Vice President Joe Biden warned Sunday that the United States is watching Iran "like a hawk" to ensure compliance with the landmark nuclear deal.

Tehran and six world powers, including the United States, agreed to the deal in July when Iran promised to scale down its nuclear activities in return for the lifting of painful UN and Western sanctions, including on its lifeblood oil exports.

"The incentives are aligned for Iran to uphold its side of the deal. We're watching Tehran like a hawk," Biden said.

"Under this deal, Iran would never be allowed to pursue nuclear weapons, never, never, never," he told the annual policy conference of the American Israel Public Affairs Committee (AIPAC) lobby group.

"If Iran violates the deal, the United States will act," Biden pledged.

A key provision allows the sanctions to be restored or "snap-back" immediately if Iran is found in breach of the agreement.

Iran's supreme leader Ayatollah Ali Khamenei had accused Washington of failing to respect the terms of the deal, in a speech marking Persian New Year.

The United States has lifted sanctions "on paper" under the deal which came into effect in January, "but they are using roundabout paths to prevent the Islamic republic from achieving its targets," Khamenei said Sunday.

Iran has denied wanting nuclear weapons, saying its atomic activities were exclusively for peaceful purposes such as power generation.

Yet in Israel -- where many fear being targeted by Tehran -- there are still widespread concerns about security in the wake of the agreement.

Biden also touched on peace efforts between Israelis and Palestinians and the prospects for a two-state solution.

"There is no political will among Israelis or Palestinians to move forward at this moment with serious negotiations," Biden said.

"To be frank, Israel's government's steady and systematic process of expanding settlements, legalizing outposts and seizing land, is eroding in my view the prospect of a two state solution," he told the crowd later in his speech.

The United States, United Nations and the European Union oppose all Israeli settlement building, and consider it an obstacle to peace.

On the issue of US military aid for Israel, Biden vowed forthcoming assistance would be "without a doubt the most generous security package in the history of the United States.

"Israel may not get everything it asks for, but it will get everything it needs," he said.

"It's about making sure Israel will always exist, strong and capable, as the ultimate guarantor for the Jewish people around the world."