On Saturday, Israel repeated its stand on the issue, saying it would not accept a nuclear Iran under any circumstances and was preparing for the possible failure of diplomatic efforts.
While Defense Minister Shaul Mofaz stopped short of an outright threat of military action, he said Israel "must have the capability to defend itself, and this we are preparing."
Iranian Foreign Ministry spokesman Hamid Reza Asefi said Israel was only trying to add to Western pressure on Iran to give up its nuclear program.
"We consider Mofaz's comments a form of psychological warfare. Israel knows just how much of a fatal mistake it would be (to attack Iran)," Asefi told reporters. "This is just a childish game by Israel."
Israel views Iran as its biggest threat and has joined Washington in charging that Tehran is trying to build nuclear weapons. Iran says its nuclear program is for electricity generation.
Israel, whose warplanes destroyed an unfinished Iraqi nuclear reactor in 1981, maintains a nuclear monopoly in the Middle East. While it neither acknowledges nor denies nuclear arms, Israel is thought to have about 200 nuclear warheads deployed on ballistic missiles, aircraft and submarines, according to the Washington-based Carnegie Endowment for International Peace.
Asefi's threats were not limited to Israel. He said dialogue was the best way to settle the dispute and issued a harsh warning to European powers to resume talks.
"We advise them (Europe) not to choose any path except dialogue. If there is retribution to be paid, that will include Europe too," Asefi said, adding that Iran plans to continue cooperation with the UN nuclear watchdog, the International Atomic Energy Agency.
Last week, European powers drafted a resolution calling for Iran's referral to the U.N Security Council to resolve its nuclear issue. The resolution, however, stopped short of calling for sanctions.
Several days later, French President Jacques Chirac said that France could respond with nuclear weapons against any state-sponsored terror attack. The comments were seen by some as a reference to Iran.
Iran's nuclear dispute with the West intensified when it removed U.N. seals from its main uranium enrichment facility in Natanz, central Iran, on Jan. 10 and resumed research on nuclear fuel, including small-scale enrichment after a 2-year freeze.
The removal of the seals caused alarm in Western capitals, where Iran is suspected of using its civilian nuclear program as a cover to develop an atomic bomb.
Iran has repeatedly said it is willing to offer guarantees that its nuclear program won't be used to manufacture weapons but it has so far refused to give up its right under the Nuclear Nonproliferation Treaty to enrich uranium and produce nuclear fuel.