World Vision official Mohammed El Halabi appeared before a court today, facing charges of using millions of charity funds to pay Hamas fighters and buy weapons.
The ABC understands the Australian Government has given the charity over $5 million in the past three years for projects in the Gaza Strip.
The Department of Foreign Affairs and Trade said it was suspending the provision of funding to World Vision in the Palestinian Territories until an investigation is complete.
The Israeli intelligence agency Shin Bet claimed Hamas recruited Mr Halabi more than a decade ago.
The agency said since Mr Halabi took over World Vision operations in Gaza in 2010, roughly 60 per cent of World Vision's annual budget in the territory — $US7 million a year — was diverted to Hamas, including its military wing the al-Qassam brigades.