His comments were the latest warning in an escalating US showdown with the Islamic Republic. On Monday, Bush said Iranians would suffer for their leaders' nuclear ambitions and warned Tehran not to sow discord in Iraq.

"I would characterize our policy as desirous of resolving any issues we have with Iran by peaceful means," Negroponte told the Senate Foreign Relations Committee.

"But at the same time, we don't believe that their behavior, such as supporting Shia extremists in Iraq, should go unchallenged.

"If they feel that they can continue with this kind of activity with impunity, that will be harmful to the security of Iraq and to our interests in that country."

Bush last week authorized US forces to capture or kill Iranian operatives in Iraq, amid charges from Washington and denied by Tehran that the Islamic republic had been helping insurgents target US troops.

And in his annual State of the Union speech on January 23, the US president vowed to crack down on any Iranian and Syrian networks suspected of funneling weapons and fighters to the insurgency in Iraq.

Iran and Syria, said Negroponte, "know what they need to do" to improve relations with Washington. The Bush administration has refused calls for a dialogue with Syria and Iran.

But US Senator Bill Nelson said in a speech to the Council on Foreign Relations on Tuesday that the Bush administration was adopting an "ostrich"-like policy, by ignoring the need to talk to Syria.

The Democratic lawmaker said Syrian President Bashar al-Assad had opened the door slightly to helping the United States or the Iraqi government check the flow of extremists into the country, when he met him last month.

Negroponte, a veteran US diplomat who has served as ambassador to Iraq and to the United Nations as well as US intelligence czar also said Washington was reluctant to hold direct talks with Tehran absent progress on the dispute over its nuclear program.

The United States accused Iran of trying to produce a nuclear bomb through its uranium enrichment activities, a claim Tehran denies.

"The view at the moment is that we are reluctant to initiate a high-level diplomatic dialogue with Iran until there has been some progress on this nuclear issue," Negroponte said.

Negroponte, who would become Secretary of State Condoleezza Rice's deputy, noted Washington has had indirect dialogue with Iran through talks with European countries also concerned about Tehran's nuclear ambitions.

"We have been discussing the Iran issue with our European friends and the UN Security Council. And in the context of the nuclear issue there has been a dialogue with Iran, albeit indirectly," he said.

Washington was not warm to the idea of holding a regional conference on Iran, but did not rule out the possibility.

"I would not say that, as a matter of priority, one would have to go right to a regional-type conference or regional-type diplomatic scenario, although I don't think that that should be ruled out," he said.

A UN Security Council resolution passed on December 23 imposed sanctions on Iran until it suspends uranium enrichment, which makes fuel for civilian nuclear reactors but also produces material for atomic bombs.

But Iran continues to defy the international community and has vowed to increase its enrichment capacity by installing 3,000 centrifuges, arguing that its nuclear program is strictly for civilian energy purposes.

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