President George W. Bush last week warned that a nuclear-armed Iran evoked the threat of "World War III," and Vice President Dick Cheney on Sunday spoke of "serious consequences" unless the Islamic republic comes to heel.

Their bellicose tone revived speculation that US hardliners are pressing for a military conflict with Iran, which also stands accused of fueling attacks on US troops in Iraq by Shiite extremists.

In testimony to Congress, Rice said "serious consequences" would include a third round of sanctions from the United Nations Security Council to punish Iran's refusal to renounce uranium enrichment.

"We are of course very concerned that the policies of Iran constitute perhaps the single greatest challenge for American security interests in the Middle East and possibly around the world," she said.

"The combination of Iranian terrorism, Iranian repression at home and the pursuit of nuclear weapons technology... is a very dangerous mix."

But Rice was also adamant that while "the president does not take any options off his table, he's committed to a diplomatic course with Iran."

"We are, with our international partners, continuing to pursue a two-track approach on the nuclear issue," she told the House of Representatives Foreign Relations Committee, giving testimony about US policy on the Middle East.

Rice noted that along with talks steered by European Union foreign policy chief Javier Solana, Washington and its EU partners were working on tougher sanctions at the UN.

After talks involving Solana in Rome on Wednesday, Iran's former nuclear pointman Ali Larijani said at a news conference that "new and constructive ideas" had emerged on the crisis without going into detail.

Saeed Jalili, an ally of Iran's hardline president who was appointed to replace Larijani as the chief nuclear negotiator on Sunday, did not speak at the news conference.

The United States is also pressing its allies to help cut Iran off from the international financial system, and so prevent what Rice called its "ill-gotten gains" being recycled through respectable banks.

Beyond the diplomacy, she said, the United States would do its utmost to prevent Iranian interference in Iraq.

"We are determined to cut off Iran's malignant activities in Iraq by apprehending and eliminating Quds Force members and other actors who endanger human life and overall national stability," she said in prepared remarks.

"We will defend ourselves and we will defend Iraqis against Tehran's meddling."

The Quds Force is the covert operations arm of Iran's Revolutionary Guards and is accused by US commanders of helping Shiite militias involved in Iraq's bloody sectarian conflict.

The US Senate last month resolved to label the Revolutionary Guards a terrorist organization -- a step that some Democrats said had set the United States on a path to war with Iran.

Commenting on the recent declarations of Bush and Cheney, Democratic Representative Eni Faleomavaega said he was reminded of their aggressive language in the run-up to the 2003 invasion of Iraq.

"It seems to me that this is the same rhetoric that led us to war with Saddam Hussein," he told Rice, arguing that the US military was already "struggling" to cope with the conflicts in Iraq and Afghanistan.

But the secretary of state denied there was any gap between her diplomatic push and Cheney's hawkish stand.

"I sit with the vice president. He believes in pursuing this diplomatic course," she said.

"When one speaks of serious consequences, there also have to be serious consequences in diplomacy," Rice said, stressing the push for tougher UN sanctions against Iran.

However, frustrating the United States, Security Council members Russia and China want to give more time for contacts between Iran and the International Atomic Energy Agency.

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