Ahmad Musa looks like a character in a gangster movie with his black leather jacket, slicked back hair and self-possessed stare. Perhaps this is unsurprising: he first went to jail aged 15 and has been behind bars for double murder.

As this stern man sits beside me, I ask him if he killed the two men as charged? He pauses, then replies softly: "Yes, I shot them dead."

Yet Musa was released after just five years. For he is a Palestinian activist, the men he killed were alleged collaborators with Israel, and he was freed under a peace deal.

Despite a subsequent arrest and nine-year sentence for shooting at Israeli troops, he is hailed a hero by his supporters for fighting the occupation.

So like thousands of Palestinian prisoners - including jihadist bombers and killers of children - he has been awarded a "salary" for life. Musa gets £605 per month; others get much more. If they die, the cash can go to their family.

These men are seen as terrorists by Israel and many in the West. Yet money to the body behind these "rewards for murder" flows from British and European taxes, leading to accusations that aid is "subsidising mass murder" with "incentives" for terrorist outrages.

The UK cash comes from the Department for International Development (DfID), giving up to £25.5 million this year to the ruling Palestinian Authority (PA) as part of a £72m package. It also provides billions to the European Union and World Bank, both big donors to Palestine.

Yet my investigation for the Mail on Sunday discovered that the PA passes millions on to the Palestinian Liberation Organisation (PLO) - which in turn gives it to convicted terrorists locked up in Israeli prisons and their families.

DfID accepts the PLO makes such payments, calling them "social welfare" provisions for prisoners' families. But it insists no cash coming from British taxpayers reaches terrorists.

Yet although the PLO took over such payments from the PA two years ago following an international outcry, British aid was handed to the PLO until last year.

And the PA openly boasts of still funding salaries of convicted terrorists, even in its own official statements. Former prisoners and families of terrorists also confirmed receiving cash from both the PA and the PLO; others have been given well-paid jobs.

The Mail on Sunday revelations were part of a wider investigation into abuse of British aid. A petition asking parliament to debate the absurd new legislative requirement to give away 0.7 per cent of national income reached the necessary 100,000 signatures in less than 24 hours.

These payments to Palestine seem a classic example of the core aid problem of "fungibility" - when foreign cash supporting public services frees up a regime to spend money in other questionable areas, which all too often fuels conflict or corruption.

Near Ramallah I saw a plush new £9m palace being finished off for Mahmoud Abbas - a president whose domain is so dependent on aid that last year his Palestinian Authority had to pass an emergency budget when some was held up by Israel.

In Gaza I found thousands of civil servants queueing up at banks to get salaries supported by British and European Union aid. Yet they had not worked for nine years, a by-product of feuding between Fatah and Hamas. Many admitted having second jobs.

But clearly the concept of aid assisting terrorism is the most damaging charge, especially amid heightened concerns after the deadly suicide attacks in Belgium and France.

Backbenchers called on the government to get a grip. "How can we justify foreign aid as a noble endeavour when taxpayers' money goes to pay terrorists," asked Conservative MP Andrew Percy.

He is right to pose this question. The four million Palestinians in the West Bank and Gaza receive the highest aid support per head in the world, given 30 times more than people in war-torn Democratic Republic of Congo.

Clearly Palestinians face unique problems given the checkpoints, tough crackdowns and illegal settlements confronting them.

But critics say the surge of knife attacks and stabbings against Israelis are encouraged by the PA diverting funds from public services and fighting poverty into generous salaries for arrested terrorists. Highest sums go to those convicted of the worst crimes and serving the longest sentences.

Recipients include Hamas killers such as Abdullah Barghouti, given 67 life sentences in 2004 for attacks including a Jerusalem restaurant bombing that killed 15 people. He is said to have earned £106,000 since his conviction, paid to him or whoever he designates.

"Aid is most certainly being abused," said Tzipi Hotovely, Israel's deputy foreign minister. This serves as a huge financial incentive to carry out acts of terror against Jews.

"Is it imaginable for a Western government to contemplate subsidising acts of mass murder and terror in this fashion? Yet that is effectively what is happening."

She was backed by Arnold Roth, whose 15-year-old daughter Malki died in the restaurant attack.

He said: "Western governments enable the PA to keep afloat its hideous rewards for terror scheme - and the consequence is a rising tide of deaths on their side and ours."

Several ex-prisoners confirmed to me they were paid monthly stipends that started in jail. One said they also received a "bonus" on leaving prison and lucrative civil service job offers, the most senior posts going to those serving more than 15 years behind bars.

"Many are not capable of doing the jobs they are being paid to do. I went to university, but these are people without the ability to be managers, especially after 20 years in jail," said the source, who works for the interior ministry.

