UN relief operations in northwestern Pakistan were partially paralysed today after two foreign UN workers were among 18 people killed in a suicide attack on a luxury hotel in the increasingly lawless city of Peshawar.

Nine international aid agencies also warned that their efforts to help refugees from a military campaign in the northwestern region of Swat were in jeopardy because of a funding shortfall of more than £26 million.

The attack and the funding shortfall have now raised fears that recent military gains against the Taleban in Swat could be undermined by a failure to help the estimated 2.5 million refugees from the region.

The UN, which is leading the relief effort, said that it had removed most of its international staff from Peshawar after the attack on the Pearl Continental Hotel in the supposedly high security Khyber Road area.

Expert View

The devastating blast in Peshawar was intended to sever some of Pakistan's links with the outside world. It will probably succeed

Bronwen Maddox

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Three foreign UN workers, including one Briton, are still recovering from their injuries after the attack, which injured 57 people and reduced one wing of the hotel to a pile of rubble. Another 20 UN workers had been staying in the hotel, but were all accounted for.

Several UN staff who had been due to visit Peshawar cancelled their visits and remained in Islamabad. “We’re re-evaluating our security arrangements and we’ve relocated most of our international staff back to Islamabad,” Hiro Ueki, a UN spokesman in Pakistan, told The Times. “As soon as security conditions permit, we’ll send international staff back.”

He said he hoped that the security review would take only a few days, but could not put a definite time limit on it because of the gravity of the security situation.

The Pearl Continental is the only five-star hotel in Peshawar and was the only place apart from anonymous guesthouses considered safe enough for foreigners. The United States was considering renting offices there for its consulate in the city.

The UN said it remained committed to helping refugees in the area, and that local staff would resume food distribution and other services tomorrow.

But aid workers told The Times that the attack would severely disrupt a relief effort that military commanders say is as important as combat in defeating the Taleban.

“The humanitarian space in which we can operate has already shrunk dramatically in the last year,” said Sarah Crowe, a spokeswoman for Unicef, the UN children’s agency. “The result of this is that we’ll have to be constantly re-assessing our logistics. That could hamper our operations, but the safety of our staff has to come first.”

One of the two UN staff who were killed was Perseveranda So, a Unicef education specialist from the Philippines. The other was Aleksandar Vorkapic, a Serbian information technology specialist for the UNHCR, the refugee agency.

The three injured UN staff, including a Briton identified as Gordon Brown, were working for Unicef. Mr Brown was reported to be in a stable condition, and to have been sent to a hospital in Islamabad for further treatment.

Unicef and UNHCR are working with dozens of international and local NGOs to help an estimated 235,000 displaced people in 21 camps in the northwest. They are also trying to provide relief for the other displaced people, who are mostly staying with friends or relatives or in rented accommodation.

However, they all say they are facing increasing difficulties in delivering their services because of the deteriorating security situation and the shortfall in funding, which could cause some projects to run out of money by the end of the month.

Jane Cocking, Oxfam’s humanitarian director, said: “This is the worst funding crisis we’ve faced in over a decade for a major humanitarian emergency.”

The UN has appealed for $543 million (£333 million) to help the displaced people, but has received only $138 million.

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