President Mahmoud Ahmadinejad warned on Tuesday that world powers would regret any moves to slap new sanctions on Iran, while stressing that Tehran was still ready for a UN-brokered nuclear fuel deal.

His latest salvo came as US Secretary of State Hillary Clinton toured the Gulf to seek backing for possible sanctions against Iran for defiantly pursuing its nuclear programme.

"If anybody seeks to create problems for Iran, our response will not be like before," Ahmadinejad told a packed news conference in Tehran.

"Something in response will be done which will make them (the world powers) regret" their move, he said.

Ahmadinejad said negotiations over a UN-drafted nuclear fuel exchange were "not closed yet," and expressed readiness to buy the material even from Iran's arch-foe the United States.

Last year the International Atomic Energy Agency proposed sending Iranian low-enriched uranium (LEU) abroad for further enrichment, denying Tehran refining capacity world powers fear could be used to help build an atomic bomb.

The offer would have seen the uranium returned to Iran in a high-grade form for use in a medical research reactor, but Tehran rejected the plan.

Ahmadinejad insisted that the exchange had to be "simultaneous," an Iranian stance that has led to a deadlock over the deal.

"We are ready for an exchange even with the United States. The US can come and give us their 20 percent fuel and we will pay them if they want, or we can give them 3.5 percent fuel," he said.

"But the swap should take place simultaneously and we will put our fuel under the supervision of the (UN atomic) agency in Iran," he added. He did not say if the exchange must take place inside Iran as insisted on by other Iranian officials.

Ahmadinejad also indicated Tehran could suspend enriching uranium to the 20 percent level if world powers supplied it the required fuel for the Tehran reactor.

"We are not insisting on doing this (20 percent enrichment) although we have the capability. If they supplied the (uranium enriched to) 20 percent, the situation may change," he said in answer to a question if Iran would stop the controversial enrichment started on February 9.

In a joint letter to the IAEA, the United States, Russia and France wrote: "If Iran goes forward with this escalation, it would raise concerns about Iran's nuclear intentions, in light of the fact that Iran cannot produce the needed nuclear fuel in time to ensure the uninterrupted production of medical isotopes by the Tehran Research Reactor."

Ahmadinejad's remarks regarding the fuel deal and suspension of 20 percent uranium enrichment come despite his own repeated defiance in ordering Tehran's atomic body to begin the high grade enrichment work.

Russia, a long time nuclear ally of Iran, said Tehran should improve its cooperation with the IAEA and that new sanctions were not excluded if it fails to fulfil its obligations.

"If these obligations are not fulfilled no one can exclude the application of sanctions," Russian President Dmitry Medvedev's spokeswoman told reporters in Moscow.

Earlier, Clinton told students in Saudi Arabia that there was no evidence to prove Iran's claim that its nuclear programme is peaceful.

"Iran is the largest supporter of terrorism in the world today," Clinton said Tuesday as she drummed up support for fresh sanctions against Tehran.

"They say they are only doing this for nuclear peaceful purposes, but the evidence doesn't support that," she added, a day after saying Iran was moving towards "military dictatorship."

Ahmadinejad said Iran did not take Clinton's comment about military dictatorship "seriously."

Washington and its ally Israel have also never ruled out a military strike against Iran's nuclear sites.

Speaking in Amman, the top US military advisor, Admiral Mike Mullen, said that while Iran was "becoming a nuclear weapons-capable country," Washington does not rule out dialogue or military action.

Mullen, chairman of the Joint Chiefs of Staff, said "the priority for President (Barack) Obama and his administration has been to initiate a dialogue and engagement (with Iran) while at the same time keeping all options on the table."

"When I say all options are on the table it certainly includes potential military options," Mullen said.

Ahmadinejad also said on Tuesday that Iran's arch-foe Israel was mulling starting a war "next spring or summet" without specifying who would be targeted.

But Israeli Prime Minister Benjamin Netanyahu dismissed the claim, telling reporters during a trip to Moscow: "We are not planning any war."

"I would not be surprised if these things we are hearing now are... (the) result of the Iranian feelings ahead of the impending United Nations Security Council discussions on sanctions," he added.

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