"This regime one day will vanish," Ahmadinejad said of the Jewish state in comments that echoed previous statements, in which he said Israel should be "wiped off the map" and also questioned the Holocaust.

"Is it logical to give compensation in the Middle East for an incident that occurred in Europe, if this incident is indeed true ... by murdering thousands of local Palestinians and making millions of Palestinian refugees?" he asked.

Nevertheless, the head of the UN nuclear watchdog IAEA, Mohamed ElBaradei, said he felt "a good sense of optimism" about diplomacy to resolve the crisis over Iran's nuclear program.

"I think it is a very good idea for the Security Council to hold their horses, so to speak," he told a press conference during a visit to Amsterdam.

"The more we go back to the negotiating table, the more we have a chance at a durable solution."

Iran says its nuclear programme is a peaceful drive to generate electricity but the United States and Europe fear it is a cover for the secret development of atomic weapons.

On Wednesday Washington, which has so far failed to win support for UN sanctions against Tehran, said it would give its European partners "a couple of weeks" to draft a fresh approach.

Negotiators from the Security Council's five permanent members -- Britain, China, France, Russia and the United States -- plus Germany plan to confer in London on May 19 to weigh a new package of incentives, diplomats said.

They will also consider what penalties to seek if Iran does not comply with UN demands.

"I am very optimistic and I hope both sides will move away from their war of words ... we need compromises from both sides," ElBaradei said.

He said Tehran "owes it to the international community to make sure their nuclear programme is for peaceful means."

The United States and European Union troika of Britain, France and Germany are pushing for a binding UN resolution that could clear the way for economic sanctions, possible escalating toward military action.

They are meeting resistance from China and Russia, however, which both have close economic ties with Iran.

Igor Ivanov, the head of Russia's Security Council, described the talks as "fairly complicated," and warned that military action could ignite the whole region.

"Any military action in Iran will lead to consequences that could seriously explode the situation in the region and beyond," he was quoted as saying by state-run news agencies.

US Secretary of State Condoleezza Rice said Wednesday the Europeans would present Tehran with two options: defiance leading to international isolation or "a path to a civil nuclear programme that is acceptable to the international community."

Ahmadinejad, who is on a five-day visit to Indonesia, told Metro TV that any military action against Iran would hurt its attackers more than Tehran.

"First of all, actually, the idea of going to war is a joke, it's like a joke. Why should there be a war?" he asked.

"They do know that any mistreatment of the Iranian people will actually cause more losses to them than for us. They need us more than we do actually need them. This is just rhetoric."

Separately, the influential head of Iran's hardline parliament reiterated that Tehran would not give up uranium enrichment, the process which makes the fuel for reactors but what can also be the core for an atom bomb.

Gholam Ali Hadad-Adel, who is close to Iran's supreme leader Ayatollah Ali Khamenei, was quoted by news agencies as saying the Islamic republic "will in no way accept a suspension of enrichment."

And a nuclear spokesman said Iran was prepared to negotiate an anticipated European offer aimed at cooling the crisis, but would not suspend enrichment.

"For the moment we have received no offer (from the Europeans) but because Iran believes in a diplomatic solution, we believe that such a proposition can be taken into consideration and negotiated," Hossam Entezani was quoted by the semi-official Mehr news agency as saying.

He added that in "any offer, particularly one from Europe, suspending Iran's basic rights of uranium enrichment research is not acceptable."

Indonesian President Susilo Bambang Yudhoyono, who met Ahmadinejad on Wednesday, backed Tehran's claim that its nuclear program was peaceful and also offered to help mediate in a bid to reduce rising tensions over the program.

But on Thursday Indonesia appeared to back down from the proposal, with Foreign Minister Hassan Wirayuda saying that "we did not claim that we offer mediation on Iran's nuclear issue."

"We suggested to Iran to maximise their effort to solve the problem of the Iranian nuclear issue through diplomatic and peaceful negotiations. I think Iran accepted that Iran as well as other countries councerned should try to settle this issue through negitiations," Wirayuda said.

In Beijing, a Chinese foreign ministry spokesman said the stand-off was now at "a critical moment," and called for fresh diplomatic efforts.

He warned, however, that "China is opposed to arbitrarily resorting to the use of sanctions or the use of force in international affairs."

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