She warned that people found endless humanitarian appeals "unbearable and they become depressed".
"The pictures come in, they flinch and turn away."
Her outspoken analysis provoked immediate denunciation from some aid agencies.
Ms Short, the Cabinet minister in charge of the Department for International Development, told a London conference organised by Dispatches from Disaster Zones that overseas aid should target longer-term development problems, to strike at the heart of many disasters.
She said that the current crisis in Sudan - where an estimated 350,000 people are starving after decades of civil war - was the result of political breakdown, not an act of God.
But she warned: "In recent years, there has been an increase in humanitarian aid and a reduction of aid for development.
"If it is all humanitarian we are just going round in an endless cycle that never reaches a solution. The cycle is fantastically destructive."
While politicians and aid groups should be focusing on the world's capacity for progress in areas like educational standards and fighting poverty, the public at large was developing compassion fatigue, Ms Short said.
"People get really angry when they think progress is possible but the steps aren't being taken politically," she said.
"Out of genuine compassion, we are trapped in a destructive cycle that is preventing us mobilising the political will to go forward."
Ms Short urged aid agencies to talk to her about switching the emphasis of their work towards longer-term development and improving public awareness.
"What I'd like to consider is that we cease to do those kinds of appeals. We could do positive advertising.
"I don't believe there is a lack of compassion among people, but there is a deep despondency that is paralysing."
But Peter Walker, director of disaster policy for the International Federation of Red Cross and Red Crescent Societies, said last night: "It is a little bit like blaming 999 crews because we have a lot of road accidents."
He described Ms Short's speech as "good analysis, wrong conclusion".
Alberto Navarro, director of the European Community Humanitarian Office, said: "Humanitarians aren't at all responsible for conflicts. These confrontations between humanitarians and development - we are two sides of the same coin. We have the same objectives."
But he warned that Ms Short's speech could provoke a switch in emphasis to "trade not aid" - encouraging poorer countries to develop their economies while limiting the supply of overseas aid.
"Unfortunately, in the present world, trade and aid are needed. Appeals are not only for raising money but also for raising awareness."