The Donald Trump administration cut more than $20 million in aid to hospitals in Israel-occupied city, according to the newspaper.
The cut is part of the administration's broader approach of cutting aid to the Palestinians, a U.S. State Department official told Haaretz.
On Thursday, Trump said that he stopped paying money to the Palestinians until they reach a peace deal with Israel.
"I stopped massive amounts of money that we were paying to the Palestinians and the Palestinian leaders. We were -- the United States was paying them tremendous amounts of money," he said. "And I'd say, you'll get money, but we're not paying you until we make a deal. If we don't make a deal, we're not paying."
The fresh U.S. aid cut could cause harm to at least five hospitals in East Jerusalem, including Augusta Victoria hospital and the St. John Eye Hospital, which is the main provider of eye treatments for Palestinians in the West Bank and East Jerusalem.
Dave Harden, a former USAID assistant administrator, warned that the U.S. aid cut puts August Victoria hospital in East Jerusalem at risk of "collapse".
Notably East Jerusalem hospitals provide medical services to Palestinians not only in East Jerusalem but also those in the West Bank and the blockaded Gaza Strip.
Last week, Washington ended all of its funding for the UN agency for Palestinian refugees UNRWA.
The U.S. was -- by far -- UNRWA's largest contributor, providing it with $350 million annually -- roughly one quarter of the agency's overall budget.
Palestinians have rejected any U.S. mediation since Trump officially recognized Jerusalem as the capital of Israel.
Jerusalem remains at the heart of the Israel-Palestine conflict, with Palestinians hoping that East Jerusalem -- now occupied by Israel -- might eventually serve as the capital of a Palestinian state.
