Young people in disadvantaged areas are becoming more vulnerable to paramilitary influence due to unemployment and disillusionment with the peace process, the chairman of the International Fund for Ireland (IFI) has said.
Adrian Johnston called for more resources to be devoted to steer young people in Northern Ireland away from crime.
He said: "We cannot escape the reality that too many young people in both loyalist and republican communities do not have appropriate opportunities to move forward and are being targeted for recruitment or attack by paramilitaries.
"The willingness to embrace sectarian violence is an urgent reminder of the pressing need to look again at the support available to young people and the underlying causes of sectarianism."
The IFI was established by the British and Irish governments as an international independent organisation to attract peace-building money from the US, EU, and other countries.
Dr Johnston was addressing a cross-border and cross-community youth event in Monaghan.
"In difficult disadvantaged neighbourhoods, traditional youth programmes are simply no longer enough to address the multiple issues that impact on young lives.
"We need to be ambitious and creative in the range of options that are available and the ways in which we engage."
He said his organsiation's Peace Impact Programme committed more than £4 million (5.5 million euros) to 56 community projects across Northern Ireland and the border counties of Ireland that have taken measured risks to reconnect with marginalised individuals and groups who remain excluded from government and other interventions.
"In less than two years, they have yielded impressive results and brought positive changes in very difficult areas. The potential for violence has been reduced and many participants are finding employment and positive leadership roles in their community.
"The demand for this type of programme greatly outstrips the resources we can dedicate to it and must be a priority for other funders in forthcoming months."
The Northern Ireland Council for Voluntary Action (NICVA) has said p ublic expenditure will drop year on year in real terms during the life of the Executive's next comprehensive spending review and claimed public finances were in crisis.
Monina O'Prey, programmes manager with the Community Foundation Northern Ireland, said: "Sectarianism, unemployment, increasing poverty and disadvantage, combined with lack of positive opportunity for young people, must be of concern to agencies and society in general. Our youth are our future and deserve investment.
"Disaffection from the peace process, easy access to drugs and legal highs, isolation and rising suicide rates, are complex issues that deeply affect vulnerable young people on both sides of the border.
"Getting conversations about divisive issues on the table is crucial and is pivotal to developing responses at times of tension."