The Biden administration plans to restart aid to the Palestinians, rolling back a 2018 Trump suspension in a move set to trigger new tensions with close US ally Israel.

The state department said on Wednesday it was seeking to give $235m to the Palestinians, including $150m for the UN refugee agency for Palestinians, UNRWA, and $75m for development assistance in the West Bank and Gaza.

“The United States is pleased to announce that, working with Congress, we plan to restart US economic, development and humanitarian assistance for the Palestinian people,” Antony Blinken, US secretary of state, said in a statement.

He said that US foreign assistance for the Palestinian people served “important US interests and values”, and that Washington saw advancing prosperity, security and freedom for both Israelis and Palestinians “as a means to advance towards a negotiated two-state solution”.

The announcement marks one of the first concrete moves from Joe Biden’s administration to repair relations with the Palestinians, seeking to fulfil a campaign promise to roll back some Trump-era policies that were seen as favouring Israel.

Under Donald Trump, Washington recognised Jerusalem as the capital of Israel and moved the US embassy there. It also launched a diplomatic effort to normalise ties between Israel and several Arab nations, including the United Arab Emirates and Bahrain, in moves seen as undermining the Palestinians’ cause.

While the Biden administration has no plans to reverse those moves, it has signalled it would restore a greater sense of balance to relations with both Israel and the Palestinians, who cut off talks with the Trump administration over efforts to strike a peace deal it saw as one-sided.

Biden spoke to Israeli prime minister Benjamin Netanyahu four weeks into his presidency, after he had already talked with other traditional US allies such as the UK, France and Germany.

Gloria Steele, acting administrator of the US Agency for International Development, said the US had given more than $5bn to support the Palestinians since 1994 and that the new injection of money would help Palestinians meet “basic needs, re-engage Palestinian society and support economic recovery from the Covid-19 pandemic”.

The Trump administration and Israel have both criticised UNRWA as deeply flawed and biased against Israel.

“Obviously, there are areas where we would like to see reform,” said Ned Price, state department spokesperson, at a press briefing on Wednesday, saying it was better to “have a seat at the table”.