Britain will restore funding to the UN’s Palestine relief agency Unrwa, the foreign secretary has announced, in Labour’s first major departure from the previous government’s stance towards the Middle East crisis.

David Lammy told MPs on Friday he had decided to unfreeze funding, which was suspended in January after Israel alleged that Unrwa staff were involved in the 7 October attack by Hamas. Catherine Colonna, a former French foreign minister, carried out a review of the allegations for the UN earlier this year but said she was given no evidence by the Israelis to back up their claims.

Lammy’s decision marks a rare split between the UK and the US on policy towards Gaza, leaving the US as the only country not to have restored funding.

Lammy told the Commons: “I was appalled by the allegations that Unrwa staff were involved in the 7 October attacks. But the UN took these allegations seriously … We are reassured that after Catherine Colonna’s independent review, Unrwa is ensuring they meet the highest standards of neutrality and strengthening its procedures including on vetting.”

He added: “Unrwa has acted. Active partners like Japan, the European Union and Norway have also now acted. This government will act. I can confirm to the house that we are overturning the suspension of Unrwa funding.”

The UK will now provide £21m in funding to Unrwa, to be spent on food, emergency shelter and other basic services for millions of people in Gaza and the West Bank.

Lammy’s decision came after concerted pressure from prominent Labour figures to reverse the funding ban.

Earlier this week, Labour Friends of Israel gave a briefing to MPs calling for the funds to be unfrozen, saying it was necessary to alleviate humanitarian suffering in the short term. Meanwhile a group of Labour backbenchers was preparing to table an amendment to the king’s speech calling on ministers to do so.

Lammy visited Israel and the occupied Palestinian territories last weekend, while Keir Starmer has spoken to Benjamin Netanyahu, the Israeli prime minister, and Mahmoud Abbas, the president of the Palestinian Authority, since becoming prime minister.

The foreign secretary said he had decided to restore funding for Unrwa in part because of the blocks Israel has placed on aid entering Gaza. “Israel promised a flood of aid back in April, but imposes impossible and unacceptable restrictions,” he said.

He defended Israel’s right to self-defence and condemned the drone attack on Tel Aviv overnight. But he also gave a passionate defence of Palestinian statehood, saying: “Civilians in Gaza are trapped in hell on earth. And the Palestinian people have been in purgatory for decades, denied the state that is their inalienable right.”

Lammy would not say, however, whether the government would now drop its efforts to delay a decision by the international criminal court on whether to issue an arrest warrant against Netanyahu for war crimes in Gaza.

The previous government had told the ICC it intended to lodge an appeal contesting the court’s jurisdiction over Israeli citizens. The Guardian revealed last week the government was unlikely to continue that appeal, allowing the court to proceed with its decision, but ministers have not yet confirmed their stance on the issue.

The foreign secretary also refused to say whether he intended to publish the government’s legal advice on continuing to supply Israel with weapons. Pushed to do so by the Liberal Democrat MP Munira Wilson, Lammy said: “I will seek to make my decision with full accountability and transparency.”