|PIC1|An Iranian leader said on Wednesday he detected a better mood in talks over his country's nuclear program as the top U.S. military officer called for more dialogue to avoid a confrontation with Tehran.

Tensions have flared in recent days amid reports Israel is planning for a possible strike against Iran's nuclear facilities, sending crude oil prices near record highs.

But Iranian Foreign Minister Manouchehr Mottaki said he did not think the United States or Israel would attack Iran at least through January, when the Bush administration ends.

Mottaki also said he saw a "new sort of atmosphere" in nuclear talks with six big powers after a recent approach to Tehran through the European Union.

President George W. Bush reiterated that diplomacy was the first option to address Iran's nuclear program, but he repeated that Washington had all options on the table.

At the Pentagon, Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, said he believed Tehran was "still on a path to get to nuclear weapons" but stressed he wanted to see the dispute with Iran resolved through peaceful means.

"I'm convinced that the solution still lies in using other elements of national power to change Iranian behaviour, including diplomatic, financial and international pressure," said Mullen, recently returned from a two-day trip to Israel.

"There is a need for better clarity, even dialogue at some level," he said.

U.S. military officials played down concerns that Tehran would close the Strait of Hormuz, a key oil shipping route, in any military confrontation with Israel or the United States.

Speaking through an interpreter, Mottaki told reporters that "constructive statements and approaches" and an earlier proposal by Iran had "paved the way for creating a new sort of atmosphere."

On behalf of the United States, Britain, France, Germany, Russia and China, EU foreign policy chief Javier Solana handed over an offer on June 14 of trade and other benefits designed to help persuade Tehran to curb its nuclear work.

"Very soon I will respond to the letter given to me by the six foreign ministers," Mottaki said at the United Nations.

U.S. MILITARY BACKS DIALOGUE

The United States and other major powers believe Tehran wants to build an atomic bomb. Tehran insists its nuclear program is intended only to produce electricity.

That dispute has fed tensions between Tehran and Washington that Bush blamed on Iranian President Mahmoud Ahmadinejad. Bush said the United States had nearly convinced Iran's leaders to verifiably suspend uranium enrichment in 2003, before Ahmadinejad took office.

"Then Ahmadinejad came along and changed the tone and changed the, evidently changed the policy of the government," Bush said in an interview with Japanese reporters that Reuters attended. "And so now Iran is much more confrontational."

Bush was not alone in criticizing Ahmadinejad, who often berates Washington in fiery speeches. On Tuesday, a senior advisor to Iran's top authority, Supreme Leader Ayatollah Ali Khamenei, said "provocative" speeches could damage the country's nuclear cause - a veiled reference to Ahmadinejad.

Despite upbeat comments by Mottaki and indications of an opening for talks, the State Department expressed scepticism.

"There needs to be some actual follow-through," State Department spokesman Sean McCormack said. "Whether their public statements from the foreign minister are positive or not is really not terribly important at this point."

In Brussels, Solana said he would wait for Tehran's formal response to the incentives offer before commenting on statements from Iranian officials.

Leaked reports of a major Israeli military exercise over the Mediterranean on June 2 generated speculation that Israel might be preparing to strike Iranian nuclear facilities or press the United States to take military action.

One concern for oil markets is that Iran, the world's fourth-largest oil producer, could try to close the Strait of Hormuz in retaliation for a military strike. About 40 percent of seaborne oil trade passes through the strait, according to the U.S. government.

The top U.S. naval commander in the Gulf played down that concern and said he would act if Iran made any such move.

"Iran will not attempt to close the Strait of Hormuz and we will not allow them to close the Strait of Hormuz," Vice-Admiral Kevin Cosgriff, the commander of the U.S. Navy's Fifth Fleet, told a conference in Abu Dhabi.

At the Pentagon, Mullen said Iran might be able to create hazards in the strait but not maintain them.

There have been several incidents in the Gulf this year in which U.S. ships have come close to skirmishing with approaching boats in the busy waterway. U.S. officials have blamed Iran, which has denied responsibility.

Oil rose above $142 a barrel Wednesday, below the record $143.67 hit on Monday.