"Don't worry," the Israeli soldiers told her. "The Europeans will come and rebuild."
Ashrawi, a senior official in the Palestine Liberation Organization (PLO), told the story on Tuesday to highlight the futility of financial aid to Palestinians if that assistance does not address the roots of the conflict: the Israeli occupation.
Her comments come as the administration of US President Donald Trump prepares for a workshop next week in Bahrain that will address the needs of the Palestinian economy.
"The issue is not money; the issue is the occupation," Ashrawi said.
"The issue is the fact that we have no rights, that Israel steals our land and our resources, controls our boundaries, our entry and exit points, our airspace, our territorial waters; it controls our lives."
'Fictitious peace plan'
The veteran Palestinian academic, rights advocate and PLO executive committee member was addressing an audience at the Arab Center Washington DC via video feed, after she was denied a visa to the US last month - a decision she called "petty and vindictive" on Tuesday.
"There is no real reason to deny me a visa, unless it is the fact that they don't like my criticism of this administration - of their positions, of their illegal, unilateral actions and of their fictitious peace plan," Ashrawi said.
Jared Kushner, Trump's son-in-law and senior adviser, is said to be working on a peace deal to solve the conflict, but no details have emerged of the supposed plan, and its release date has been postponed repeatedly.
Ashrawi said Palestinians are already living under the effects of Trump's policies, and she questioned whether the so-called "deal of the century" exists at all.
"So far, the only thing we have seen of this deal are the concrete steps that the US took that are prejudicial and illegal and in full, blind support for the most extreme elements of Israel, and the sort of fictitious economic plan," Ashrawi said.
Since coming to power in 2017, Trump has declared Jerusalem Israel's capital, closed a US consulate that serves Palestinians in the holy city, shut down the PLO's office in Washington and cut off funding to the UN agency for Palestinian refugees (UNRWA).
Moreover, Trump administration diplomats have refused to commit to finding an agreement that would lead to the creation of a Palestinian state.
'Who's going to invest in a state that is under siege or in a state that has hundreds of checkpoints?'- Hanan Ashrawi
Earlier this month, Washington's ambassador to Israel, David Friedman, also said that Israel has the right to annex parts of the West Bank.
Still, Kushner and other US officials have criticised Palestinian leaders for refusing to take part in the Bahrain summit, accusing them of depriving their people of opportunities for new investments and economic benefits.
That claim was rejected by Ashrawi, who said the US administration is offering Palestinians "cosmetic changes" to make their "prison cell a bit more palatable".
But even that will not work, she said.
"Who's going to invest in a state that is under siege or in a state that has hundreds of checkpoints, or in a place where you have no security and no stability?" she concluded.