The key part of Iran's nuclear program deals with the enrichment of uranium, a process that can produce either fuel for a reactor or materials for weapons of mass destruction.

Iran last week responded to a package of Western incentives aimed at getting it to roll back its nuclear program. Iranian officials said the Islamic country did not agree to halt enrichment - the key demand - before engaging in further talks. Other details have not been released.

Iran says its nuclear program is intended solely to generate electricity, while the United States and Europe contend it secretly aims to develop nuclear weapons.

Levey said the United States was working not only to halt Iran's nuclear ambitions but to financially clamp down its funding of Hezbollah and its role in the recent bloodshed in Lebanon.

He estimated that Iran was providing Hezbollah with more than $100 million per year in financial support, in addition to the military equipment.

His comments reflected an earlier interview with the Los Angeles Times later last week in which the U.S. envoy said the United States planned to introduce a resolution imposing penalties such as a travel ban and asset freeze for key Iranian leaders soon after the Aug. 31 deadline.

During the interview, he also voiced optimism about a unified council action against Iran.

"Everybody's been on board," Bolton told the newspaper, adding that in case the council cannot reach a deal on passing a resolution authorizing the sanctions, the United States would work on a parallel diplomatic track outside the United Nations.

The 15-member council has give Iran until the end of the month to halt enrichment or face possible sanctions

Comparing terrorist groups to a "new type of fascism," Rumsfeld said, "With the growing lethality and the increasing availability of weapons, can we truly afford to believe that somehow, some way, vicious extremists can be appeased?"

It was the second unusually combative speech by Rumsfeld to a veterans group in two days and appeared to be part of a concerted administration effort to address criticism of the war's conduct.

On Monday, Rumsfeld and Vice President Dick Cheney gave separate speeches to a Veterans of Foreign Wars convention in Reno, Nevada.

The U.S. secretary of state, Condoleezza Rice, spoke to the American Legion Auxiliary on Tuesday and President George W. Bush is due to address veterans later this week.

Cheney, too, spoke of appeasement during an appearance at Offutt Air Force base in Nebraska on Tuesday, reciting a passage that echoed verbatim one of his stock speeches.

"This is not an enemy that can be ignored, or negotiated with, or appeased," he said. "And every retreat by civilized nations is an invitation to further violence against us."

"Men who despise freedom," he added, "will attack freedom in any part of the world, and so responsible nations have a duty to stay on the offensive, together, to remove this threat."

Senator Jack Reed of Rhode Island, a former U.S. Army officer and a Democratic member of the Armed Services Committee, responded that "no one has misread history more than" Rumsfeld.

"It's a political rant to cover up his incompetence," Reed, a longtime critic of Rumsfeld's handling of the war, told The Associated Press.

"Li and Araghchi exchanged views on the development of the Iranian nuclear issue, and stressed that it should be properly resolved through diplomatic negotiations," according to a statement by the Chinese Foreign Ministry.

Chinese Assistant Foreign Minister Cui Tiankai held talks with Araghchi on Tuesday.

Iranian President Mahmoud Ahmadinejad said on Tuesday that his country will continue to pursue its peaceful nuclear program even though the UN Security Council has demanded a suspension of its uranium enrichment.

"Using nuclear energy for peaceful purposes is Iran's right. The Iranian nation has chosen this path...No one can stop it," he told a press conference in Tehran.

The Security Council adopted a resolution in late July, urging Tehran to suspend by Aug. 31 all enrichment-related and reprocessing activities, including research and development, or face prospect of sanctions.

Iran has rejected the resolution as having no legal basis.

Iranian President Mahmoud Ahmadinejad challenged President Bush to an uncensored debate on world issues during a televised press conference on Tuesday. He remained defiant just two days before the United Nations deadline expires for Iran to halt its nuclear enrichment program.

"I suggest holding a live TV debate with Mr. George W. Bush to talk about world affairs and the ways to solve those issues," he said.

Ahmadinejad criticized the British and U.S. international role in the post-World War II era.

"The political situation of World War II has been kept alive by the [super] powers. They have embarked on [an] arms race...in order to safeguard superiority over other nations," the Iranian news agency IRNA quoted him as saying.

The Iranian president criticized the decision-making process of the U.N. Security Council and challenged the power of the five permanent Security Council members -- among them the U.S. and Britain.

"The U.S. and Britain are using such a privilege as if they were the owners of the world. How many years should they enjoy this privilege?" he asked.

The U.S. is pushing for sanctions against Iran if Tehran refuses to submit to the Security Council's demand to suspend uranium enrichment by the August 31 deadline. Enriched uranium is essential for producing nuclear weapons.

Ahmadinejad inaugurated a heavy water production plant several days ago. He said then that his country would not give up what he considers his country's "right" to develop a nuclear program. He argued that did not pose a threat to "anyone, even the Zionist regime, which is the enemy."

During his Tuesday press conference, Ahmadinejad said that the establishment of the State of Israel had been based on a "myth." He previously has called the Holocaust a "myth" and suggested that the State of Israel be moved to Europe.

In a letter to German Chancellor Angela Merkel last month, Ahmadinejad suggested the Allied powers had fabricated the story of the Holocaust to embarrass Germany.

The contents of the letter were released this week as Israeli Foreign Minister Tzipi Livni was visiting Germany.

"Is it not a reasonable possibility that some countries that had won the war made up this excuse to constantly embarrass the defeated people...to bar their progress," he wrote.