The Palestinian Authority has called on President Barack Obama to end tax breaks on American donations to Jewish settlements in the West Bank.
The move would be more in line with stated US policy that settlements were an obstacle to peace, the PA argued.
The New York Times recently identified 40 US groups that have collected $200m (£130m) in tax-deductible donations over the last decade.
The gifts went to Jewish settlements in the West Bank and East Jerusalem.
"It simply makes no sense that on one hand the American government says the settlements are one of the primary obstacles to peace, and on the other hand gives tax credits for funding the settlements," said Ghassan Khatib, head of the Palestinian Government Media Center, in a statement.
President Obama has called for a halt to Israeli settlement building, saying it undermines efforts to restart peace talks.
Palestinian President Mahmoud Abbas has said there can be no direct talks without a full settlement freeze.
According to the New York Times report, the American donations mostly go to schools, synagogues, recreation centres and other legitimate expenditures under US tax law.
But the money has also paid for housing, guard dogs, bulletproof vests, rifle scopes and vehicles to help secure outposts deep in occupied areas, the newspaper reported following an investigation of public records.
Close to 500,000 Jews live in more than 100 settlements built since Israel's 1967 occupation of the West Bank and East Jerusalem.
They are considered illegal under international law, although Israel disputes this.