JERUSALEM, Jan 31 (Reuters) – Israeli Prime Minister Benjamin Netanyahu called on Wednesday for the closure of the U.N. Palestinian refugee agency (UNRWA) as his forces conducted more air strikes in Gaza amid diplomatic efforts for a ceasefire and release of hostages in the enclave.

Israel has accused some UNRWA staff of involvement in the Oct. 7 Hamas assault in southern Israel that triggered the war in Gaza. Donors including the United States have paused funding pending an investigation, but aid agencies say ending UNRWA operations would wreck humanitarian efforts in devastated Gaza.

The Palestinians have accused Israel of falsifying information to tarnish UNRWA, which was set up to help refugees of the war at Israel's founding in 1948 and to which more than half Gaza's population look to for day-to-day assistance.

"It's time the international community and the U.N. itself understand that UNRWA's mission has to end," Netanyahu told visiting U.N. delegates, according to his office.

He said UNRWA should be replaced by other aid agencies "if we are going to solve the problem of Gaza as we intend to do".

Earlier, U.N. Secretary-General Antonio Guterres described UNRWA as "the backbone of all humanitarian response in Gaza" and appealed to all countries to "guarantee the continuity of UNRWA's life-saving work".

In Gaza, witnesses said Israel had stepped up air strikes on Gaza City, in the north, and bombarded parts of Khan Younis, in the south, despite what appeared to be the most serious peace initiative for months in the Israel-Hamas war.

Hamas, the militant Palestinian group that runs Gaza, is currently studying the proposal, which envisages the release of all remaining hostages seized on Oct. 7. Israel says they number around 136. Hamas has demanded an end to Israel's offensive.

World powers hope to prevent a wider conflict, but tensions in the Middle East remain high after Yemen's Iran-aligned Houthi rebels said they would keep attacking U.S. and British warships in the Red Sea in solidarity with Palestinians.

Relations between Tehran and Washington are also tense after the deaths of three U.S. soldiers in a drone strike in Jordan that U.S. officials blame on Iran-backed militants. Washington has not yet outlined its response, but Iran's Revolutionary Guards said on Wednesday they would respond to any U.S. threat.

Photo from Reuters