TEHRAN Iran test-fired nine missiles on Wednesday and warned the United States and Israel it was ready to retaliate for any attack over its disputed nuclear projects.
Washington, which says Iran seeks atomic bombs, told Tehran to halt further tests. Iran, the world's fourth largest oil producer, says its nuclear program is only for electricity.
Iran later announced night-time missile maneuvers, and its missile tests rattled oil markets, helping crude prices to rebound about $2 a barrel after recent falls.
Speculation that Israel could bomb Iran has mounted since a big Israeli air drill last month. U.S. leaders have not ruled out military options if diplomacy fails to end the nuclear row.
Revolutionary Guards air force commander Hossein Salami said in televised comments that thousands of missiles were ready to be fired at "pre-determined targets." Missiles were shown soaring from desert launchpads, leaving long vapor trails.
"We warn the enemies who intend to threaten us with military exercises and empty psychological operations that our hand will always be on the trigger and our missiles will always be ready to launch," he said, according to ISNA news agency.
"Another night missile maneuver is taking place right now," Salami told state television later. He did not elaborate.
The White House told Iran to "refrain from further missile tests if they truly seek to gain the trust of the world."
But the United States gave no hint to leaders of a Group of Eight rich nations meeting in Japan this week that it planned to attack Iran, Italian Prime Minister Silvio Berlusconi said.
In Washington, U.S. Secretary of Defense Robert Gates, asked if the United States was any closer to confrontation with Iran, told reporters: "No, I don't think so."
Another senior U.S. official said the Bush administration had not exhausted the use of diplomacy to try to convince Iran to rein in its nuclear program.
"We view force as an option that is on the table but a last resort," U.S. Under Secretary of State for Political Affairs, William Burns, said.
Burns also told a Congressional panel that Iran had made only "modest" progress in its nuclear program because of U.N. sanctions, while warning Tehran that it would pay dearly if it pursued its current course.
"It is apparent that Iran has not yet perfected enrichment (of uranium), and as a direct result of U.N. sanctions, Iran's ability to procure technology or items of significance to its missile programs ... is being impaired," he said.
U.S. Secretary of State Condoleezza Rice suggested the tests justified U.S. plans for an anti-missile shield with bases in eastern Europe, which Russia firmly opposes.
"Those who say that there is no Iranian threat against which to be building missile defenses perhaps ought to talk to the Iranians about ... the range of the missiles that they test fired," Rice said in Bulgaria.
France, Germany and Italy joined criticism of Iran.
"These are very dangerous missiles -- that's why the international community and not just Israel has an interest in blocking this escalation in a definitive way," Italian Foreign Minister Franco Frattini said in Ramallah, in the West Bank.
France said the tests heightened international concerns, while Germany voiced regret that Iran had responded to an offer of incentives by world powers with a "gesture of ill will."
U.S. Democratic presidential candidate Barack Obama called Iran a "great threat" and called for cooperation with allies to tighten pressure on Tehran. His Republican opponent John McCain voiced support for the missile shield to counter Iran.
Iran's State Press TV said the "highly advanced" missiles tested by the Guards included a "new" Shahab 3 missile, which officials have said could reach targets 2,000 km (1,250 miles) away. Iran has said Israel and U.S. bases are in its range.
Some U.S. facilities across the Gulf are little more than 200 km from Iran's coast. The United States has air and naval bases in nearby Arab states, including Qatar and Bahrain.
Iran has said U.S. forces are vulnerable because of their presence in two neighboring countries, Iraq and Afghanistan.
Israel, believed to be the Middle East's only nuclear-armed power, has vowed to prevent Iran from acquiring an atomic bomb.
"Israel does not threaten Iran, but the Iranian nuclear program, combined with their aggressive ballistic missile program, is a matter of grave concern," Mark Regev, spokesman for Israeli Prime Minister Ehud Olmert, said after the tests.
World powers have offered Iran incentives if it suspends uranium enrichment, a demand rejected by Tehran.
Commenting on Iran's response last week to that offer, Burns told the Congressional panel: "Iran is interested in trying to find common ground ... We will see if the Iranians are serious."
Iran has threatened to close the Strait of Hormuz, conduit for about 40 percent of globally traded oil, if it is attacked. The U.S. military says it will prevent any such action.
The war of words heightens risks that a misunderstanding or a minor clash in the Gulf, for instance, could get out of hand.
Analysts say Iran's military technology often involves improving weaponry originating in China and North Korea.
"They are some way away yet from threatening Israel or U.S. bases," said London-based independent analyst Paul Beaver, noting that guidance systems over longer ranges needed work.
(For the latest Global News blog on Iran click on: here warnings-what-does-history-tell-us/)
(Additional reporting by Hossein Jaseb and Fredrik Dahl in Tehran, Paolo Biondi in Toyako, Japan, Sue Pleming and Susan Cornwall in Washington and bureau in Jerusalem, Paris, Berlin, Brussels and Rome; Editing by Jon Boyle)