Olmert said there was evidence that Iran was trying to develop nuclear arms and warned that not a single mistake could be allowed in dealing with the issue.

"The Iranians are moving forward with their plans to create a capacity for non-conventional weapons. There is evidence that the plan of the Iranians is not that naive and innocent," Olmert told reporters after talks with German Chancellor Angela Merkel in Berlin.

"This is a main challenge. We can't afford to make one mistake on that issue."

Asked if Israel would consider using military force in dealing with Iran, Olmert cited US President George W. Bush's refusal to rule out force in dealing with Iran's defiance to halt sensitive nuclear work.

"President Bush, I think, once said 'no option is ruled out'. And I think that his definition was very interesting and I have nothing to add to this."

Israel, an undeclared nuclear power with an estimated arsenal of 200 warheads, suspects Iran of trying to develop an atomic bomb under the guise of its controversial nuclear programme, a charge that Tehran denies.

Israel and the United States in particular have called for heightened pressure on Tehran with a third sanctions resolution from the UN Security Council, aimed at forcing Iran to halt uranium enrichment.

Germany is among six world powers trying to convince Iran to halt sensitive nuclear work with a mix of sanctions and incentives.

Olmert praised the pressure Germany had put on Tehran, noting that the country had reduced exports to Iran by 15 percent in the first nine months of 2007.

He also said that Israel remained determined to fight "terrorists," two days after threatening to target Hamas leaders in the Gaza Strip over continued rocket attacks from there into Israel.

"We will continue to fight the terrorists, we will not stop," he said.

"We will do it with strength, determination and without any delay. The Israeli government is absolutely determined to respond to the challenge of terror in every way possible that will be effective."

Merkel said "the clock is ticking" to find a resolution to the Middle East conflict.

"We must take advantage of the opportunity," she said.

Merkel said Germany planned to host a conference on aid for training the Palestinian security forces.

"We want to support the work of Tony Blair as the envoy of the Middle East Quartet," referring to the international group working toward peace in the region: the European Union, Russia, the United States and the United Nations.

"Tony Blair asked us to prepare a conference dealing with the issue of the police force. We will do that in Germany."

Asked about Israeli sanctions imposed on the Gaza Strip and the deterioration of the humanitarian situation, the chancellor offered Olmert her backing.

"I know the humanitarian situation is difficult and we are of course trying to do what we can to help. But the most simple response is Israel's decision to put an end to terrorist activities," she said.

Violence in and around Gaza has escalated over the past week as militants have fired dozens of rockets at southern Israel, wounding several people.

Anger and pressure on the government to act grew after an eight-year-old boy lost his leg after being hit by shrapnel.

Olmert at the weekend however ruled out launching a widespread ground offensive in Gaza but warned that no one from Hamas was immune to Israeli strikes in the isolated coastal territory where the Islamist movement seized power last June.

It was Olmert's second visit to Germany in 14 months and was also aimed at preparing a visit by Merkel to Jerusalem in March ahead of celebrations in May for the 60th anniversary of the founding of the Israeli state.

Israel and Germany will then begin a series of annual bilateral government consultations intended to bolster ties between the longtime allies.

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