Speaking at his weekly Cabinet meeting, Netanyahu also reiterated his support for Trump's threat to cut aid to the Palestinians. The remarks came after Israeli media reports indicated that despite its public declarations, Israel was actually concerned about the ramifications of such a move.
Critics say an aid cut could lead to a humanitarian crisis and that in the absence of UNRWA, Israel, as an occupying nation, could get stuck with the bill for providing services to Palestinians. A collapse in UNRWA could also open the way for the Hamas militant group to gain influence.
Netanyahu suggested UNRWA's budget should be transferred to the more far-reaching United Nations High Commissioner for Refugees, where it would be allocated to those truly in need.
"UNRWA is an organization that perpetuates the Palestinian refugee problem. It also perpetuates the right of return narrative in order to eliminate the state of Israel. Therefore UNRWA must become a thing of the past," he said.
Netanyahu voiced a common Israeli criticism that UNRWA was created specifically for the Palestinians, while the UNHCR deals with the rest of the world's refugees.
"This of course creates a situation where great-grandchildren of refugees who are not refugees are treated as such by UNRWA. And 70 more years will pass and they will have great-grandchildren, so this absurdity must be stopped," he said.
Hundreds of thousands of Palestinians either fled or were forced from their homes during the war that surrounded Israel's establishment in 1948. Today, there are an estimated 5 million refugees and their descendants, most scattered across the region in Jordan, Lebanon, the West Bank and Gaza Strip.
Trump, along with his U.N. Ambassador Nikki Haley, has been railing against aid to the Palestinians as part of the fallout of his recognition last month of Jerusalem as the capital of Israel. The Palestinians have strongly protested the decision, and Trump has threatened to take action against those who challenged him.
The United States, which provides hundreds of millions of dollars a year for the Palestinians, could inflict great pain on the Palestinians by cutting off aid.
Yet it could also have a negative effect on Israel, which also relies on the Palestinian Authority to help maintain calm. Israel captured the West Bank, Gaza Strip and east Jerusalem - areas claimed by the Palestinians for a future state - in the 1967 Mideast war.
The U.S. is the largest donor to UNRWA and ending its aid could have a particularly damaging effect in Gaza, where the majority of residents are eligible for its services. Critics have warned that thousands of children could turn to Hamas schools, for example, if UNRWA schools are forced to close.
The U.S. donated $355 million to UNRWA in 2016, nearly 30 percent of its total funding. A large portion of the organization's activity is focused on providing health care, education and social services to Palestinians in the West Bank, Gaza Strip, Jordan, Syria and Lebanon.
UNRWA spokesman Chris Gunness said it had not been informed of any changes to U.S. funding at this time and responded to Netanyahu by saying that only the U.N. General Assembly could alter their mandate.
"What perpetuates the refugee crisis is the failure of the parties to deal with the issue. This needs to be resolved by the parties to the conflict in the context of peace talks," he said.
Also Sunday, an Israeli rights group said that local authorities have only brought indictments in about one in 10 ideologically-motivated attacks against Palestinians in the occupied territories.
In an annual report, Yesh Din said it monitored 225 investigations since 2014. Of the 185 files processed, it said just 21 had resulted in indictments - an 11.4 percent rate. Though the figures marked an increase over previous years, it said its findings still showed that Israel "fails to fulfill its duty to guarantee the safety of the Palestinian public."
As a result, Yesh Din said Palestinians have been increasingly refraining from turning to police to report crimes.
Yesh Din is often critical of Israeli authorities and government policies in the West Bank.
Israeli police spokesman Micky Rosenfeld said the force thoroughly investigates every complaint and doggedly acts "against all forms of nationalist crime, regardless of the perpetrator's identity or origin."
Copyright 2018 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.