed to the Palestinians over the years. Walles said it was $1.8 billion since 2007, with Saudi Arabia contributing the most, but the amount has decreased in the past few years.

In 2009, the Arab countries gave $462 million, a contribution that dropped to $287 million in 2010 and $78.5 million this year.

“It seems the United States gets a lot of criticism on us not being supportive enough for this two-state solution. But they’re getting a lot of lip service, I think, from a lot of the Arab countries, and it needs to stop,” Chabot said..