The United Nations agency responsible for educating half a million Palestinian children was almost forced to postpone the school year because of sharp funding shortfalls from international aid donors.
The funding crisis in recent months raised serious concerns about the potential for radical groups to seek to exploit so many students out of school.
"That really sent shockwaves through the community," said Pierre Krahenbuhl, head of the UN Relief and Works Agency for Palestine Refugees (UNRWA), during a visit to Canberra on Monday.
"What would happen to 500,000 children out of school? It's not so much the Palestinians themselves, they are thinking about other things, still hoping and dreaming about their own state," Mr Krahenbuhl said.
"But that more radicalised groups would be interested in a large disenfranchised community is something everyone should be paying a lot of attention to."
Mr Krahenbuhl met with Foreign Minister Julie Bishop on Monday to discuss his agency's work, to which Australia is providing $19 million in support this year.
Australia recently reduced funding to UNRWA by around $1 million as part of wider aid budget cuts to the Middle East region.
But Mr Krahenbuhl said the funding shortfall for schools was a result of growing demands on existing budgets, not Australia's aid cut.
The UN provides quasi-governmental services in education and healthcare to more than 5.2 million Palestinian refugees registered in the occupied West Bank and the Gaza Strip, as well as Jordan and Lebanon.
"That's more than the total population, as I understand, of either Sydney or Melbourne, so it's a big community and it's too many people who have been waiting for an elusive solution for too long," Mr Krahenbuhl said.
But the remaining 450,000 Palestinian refugees still in Syria are facing additional hardship from the catastrophic civil war.
"When I visit these communities … what always strikes me is for Palestinian families in Syria, they have already gone through this kind of trauma," he said.
"Now the younger generation is yet another Palestinian generation that experiences the trauma of displacement, of loss of livelihood, of relatives and in a certain sense, loss of hope."
The agency runs on a budget of $744 million and Mr Krahenbuhl said it was inevitable that long-standing Palestinian refugees could be overlooked amid the focus on Syrian refugees fleeing to Europe.
"There are now hundreds of thousands of Syrian refugees that have fled the region altogether, and are on their way to Europe and beyond. But more and more Palestine refugees in Syria, but also elsewhere, are starting to observe that this region just doesn't hold any prospect for a political solution and a dignified future, so they are thinking in larger numbers that maybe it is necessary to leave," he said.
The UN first created the agency to assist Palestinian refugees in 1949, and is often targeted by critics and accused of failing to remain neutral in the long-standing Israeli-Palestinian conflict.
Mr Krahenbuhl said having a mandate to assist one community in a "polarised political environment" meant criticism was inevitable but factual issues would always be addressed.
"I have to say we have a lot of things being said or addressed to us that are not only factually incorrect but are manipulative, but that is part of the environment and landscape that we have to deal with," he said.
