The U.S. is desperately trying to talk Israel out of an attack on Iran's nuclear facilities amidst fears a strike could come within just two months.
Iran, which is being accused of preparing to build a nuclear bomb, says it will retaliate over Western-backed oil sanctions and any attack threat.
U.S. Defense Secretary Leon Panetta is reportedly fearful of a growing chance Israel would attack Iran as early as April to stop it building a bomb.
‘Threatening Iran and attacking Iran will harm America,’ Iran's Supreme Leader Ayatollah Ali Khamenei warned in a defiant speech on Friday.
‘Sanctions will not have any impact on ‘our determination to continue our nuclear course’ and it will impose any threats ‘at the right time’, he added.
‘I have no fear of saying that we will back and help any nation or group that wants to confront and fight against the Zionist regime (Israel).’
America is leaning heavily on Israel, even though it has largely concluded that outside argument will have little effect on Israeli decision-making.
The stand-off poses a major political challenge for President Obama, who has been regularly mocked by most of the GOP presidential candidates for failing to take a tougher stance against Iran.
Israel fears that Iran is fast approaching a point at which a limited military strike no longer would be enough to head off an Iranian bomb.
Secretary Panetta believes Israel could strike before Iran enters a 'zone of immunity' to start building a nuclear bomb, reported the Washington Post.
The Israelis fear the Iranians will soon have ‘enough enriched uranium in deep underground facilities to make a weapon’, the newspaper reported.
Mr Khamenei said any U.S. strike against Iran would backfire and the ‘painful and crippling’ Western sanctions would only increase its resilience.
‘Americans say all options are on the table - even the option of military strike,’ he said. ‘Any military strike is ten times more harmful for America.
Mr Khamenei said strike threats show the U.S. can only use ‘force and bloodshed to achieve its goals’ and cannot speak against ‘Iran's logic'.
‘Such sanctions will benefit us,’ he said. ‘We would not achieve military progress if sanctions were not imposed on Iran's military sector.’
Mr Khamenei described Israel as a 'cancerous tumour that should be cut and will be cut’ and talked about Iran assisting foreign militant groups.
Israel, widely believed to possess the Middle East's only nuclear arsenal, views Iran's uranium enrichment projects as a major threat.
The delay of a joint U.S.-Israeli military exercise due in spring may signal the prospect of an Israeli attack soon, reported the Washington Post.
Iran has said repeatedly it could close the vital Strait of Hormuz Gulf oil export route if sanctions succeed in preventing it exporting crude.
Israel estimates it could make four atomic bombs by further enriching uranium already stockpiled, and its first bomb within a year of starting.
China stepped up its opposition to a Western push for tighter sanctions, warning tensions over the nuclear programme are hurting energy markets.
It comes a day after German Chancellor Angela Merkel urged Beijing to use its influence to persuade Iran to give up its nuclear programme.
China, the biggest buyer of Iranian oil, has long opposed unilateral sanctions that target Iran's energy sector and has tried to reduce tensions.
Escalating tensions between Iran and the West have pushed up Brent crude prices by about 9 per cent since mid-December.
President Barack Obama maintains the U.S. is reserving the right to attack Iran if it one day feels it must, but an Israeli strike on Iran is more likely.
'Israel has indicated they are considering this, and we have indicated our concerns,' Secretary Panetta said on Thursday in Brussels.
In Washington, the Senate Banking Committee easily approved yet more penalties on Tehran on Thursday in a sweeping measure.
It’s not yet law but would, amongst other plans, expand penalties for energy and uranium mining joint ventures with Tehran.
Congress approved - and President Obama signed - a bill last month to target financial institutions that do business with Iran's Central Bank.