Foreign Ministry spokesman Hamid Reza Asefi said that because the Holocaust is a scientific issue, both opponents and proponents of the existence of the Holocaust could participate.

"God willing, a conference on the Holocaust will be held in the autumn. The Holocaust is not a sacred issue that one can't touch," he told reporters. "I have visited the Nazi camps in Eastern Europe. I think it is exaggerated," Asefi said.

Asefi did not disclose where the Holocaust conference would be held, nor who would attend. Iran first raised the possibility of the conference in January.

Hard-line President Mahmoud Ahmadinejad already had called the Nazis' World War II slaughter of 6 million European Jews a myth and said the Jewish state should be wiped off the map or moved to Germany or the United States. Those remarks prompted a global outpouring of condemnation.

Annan brought up the exhibit, that opened in response to Muslim outrage over the Prophet Muhammad caricatures in talks Saturday with Foreign Minister Manouchehr Mottaki, said Annan's spokesman Ahmad Fawzi.

Annan told Mottaki "we should avoid anything that incites hatred" according to Fawzi.

"The challenge from Iran and Syria is now top of the Israeli defence agenda, higher than the Palestinian one," said an Israeli defence source. Shortly before the war in Lebanon Major-General Eliezer Shkedi, the commander of the air force, was placed in charge of the "Iranian front", a new position in the Israeli Defence Forces. His job will be to command any future strikes on Iran and Syria.

The Israeli defence establishment believes that Iran's pursuit of a nuclear programme means war is likely to become unavoidable.

"In the past we prepared for a possible military strike against Iran's nuclear facilities," said one insider, "but Iran's growing confidence after the war in Lebanon means we have to prepare for a full-scale war, in which Syria will be an important player."

A new infantry brigade has been formed named Kfir (lion cub), which will be the largest in the Israeli army. "It is a partial solution for the challenge of the Syrian commando brigades, which are considered better than Hezbollah's," a military source said.

There has been grave concern in Israel over a military pact signed in Tehran on June 15 between Iran and Syria, which the Iranian defence minister described as a "mutual front against Israeli threats". Israel has not had to fight against more than one army since 1973.

During the war in Lebanon, Ali Akbar Mohtashamipour, the Iranian founder of Hezbollah, warned: "If the Americans attack Iran, Iran will attack Tel Aviv with missiles."

According to the International Institute for Strategic Studies in London, both Iran and Syria have ballistic missiles that can cover most of Israel, including Tel Aviv. An emergency budget has now been assigned to building modern shelters.

"The ineptness of the Israeli Defence Forces against Hezbollah has raised the Iranians' confidence," said a leading defence analyst.

In Washington, the military hawks believe that an airstrike against Iranian nuclear bunkers remains a more straightforward, if risky, operation than chasing Hezbollah fighters and their mobile rocket launchers in Lebanon.

"Fixed targets are hopelessly vulnerable to precision bombing, and with stealth bombers even a robust air defence system doesn't make much difference," said Richard Perle, a leading neoconservative.

The option of an eventual attack remains on the table after President George Bush warned on Friday that Iran must not be allowed to develop nuclear weapons.

While the American State Department favours engaging with President Bashar Assad of Syria in the hope of detaching him from the Iranian alliance, hawks believe Israel missed a golden opportunity to strike at Syria during the Hezbollah conflict.

"If they had acted against Syria during this last kerfuffle, the war might have ended more quickly and better," Perle added. "Syrian military installations are sitting ducks and the Syrian air force could have been destroyed on the ground in a couple of days." Assad set off alarm bells in Israel when he said during the war in Lebanon: "If we do not obtain the occupied Golan Heights by peaceful means, the resistance option is there."

During the 1973 Arab-Israeli war, the Syrian army briefly captured the Israeli strategic post on top of Mount Hermon on the Golan Heights.

Some Israeli analysts believe Syria will try again to take this post, which overlooks the Syrian capital, Damascus.

As a result of the change in the defence priorities, the budget for the Israeli forces in the West Bank and Gaza is to be reduced.

The Israelis are integrating three elite brigades that performed well during the Lebanon war under one headquarters, so they can work together on deep cross-border operations in Iran and Syria.

Advocates of political engagement believe a war with Syria could unleash Islamic fundamentalist terror in what has hitherto been a stable dictatorship. Some voices in the Pentagon are not impressed by that argument.

"If Syria spirals into chaos, at least they'll be taking on each other rather than heading for Jerusalem," said one insider.

Finnish Ambassador Kari Veijalainen told The Jerusalem Post Tuesday that Israel would do well to signal a willingness to pick up negations with the Syrians where they broke off in 1999 as a way to get Damascus on board to help implement UN Security Council Resolution 1701.

