Sharon's mini-cabinet, which includes Defense Minister Shaul Mofaz and Foreign Minister Silvan Shalom, met amid increasing tension between the two countries with Iran now identified as Israel's number one enemy after the downfall of Saddam Hussien's regime in Baghdad.

The ministers decided to counter the threat "by diplomatic means" with the backing of the United States, the source added.

Last month, Meir Dagan, head of Israel's Mossad overseas intelligence service, told lawmakers that Iran posed the biggest threat to the existence of the Jewish state since its creation in 1948.

Mofaz has said that concentrated efforts were needed "to delay, stop or prevent" Iran's alleged nuclear weapons programme.

During a visit to Washington last month, Mofaz also warned that Iran would reach a "point of no return" in its suspected nuclear programme within a year unless there were concerted efforts to stop it.

Iran, which earlier this month agreed to cooperate fully with the International Atomic Energy Agency in monitoring a nuclear programme it says is entirely peaceful, has threatened to use all means at its disposal including medium-range Shahab-3 missiles if Israel strikes its nuclear facilities.

WAR.WIRE