(AP Photo/J. Scott Applewhite)

WASHINGTON - Defence Secretary Leon Panetta said Thursday that Iran is enriching uranium in a disputed nuclear program but that Tehran has not made a decision on whether to proceed with development of an atomic bomb.

Fears of a nuclear-armed Iran produced tough talk from Panetta and the nation's top intelligence officials, all of whom offered insights and observations on the secretive regime in separate congressional hearings. Their testimony came amid increasing international fears of a Mideast conflagration as Iran boasted of major advances in producing nuclear fuel and threatened an oil embargo in retaliation for economic and diplomatic sanctions.

Israel has accused Iran of being behind recent attacks on its diplomats in Thailand, Georgia and India and has threatened military strikes against Iran's nuclear facilities.

"We will not allow Iran to develop a nuclear weapon. This isn't just about containment. We will not allow Iran to develop a nuclear weapon," Panetta told the House Appropriations Committee's defence subcommittee. "We will not allow Iran to close the Straits of Hormuz. And in addition to that, obviously, we have expressed serious concerns to Iran about the spread of violence and the fact that they continue to support terrorism and they continue to try to undermine other countries."

The Pentagon chief delivered President Barack Obama's oft-repeated statement that "we do keep all options on the table."

Panetta, the former CIA director, said U.S. intelligence shows that Iran is continuing its uranium enrichment program. "But the intelligence does not show that they've made the decision to proceed with developing a nuclear weapon. That is the red line that would concern us and that would ensure that the international community, hopefully together, would respond," he said.

Testifying before the Senate Armed Services Committee, Director of National Intelligence James Clapper said the decision on a nuclear weapon would be made by Iran's Supreme Leader Ayatollah Ali Khamenei, raising questions about the role of Iranian President Mahmoud Ahmadinejad in the process.

"He (Khamenei) would base that on a cost-benefit analysis in terms of, I don't think he'd want a nuclear weapon at any price," Clapper said. "So that I think plays to the value of sanctions, particularly the recent ratcheting up of more sanctions and anticipation that that will induce a change in their policy and behaviour."

Clapper said it is "technically feasible" that Tehran could produce a nuclear weapon in one or two years, if its leaders decide to build one, "but practically not likely."

The Obama administration recently imposed sanctions on Iran's Central Bank, the latest round of penalties that have widespread bipartisan support in Congress. The Treasury Department announced Thursday that it was slapping sanctions on Iran's ministry of intelligence and security, asserting that it supports global terrorism, commits human rights abuses against Iranians and participates in ongoing repression in Syria.

The first round of penalties on the Central Bank go into effect Feb. 29, and would prohibit any foreign financial institution from conducting business in the United States if Obama concludes that it has conducted or facilitated a significant financial transaction with the Central Bank or other sanctioned Iranian financial institutions.

Sen. Bob Menendez, a Democrat and a chief sponsor of the sanctions, met with David Cohen, the Treasury Department's undersecretary for terrorism and financial intelligence, and said the administration is eager to press ahead despite reservations last year that the penalties could drive up oil prices and benefit Iran's economy.

"I have no sense that they're looking to get an extension," Menendez said in an interview. "The administration shares with us that this is our best hope of deterring Iranian action and their march to nuclear weapons."

Panetta and lawmakers insist the sanctions are taking an economic toll on Iran, reflected in their erratic response. But Israel is not speaking with one voice on the issue. Israeli Prime Minister Benjamin Netanyahu said the sanctions have not yet been effective; his defence minister and vice-premier said the penalties are strong and have the Iranians panicking.

Despite the tough talk from Netanyahu, Clapper and Defence Intelligence Agency chief Lt. Gen. Ronald Burgess said they do not believe that Israel has decided to strike Iran.

But if Iran is attacked, Burgess said, it "can close the Straits of Hormuz, at least temporarily, and may launch missiles against United States forces and our allies in the region."

"Iran could also attempt to employ terrorists' surrogates worldwide. However, the agency assesses Iran is unlikely to initiate or intentionally provoke a conflict," he said.

Clapper said Iran has a "kind of shotgun marriage" with al-Qaida despite the fact that Iran is a Shia state and al-Qaida Sunni.

"The Iranians may think that they might use perhaps al-Qaida in the future as a surrogate or proxy," he said.

Ratcheting up the pressure, a bipartisan group of senators unveiled a non-binding resolution that rules out containment of a nuclear weapons-capable Iran and backs U.S. policy to prevent Tehran from acquiring nuclear weapons capability. Republicans and Democrats said the purpose of the measure was to show support for the Obama administration as they likened the situation to a slow-moving version of the Cuban missile crisis.

"It is a statement to Iran, the international community and President Obama that if Iran refuses to negotiate an end to their nuclear program, and President Obama decides a military strike is necessary in the interests of our national security, he can count on strong bipartisan support in Congress for that decision," Sen. Joe Lieberman, an independent, said at a news conference.