According to the source, Syria has historically taken an "all or nothing" approach to negotiations. He said that its position has always been against confidence-building measures and that there are no intermediate steps with Damascus.

Syria won,t do anything to clamp down on Hizbullah before there is a "complete peace treaty," he said.

Others have pointed out that the Finnish position of Israeli "carrots" for the Syrians is not universally accepted in Europe, and that France, for instance, is opposed because of French President Jacques Chirac's antipathy to Syrian President Bashar Assad.

Other voices in Europe are arguing, officials in Jerusalem said, that Syria needed to prove it was in "a constructive mood," something many doubt Assad can do.

While there is division in Europe regarding what approach to take toward Syria, there is, according to Israeli officials, unanimity of opinion regarding the need to move forward with the Palestinians.

Israel is bracing for a new call from Europe on this issue this weekend, following an informal meeting of EU Foreign Ministers in Finland. Finland holds the rotating EU presidency.

There is a feeling in Europe, according to Israeli officials, that the Palestinian track is stagnating and "something needs to move." Following the war in Lebanon and end of vacations in Europe, Israel is preparing to face down new diplomatic initiatives aimed at replacing the road map. One such initiative, put forward by the Arab League, is expected to be presented in September and will reportedly call for a cease-fire and the establishment of a yet-undefined mechanism to hammer out an overall Israeli-Palestinian agreement.

Diplomatic officials said that Israel need not be flustered by the renewal of attention on the Gaza Strip, and it must press the international community to remain firm on the three conditions it set for granting legitimacy to Hamas: renouncing terrorism, recognizing Israel and accepting previous agreements.

Despite the feeling that something needs to move, one source said, "we are saying the ball remains in the Palestinian court, and they need to decide whether to accept the three conditions. We are preaching patience."

In a related development, the US plans to recommend that Israel reexamine the Rafah crossing arrangement that will be up for review in November. According to the current terms of the arrangement, European Union monitors are stationed at the terminal - the sole crossing into the Gaza Strip from Egypt - and are responsible for preventing the entry of terror suspects per Israel's request. IDF officers watch the terminal on a closed-circuit camera system from Kerem Shalom.

"No one is happy with the current arrangement," a senior US government official told The Jerusalem Post Wednesday. "The Europeans are unhappy, the Palestinians are unhappy and the Israelis are certainly unhappy."

According to the defense establishment, the EU monitor force at the crossing is not effective and does not prevent the smuggling of arms and the passage of suspected terrorists in and out of Gaza.

The US official also held high hopes for the possibility that Fatah would join the Hamas and create a national-unity government. If that happens and the new government accepts the US-backed road map and the Quartet's conditions - set up following Hamas's victory in PA elections in January - the PA, the official said, could be viewed as a legitimate partner for peace talks with Israel.

"We hope there will be changes on the Palestinian side in the coming weeks and months," he said. "A national-unity government within the PA could be that change."

The Bush administration, the official said, has not given up on Prime Minister Ehud Olmert's West Bank withdrawal plan but believed that before unilateral steps, Israel should first attempt to talk with the PA. "Convergence is supposed to come after an effort to negotiate and only after those talks fail," he official said.

Ahmadinejad seems to be explaining what his calls for the Zionist regime to be effaced actually mean. He says he doesn't want violence against Israel, despite its own acts of enmity against Middle Eastern neighbors. I interpret his statement on Saturday to be an endorsement of the one-state solution, in which a government would be elected that all Palestinians and all Israelis would jointly vote for. The result would be a government about half made up of Israeli ministers and half of Palestinian ones. Whatever one wanted to call such an arrangement, it wouldn't exactly be a "Zionist state," which would thus have been dissolved.

The schlock Western pundits, journalists and politicians who keep maintaining that Ahmadinejad threatened "to wipe Israel off the map" when he never said those words will never, ever manage to choke out the words Ahmadinejad spoke on Saturday, much less repeat them as a tag line forever after.

Supreme Jurisprudent Khamenei's pledge of no first strike against any country by Iran with any kind of weapon, and his condemnation of nuclear bombs as un-Islamic and impossible for Iran to possess or use, was completely ignored by the Western press and is never referred to. Indeed, after all that talk of peace and no first strike and no nukes, Khamenei at the very end said that if Iran were attacked, it would defend itself. Karl Vicks of the Washington Post at the time ignored all the rest of the speech and made the headline, 'Khamenei threatens reprisals against US." In other words, on Iran, the US public is being spoonfed agitprop, not news.

Although Iran's protestations of peaceful intentions are greeted cynically in the US and Israel, in fact Iran has not launched a war of aggression in over a century. The US and Israel have launched several during that period of time.