The cash-strapped PA relies on foreign aid for nearly half its budget. Yet it is effectively giving £79m a year to prisoners, former prisoners and their families - although ministers admit this is a "serious burden" on finances.

PA officials defend the stipends. "It is not a crime to be fighting occupation," said Amr Nasser, adviser to the minister of social affairs. "These people are heroes. We could be giving them much more money and it would not be enough."

Nasser added that after independence, Palestinians would seek reparations from Britain for its historic role in encouraging Zionism. "You should pay us more money."

Although DfID says the salaries are "social welfare" provisions for prisoners' dependents, this is Orwellian use of language since they go only to people convicted of "acts of resistance", not other criminals.

The PLO supposedly took over the payments after criticism in Westminster, Brussels and The Hague.

Yet the father of brothers jailed for gun attacks on Israeli settlers and soldiers told me he received monthly payments of £428 from the PA as well as £285 from the PLO.

A new report by Palestinian Media Watch, an Israeli NGO, suggests Western donors have been duped. It details a series of documents and official statements exposing how the PA continues to fund salaries of convicted terrorists.

Evidence includes the Ministry of Finance saying last year in an official statement that it transfers almost half its budget to Gaza, adding that this included "the salaries of prisoners, the released and the families of the Martyrs and wounded".

The report also reveals the PA transferred an extra 444m shekels (£81m) to the PLO in 2015 - significantly, only marginally more than the 442m shekel budget given to its own Ministry of Prisoners' Affairs the previous year before it transferred responsibility.

Itamar Marcus, the report's author, argues the move was a facade to appease donors.

"There is willful blindness by the UK and EU, who were happy not to even carry out the simplest investigation," he said.

"This money sends a message to people that it is heroic to kill Israelis. And it gives these people a social status, so they can buy nice cars and kids aspire to be like them."

The group also discloses two cases of individuals claiming to have carried out attacks for cash. In one Khalad Rajoub, a father-of-seven arrested for attempted murder two years ago, told police he had big debts and planned to die during an attack.

"I decided to do something serious something like a murder," Rajoub reportedly said. "I would be killed and so my family would get money and live comfortably… my children would get a monthly allowance."

Meanwhile despite high unemployment, widespread poverty and one in three Palestinians on food aid, President Abbas has poured funds into an impressive palace sitting high on a hill in Surda.

"This is like a five-star hotel," said one security guard, showing off the fine limestone walls. "It has two helipads, two swimming pools, jacuzzi, restaurant, all the latest technology."

In a nearby refugee camp I asked the council leader his view of the palace. "I want to demolish it myself," said Mahmoud Mubarak. "When a young Palestinian sees this building going up they wonder why it is being built with funds that should go on the people."

DfID boasts about aid for West Bank schools. Many are named after terrorists who have killed children, while pupils join sports events named after the likes of Muhannad Halabi, a teenager whose deadly stabbings last October sparked the latest bloodshed.

Yet David Cameron has condemned the "obscenity" of Palestinian football tournaments named after suicide bombers. "We will not tolerate incitement to terrorism," he told Conservative Friends of Israel in 2012.

The UK pours so much aid into Palestine that the Foreign Office even spent £10,300 on the team's kit for the 2012 Olympic Games in London, according to its own reports.

Jibril Rajoub, chairman of the Palestinian Olympic Committee, congratulates "martyrs" such as Halabi for "heroism" while his organisation hosts events named after terrorists behind savage atrocities.

The same killers are also routinely praised on state-funded television, say Israeli critics, even by presenters of children's shows.

Partly this is a matter of perspective: the old adage one person's freedom fighter is another person's terrorist. Given the occupation, settlements and brutality of Israeli clampdowns, it would be very wrong to condemn all Palestinians who end up in jail.

Yet amid an intense struggle against militant Islam, it seems astonishing Britain and the EU are linked to the funding of bloodstained terrorists and jihadist bombers.

Even one PA figure defending the payments confessed he did not like seeing cash go to child killers.

Yet those being paid also include Amjad and Hakim Awad, cousins who five years ago slaughtered three young children along with their parents Ehud and Ruth Fogel in a West Bank settlement. It is estimated Amjad alone may have been paid up to £16,000 so far.

DfID defended its aid support, insisting none of its cash went to prisoners or their families.

A spokesman said: "This funding helps build Palestinian institutions and promotes economic growth so that any future state will be a prosperous and effective partner for peace."

DfID sources also said payments to civil servants only went to people on an approved EU list and that the government takes extensive precautions to ensure British aid does not support Hamas "either directly or indirectly".

This is an extended version of an article that first appeared in the 'Mail on Sunday'. The paper's petition demanding parliamentary debate over Britain's decision to give away 0.7 per cent of national income in aid can be found here: https://petition.parliament.uk/petitions/125692