While this action places a bit more pressure on the coup government it will probably not be enough to force them to agree to Zelaya returning. The military, many Church leaders, and also some business leaders favor the Arias accords. After all, Zelaya would be a lame duck president for a few months and everyone is granted amnesty. The coup leaders must feel that they have enough supporters in the US, Panama, Colombia and elsewhere to weather the storm rather than lose face by changing their positions.
As the article mentions, the U.S. could implement a full trade embargo and that would very soon bring the regime to the bargaining table again or it could freeze U.S. bank accounts of Honduran coup leaders.
US halts aid over Honduras coup
Honduras could lose $200m as a result of the US decision
The US has halted all non-humanitarian aid to Honduras - about $30m (£18.4m) - in the wake of June's coup.
The state department said the US needed to take strong action given the failure of the replacement regime to restore "democratic, constitutional rule".
Left-leaning President Manuel Zelaya was ousted from power and forced to leave the country on 28 June.
The US aid decision came as he met Secretary of State Hillary Clinton in Washington.
"With this decision of the United States, the countries of the Americas have formed a single bloc in condemning the coup," Mr Zelaya was quoted as saying by the AFP news agency.
A government has been installed in Honduras under interim leader Roberto Micheletti, who has refused to allow Mr Zelaya back into Honduras.
The US said it would not, at this stage, recognise elections scheduled for November as legitimate.
Stephen Gibbs, BBC News, Honduras
Much of the money was to be spent on rebuilding a main road across the country, something which the embattled leadership can presumably do without.
The measure which the US could take, but appears not to be contemplating, is a full trade embargo - 70% of the Honduran GDP depends on trade with the US.
Without that, it would appear unlikely the country could operate for more than a few weeks. But instead, the stalemate continues.
Honduras is, just about, surviving its worldwide diplomatic isolation. Businesses remain open, as are borders and airports. The government wants to give the impression both to its population and the outside world that everything is continuing as normal.
A state department spokesman said: "There's a sense that the de facto regime was thinking if we can just get to an election that this will absolve them of all their sins.
"That is not the case."
The terminated aid included $9.4m from the Agency for International Development, $8.96m from the State Department and $1.7m in security assistance.
About $11m from the US Millennium Challenge Corporation, given to countries with a track record of sound governance and economic policy, would also be cut.
The US said "strong measures" were needed because the government had yet to adopt the San Jose Accord, a plan brokered by Costa Rican President Oscar Arias, which - if agreed - would return Mr Zelaya to a limited form of power until elections scheduled for November.
The US aid decision was described as "not very friendly" by Honduran officials, AFP reported.
"We regret that a friendly government of a friendly country and people would take the decision to side with [Hugo] Chavez," said the head of Honduran cabinet, Rafael Pineda Ponce, referring to the president of Venezuela.
Mr Chavez, Latin America's most prominent leftist leader and no friend of the US, has sought to isolate Honduras since Mr Zelaya's ouster.
However, the suspension of US aid to Honduras does not mean the US believes that Mr Zelaya's removal officially meets the legal definition of a military coup d'etat, officials said.
In a statement, the state department said it recognised the "complicated nature" of the events leading to Mr Zelaya's removal, which included constitutional disputed in the Honduran courts.
Meanwhile, Brazil has suspended visa-free travel for all Hondurans in response to the coup.
By blocking new visas for Hondurans, Brazil hopes "to promote the immediate restoration of President Jose Manuel Zelaya to the functions to which the Honduran people elected him," the country's foreign ministry said in a statement.