Ahmadinejad made the remarks in a speech inaugurating work on a heavy water nuclear reactor in Arak. I don't think that work is very advanced. The Iranians maintain that it is for peaceful energy generation.

Much of the electricity produced in France, South Korea and Japan is generated by nuclear plants.

The previous test was conducted on February 23.

Many activists and experts argue that the tests undermine the Comprehensive Test Ban Treaty on nuclear weapons and that the Bush administration is carrying them out to use them to boost its efforts to develop new nuclear arms.

The US Government maintains the subcritical tests do not violate the treaty because they do not involve a nuclear chain reaction and are necessary to ensure the safety of nuclear stockpiles.

It also insists they are fully consistent with nuclear test moratorium it has maintained since 1992.

"The Los Alamos National Laboratory conducted the experiment to gather scientific data that provides crucial information to maintain the safety and reliability of the nation's nuclear weapons without having to conduct underground nuclear tests," the department's National Nuclear Security Administration said in a statement.

The administration said the subcritical tests do not involve nuclear explosion because they are designed to "examine the behaviour of plutonium as it is strongly shocked by forces produced by chemical high explosives".

"No critical mass is formed and no self-sustaining nuclear chain reaction can occur," it said.

The authenticity of the statement posted on a Web site used by militant groups including Al Qaeda could not be verified.

The group freed Fox News Correspondent Steve Centanni, a 60-year-old American, and New Zealand-born cameraman Olaf Wiig, 36, on Aug. 27 after forcing them at gunpoint to say in a videotape they had converted to Islam.

"Islam alone saved their blood and prevented their slaughter. We are not the type who can be fooled by their announcement ... but only God can judge intentions," it said.

The group had made a demand for the United States to free Muslim prisoners in exchange for the release of the men captured in the Gaza Strip on Aug. 14.

"We need your generous support, as we need your help to ensure that there is a cessation of hostilities and that there is more access into and out of the Palestinian territories," Egeland said at the opening of a conference of donor nations in Stockholm, reported Agence France-Presse (AFP).

Officials from some 30 countries and some 20 international organizations were attending the conference, called to bolster the supply of humanitarian aid to the Palestinian territories, in particular the Gaza Strip.

The conference is hosted by Sweden, Norway and Spain in collaboration with the UN.

The UN has had difficulty raising the 385 million dollars (300 million euros) deemed necessary to avoid a humanitarian crisis in the wake of the recent upsurge in violence in the region.

"It is many ways incomprehensible that we have only 43 percent of this appeal covered," Egeland said.

He criticised the isolation of the Palestinians, especially the closure of the road linking a supply facility in Karni to Gaza.

According latest UN estimates, there is now a one-month stock of food in densely populated Gaza which relies on external food shipments through border checkpoints which have been periodically closed by Israel.

The World Bank has warned that EU and US aid cuts, following Hamas's landslide parliamentary elections win in January, would adversely impact at least 30 percent of the Palestinian population which is dependent on government salaries.

Unemployment stands at around 45 percent and the World Bank has estimated that two-thirds of the Gaza Strip population (1.4 million) lives under the poverty line, earning less than two dollars a day.

Each square kilometer (0.4 square mile) in Gaza Strip shelters an average of 2,350 Palestinians, making it one of the most densely populated areas in the world.

Collapsing

The United Nations World Food Program (WFP) also warned on Friday that the Palestinian economy was collapsing.

"The Gazan economy is collapsing and there is no trust for the future, no investment and no hope," Arnold Vercken, WFP director for Gaza and the West Bank, told Reuters in an interview.

"A signal of hope must be given to the Gazans to re-start the economy. It is a situation of survival."

Infrastructure is also crippled while industries which have formed the backbone of the territory's economy, mainly farming and fishing, are in sharp decline, Vercken said.

"There is no more grain in the four major silos of the four major mills, and even if we are providing food to some of the needy in Gaza, that is 15-16 percent of the population, the trade has completely collapsed," he said.

"Since June no fishing is allowed at all and in fact you come to the fishing port and there is no more smell of fish. This puts out of work about 35,000 people who were living from the fishing industry."

Vercken said the WFP hoped the donor conference, coming on the heels of a Lebanon meeting in Stockholm on Thursday, August 31, which raised more than $940 million, would secure funding of its relief effort in Gaza.

The body is running a two-year operation in the territory, begun one year ago, which requires funding of $103 million, just under half of which has been secured.

"We have funding up to two months ahead," Vercken said.

The Israeli army has killed at least 200 Palestinians, about half of them civilians, in the Gaza strip since it launched a wide-scale offensive after Palestinian fighters took prisoner a soldier in late June. Palestinians, however, see the assault as a ruse to topple the Hamas-led government.