Defending their approach to thwarting Iran's nuclear ambitions, Bush administration officials on Thursday said U.S. financial sanctions were increasing pressure on Tehran by isolating it from the international business world.

The sanctions have not yet inflicted enough economic pain to pressure Iran to abandon any ambitions to acquire nuclear weapons but the administration is still hoping it would "change the calculus" for Tehran, a senior State Department official told lawmakers.

"Iran is increasingly isolated. Iran has to spend more time to figure out how to do trade, financial transfers. The sanctions are having an effect," Jeffrey Feltman, Deputy Assistant Secretary of State for Near Eastern Affairs, said in a hearing of the U.S. House of Representatives Foreign Affairs Committee.

Feltman said Washington is committed to a "diplomatic solution to the range of challenges posed by Iran."

The U.S. Treasury Department has banned Americans from doing business with a number of Iranian state banks and other firms due to their alleged involvement in financing acquisition of nuclear and missile technologies.

The United States also accuses some of the blacklisted companies of helping provide financial support to terrorist groups in Iraq and other parts of the Middle East.

Many international banks and companies have opted to observe the U.S. sanctions and shun business with Iran, said U.S. Treasury Deputy Assistant Secretary Daniel Glaser, saying the strategy was "having an effect."

But lawmakers on the panel expressed frustration that the Bush administration had not taken strong enough action on Iran and said the sanctions would do little to persuade Tehran to change its ways.

"Having a policy of hope is horse dung. Praise the Lord, but pass the ammunition," said Rep. Gary Ackerman, a New York Democrat. He said there wasn't enough pressure on Iran. "What is the 'or else' here? We'll tell the U.N.?" he asked.

California Rep. Edward Royce, a Republican, said Treasury should add Bank Markazi, Iran's central bank, to its sanctions list, calling it the "central bank of terrorism."

Glaser said Bank Markazi was employing deceptive practices to help blacklisted institutions skirt sanctions, such as requesting anonymity in international transactions. He said that while sanctioning the central bank itself was an option, the U.S. was not yet ready to take that step.

"Taking action against the central bank of Iran is an extraorodinary step. It is certainly something that is within our tool box," Glaser said. "But it is important to do this the right way and it's important to work with the international community.

Through coordination with the Financial Action Task Force, a multinational anti-money laundering body, Glaser said several countries, including the UK, Canada, France, Germany, Japan and Malaysia, have warned their financial institutions of the risks inherent in doing business with Iran.