Iran biggest Mideast challenge for Obama: White House

WASHINGTON (Reuters) - President-elect Barack Obama should seek tougher sanctions against Iran, which will be his biggest Middle East challenge, outgoing White House national security adviser Stephen Hadley said on Wednesday.

In a speech at the Center for Strategic and International Studies, Hadley also said the Bush administration had laid the groundwork for progress toward Palestinian-Israeli peace, despite the fighting in Gaza.

The Middle East will be only one on a list of foreign policy challenges facing Obama when he takes office on January 20 amid the continuing U.S. wars in Iraq and Afghanistan. Other regions such as Russia, Pakistan and North Korea will also require early efforts by the new president, Hadley said.

"For the next administration, the biggest challenge in this region is Iran," Hadley said in a speech looking back on President George W. Bush's foreign policy.

"Negotiations with Iran, as some have proposed, without leverage on Iran will not produce a change in Iranian behavior or advance U.S. interests," he said.

Obama has said he may be willing to reverse Bush's policy by offering direct talks with Iran. He would offer economic incentives for Tehran to stop its nuclear program but has also warned that sanctions could be toughened if Iran refused.

"We are willing to talk to them directly and give them a clear choice and ultimately let them make a determination in terms of whether they want to do this the hard way or the easy way," Obama told NBC's "Meet the Press" in December.

Hadley said Bush was leaving Obama "with significantly increased leverage on Iran. The issue is how the new team will use this leverage to produce a different Iranian policy on its nuclear program, terrorism and Middle East peace."

Under Bush, the United States has tried to impose tougher U.N. sanctions on Iran to stop its nuclear program, which the West believes is for producing weapons. Iran insists its program is for civilian purposes.

"Working with our European partners, the next administration should be able to enforce tougher sanctions on Iran," Hadley said.

The White House has accused Iran of supplying weapons to the Islamist Palestinian group Hamas, which controls Gaza and which the United States views as a terrorist organization.

Israel has been pounding Gaza for almost two weeks with air strikes and a ground assault in pursuit of Hamas for firing rockets into Israel.

Hadley said there was still hope for peace. "Despite the violence in Gaza, there is the prospect of a freer and more hopeful future for the region," Hadley said.

"Perhaps surprisingly, the biggest opportunity for the new administration may be Middle East peace," he said.

Hadley praised Russia's partnership with the United States to promote Middle East peace, prevent nuclear materials from falling into the hands of terrorists and ensure that Iran and North Korea do not threaten neighbors with nuclear weapons.

But he criticized Moscow on human rights and for using its energy resources against neighbors. Russia on Wednesday shut down all gas flows to Europe through Ukraine over a contract dispute.

"A Russia that continues to threaten its neighbors and manipulate their access to energy will compromise any aspirations for greater global influence," Hadley said.

"The next administration will have the challenge of building on our cooperation with Russia while also confronting that nation's aggressiveness and uncertain intentions."

Hadley warned that North Korea "will test the new administration" by trying to split the six countries involved in talks aimed at getting Pyongyang to give up its nuclear weapons program.

In Afghanistan, the Taliban remain "a serious threat" and its fighters have found safe haven across the border in Pakistan, Hadley said. "And if the extremists succeed in destabilizing Pakistan, the chaos will threaten peace and progress throughout the region. So stabilizing Pakistan must be a first priority for the new administration."

(Editing by David Alexander and David Wiessler)