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AP /Rich Pedroncelli

George W. Bush gestures while addressing the American Legion 89th Annual Convention in Reno, Nev,, Tuesday, August 28, 2007.

US President George W. Bush on Tuesday raised the specter of a "nuclear holocaust" in the Middle East if Israel's arch-foe Iran gets atomic weapons, and vowed he would not let that happen.

"Iran's actions threaten the security of nations everywhere, and the United States is rallying friends and allies to isolate Iran's regime, to impose economic sanctions," he told the American Legion veterans group.

"We will confront this danger before it is too late," vowed Bush, who has pressed for tougher international sanctions and said he hopes for a diplomatic solution but has repeatedly refused to rule out the use of force.

Shortly before Bush spoke, Iranian President Mahmoud Ahmadinejad scoffed at the notion of a US attack on his country dismissed a warning from his new French counterpart, Nicolas Sarkozy, as a symptom of inexperience.

"There is no ... possibility of such an attack by the United States," Ahmadinejad told a news conference marked by his characteristic defiance.

"Even if they take such a decision, they cannot implement it," he said.

Sarkozy used a keynote foreign policy address on Monday that the threat of sanctions coupled with an offer of dialogue was the only way of avoiding a "catastrophic alternative: an Iranian bomb or the bombing of Iran."

"He only recently came to power and wants to find a place for himself in the world," Ahmadinejad said of the French president. "He is still inexperienced, meaning that maybe he does not really understand the meaning of his own words."

In a speech billed as a defense of the Iraq war, Bush branded Iran "the world's leading state sponsor of terrorism," citing its backing of Hamas, Hezbollah, Palestinian Islamic Jihad and Shiite fighters killing US troops in Iraq.

"And Iran's active pursuit of technology that could lead to nuclear weapons threatens to put a region already known for instability and violence under the shadow of a nuclear holocaust," he said.

The United States accuses Iran -- OPEC's number two oil producer and owner of the second largest proven gas reserves in the world -- of seeking to make nuclear weapons under the guise of a civilian energy drive.

Iran insists that the drive is entirely peaceful and that its growing population will need nuclear power as fossil fuels start to run dry.

Tehran's refusal to suspend uranium enrichment -- a sensitive process that can be used both to make nuclear fuel and nuclear weapons -- has already seen it slapped with two sets of UN sanctions.

Washington has been pushing for tougher measures, but Ahmadinejad said Iran was now cooperating so well with the UN nuclear watchdog, the International Atomic Energy Agency (IAEA), that more UN sanctions were unlikely.

"Not one member of the IAEA has cooperated as well as Iran. So from our point of view, Iran's nuclear case is closed. Iran is a nuclear nation and has the nuclear fuel cycle," he said.

A deal reached between Iran and the IAEA last week sets out a detailed timetable for Tehran to answer outstanding questions about its atomic drive, but does not tackle the key sticking point over whether Iran should suspend uranium enrichment activities.

The US envoy to the IAEA, Gregory Schulte, has dismissed the plan as having "real limitations," and claimed that Iran "is clearly trying to distract attention from its continued development of bomb-making capability."

Schulte insisted that the United States would continue pushing for a third round of sanctions, which diplomats said Washington wanted to happen in September.

Iran said on Tuesday that as part of its cooperation with the IAEA it has already cleared up questions about its experiments with plutonium, a potential atom bomb material.

Diplomats in Vienna, where the IAEA is based, said the Iranian cooperation should stave off new UN sanctions this year but that Tehran must open up further if it wants to avoid punitive action in the longer term.

AFP 28 1952 GMT 08 07