July 8 (Bloomberg) -- Iran's Mahmoud Ahmadinejad dismissed the possibility of a war with the U.S. and Israel over his country's nuclear work, saying Iran is trying to avoid conflict.

``We're making the utmost effort for providing peace and security at the world level,'' the Iranian president told reporters today in Kuala Lumpur, where he is attending a summit of the Eight Islamic Developing Countries. ``Don't worry, there won't be any war in the future. Mainly they are focusing on some sort of propaganda or psychological war.''

Tensions over Iran increased, helping push the price of oil to a record, after a June 20 New York Times report that Israeli military maneuvers last month were in preparation for a possible attack on Iran's nuclear facilities. Iran would strike Israel and the U.S. Navy in the Persian Gulf as a first response to any American attack on its nuclear program, an aide to Supreme Leader Ayataollah Ali Khamenei said today.

Iran has the right to develop a nuclear program, Ahmadinejad said, while declining to specify whether his government will suspend uranium enrichment as required in a package of incentives from the United Nations Security Council's permanent members, plus Germany. He said he was ready for dialogue with the world powers, while repeating his condemnation of Israel, labeling it an ``illegitimate regime.''

The U.S. and its allies accuse Iran of using its atomic program as cover for the development of nuclear weapons. Iran, which is under three sets of UN sanctions for refusing to halt uranium enrichment, denies the allegation and says the work is aimed at generating electricity. Enriched uranium can fuel a nuclear reactor or arm a weapon.

Bush Term Ending

The threat of a U.S. attack on Iran has receded as George W. Bush approaches the end of his presidency, Ahmadinejad said.

``Previously, it would have been considered a serious issue,'' the Iranian leader said. ``The Bush era has come to an end. He is not in a situation to change circumstances in his favor.'' The threats are a ``joke,'' Ahmadinejad said.

``And of course, the economic, political and military situation will not let Bush do that,'' he said. ``The Iranian people are ready to defend their own rights.''

Bush said on July 2 that he is committed to pursuing diplomacy to end the stalemate over Iran, yet ``all options'' remain in place. U.S. warships yesterday practiced maneuvers for protecting oil rigs in the Persian Gulf, a week after the Navy vowed to counter any Iranian effort to shut the Strait of Hormuz.

`First Targets'

Israel wants the U.S. ``to prepare a military aggression against Iran,'' state-run Fars News agency today cited Ali Shirazi, Khamenei's representative in the Revolutionary Guards' naval division, as telling military personnel. ``If they resort to such a silly undertaking, Tel Aviv and the U.S. fleet in the Persian Gulf will be the first targets'' of Iran's response.

Iran's military today said it was conducting exercises to strengthen the combat capacity of its missile and Navy units.

Ahmadinejad, in an interview with Malaysia's state-run broadcaster, yesterday said the U.S. and Israel wouldn't dare to attack Iran over its atomic program and pledged to continue his country's nuclear work in defiance of the UN. He also said the demands for a halt to Iran's nuclear development were ``a repetitive scenario.''

The incentives plan includes recognition of Iran's right to develop nuclear energy for peaceful purposes and to support the construction of a light-water reactor. The proposed measures also include steps toward the normalization of trade and economic relations, greater Iranian access to international markets, and support for its admission to the World Trade Organization.

`Generous Offer'

``I hope that this proposal, which has been extensively published in Iran, will demonstrate that the Iranian regime needs to tell its people the truth,'' U.S. Secretary of State Condoleezza Rice told reporters today in Prague, where she signed a missile-defense accord with the Czech government. ``This is a generous offer that even has civilian nuclear cooperation as part of it.''

Rice said the U.S. still is willing to hold negotiations with Iran, ending almost 29 years without diplomatic contact, if the country first suspends uranium enrichment. The U.S. ended diplomatic relations with Iran in April 1980 in response to the seizure five months earlier of 52 Americans at the U.S. Embassy in Tehran.

Iran responded to the incentives offer on July 4. The Iranian comments, which haven't been publicly released, don't include any mention of suspending nuclear activities, the French Foreign Ministry said today.

To contact the reporters on this story: Shamim Adam in Kuala Lumpur at sadam2@bloomberg.net; Soraya Permatasari in Kuala Lumpur at soraya@bloomberg.net.

Last Updated: July 8, 2008 12:53 EDT