And the US Senate last week voted for a resolution to designate Iran's Islamic Revolutionary Guard Corps a 'terrorist' group.

Iran's parliament reciprocated on Saturday, designating the CIA and US Army as 'terrorists'.

But in the wake of President Mahmoud Ahmadinejad's controversial US visit, are signs pointing towards war or diplomacy?

Despite hardline rhetoric on both sides - and a lengthy story by Seymour Hersh in The New Yorker on Sunday that suggested the Bush administration was ready for 'surgical strikes' against Iran - analysts said diplomacy was the far more likely outcome.

'I am convinced they have zero interest in a war with Iran,' Kenneth Pollack, of the Brookings Institution, said. 'They are completely fixated on Iraq.'

The military in Iraq was 'apoplectic' about Iran's role, he said, prompting a 'steady drumbeat to take stronger and stronger measures against the Iranians'.

President George W. Bush said in August that he had 'authorised' US commanders to 'confront Tehran's murderous activities'.

But few in civilian or Pentagon leadership appear ready for direct military action. The United States is instead working for a third round of UN sanctions over Iran's nuclear programme, and US and Iranian ambassadors in Baghdad have met three times for talks.

'If ever US officials got a smoking gun, where they could directly trace a line between a dead American military person and an Iranian official, my guess is their first inclination would be: 'How do we use this to get the Russians, Chinese, and Europeans to agree to harsher sanctions? How do we use this as leverage to force the Iranians to get serious in these talks?'' said Mr Pollack, author of The Persian Puzzle.

'I don't think their first inclination is: 'OK, now we can unleash the strike on the Iranians that we have wanted to unleash'.'

Mr Ahmadinejad has said repeatedly that Iran was not looking for war and he was certain the US would not attack. Despite his acrimonious face-off at Columbia University last week, and comments about gays in Iran and the Holocaust that dominated US media coverage, he stated that Iran would not threaten any nation.

But at the United Nations, Mr Ahmadinejad berated 'arrogant powers' that had 'repeatedly accused Iran and even made military threats' on the nuclear issue.

His performance struck a chord in Iran, where the president is under fire from rivals and even fellow conservatives for his combative style and failure to improve the economy. Mr Ahmadinejad even said that if Washington 'puts aside some of its old behaviours, it can actually be a good friend for the Iranian nation'.

'I was surprised by the reaction in the street, from shopkeepers, customers, taxi drivers - they were impressed' with his calm arguments and 'logic', said an analyst in Tehran.

Mr Ahmadinejad's trip and a recent agreement with the UN's nuclear watchdog to resolve remaining questions mean the 'expectation in the street of a military clash is lower. But at the highest levels, how much are they deceiving themselves?'

For it is up there - where Iran's supreme religious leader, Ayatollah Ali Khamenei, makes all final decisions - that the real political battles are being fought. The powers of Mr Ahmadinejad's rival, Ali Akbar Hashemi Rafsanjani, expanded a month ago when he was elected speaker of the Assembly of Experts, a body that can dismiss the ayatollah.

'The fact that Ahmadinejad has been very successful at portraying us as a threat to the world has made lots of people unhappy up there,' the Iranian analyst said of elite circles. 'So more and more, people are turning their backs on Ahmadinejad, and coming closer to Rafsanjani - or what Rafsanjani used to symbolise, moderation and working with outsiders.'

That trend became clear during elections last December in which Mr Ahmadinejad's arch-conservative allies were trounced, he said.