Aug. 1 (Bloomberg) -- Iran is driving toward a ``major breakthrough'' in its nuclear development effort that poses an ``unacceptable'' danger, Israeli Deputy Prime Minister Shaul Mofaz told a Washington audience today.

Iran with a nuclear weapon is ``an existential threat,'' Mofaz said at a forum on Iran at the Washington Institute for Near East Policy. ``We have to make sure we are prepared for every option. All the options are on the table.''

Mofaz, a former Israeli army chief of staff, is a potential leader of Israel because of Prime Minister Ehud Olmert's planned departure from office. Mofaz is competing with Foreign Minister Tzipi Livni for control of the ruling Kadima party after Olmert said he won't compete in the party's Sept. 17 primary amid a corruption scandal.

While Mofaz didn't specify what the breakthrough might be, the Iranian government sparked speculation about its nuclear progress by saying last month that it has about 6,000 centrifuges, up from 3,500 earlier this year. The centrifuges are used to isolate a uranium isotope needed for fission.

``There are a lot of rumors about where Iran is technically, fueled in large part by Iran bragging about its capabilities,'' said Jon Wolfsthal, a senior fellow at the Center for Strategic and International Studies in Washington and a former nuclear inspector. ``We know they are working on'' nuclear enrichment, he said.

`Buying Time'

Mofaz said even though the Iranian government is ``buying time'' through stalling tactics over its uranium enrichment program, diplomatic efforts to limit the work should continue. If Iran doesn't meet a new international deadline to suspend its nuclear program, the United Nations should toughen sanctions, he said.

``We don't want war, we want peace,'' Mofaz said. ``But we will not let the second Holocaust take place.''

The comments from Mofaz, who also serves as transportation minister, echoed statements he made last month to the Jerusalem Post that ``all options are on the table. If there won't be a choice other than a nuclear Iran or a military option, it's clear what our decision has to be.''

Similar threats he made in June contributed to a surge in oil prices. Crude oil for September delivery climbed today as much as $4.52 a barrel after Mofaz spoke, and at the 2:30 p.m. close of floor trading at the New York Mercantile Exchange was up 90 cents, or 0.7 percent, to $124.98 a barrel.

U.S.-Israeli Talks

Mohammad Mohammadi, a spokesman for Iran's mission to the UN, said his government had no comment on Mofaz statements. Iran consistently denies that it is trying to build a nuclear weapon and describes its research effort as an attempt to create a commercial nuclear power industry.

Iranian President Mahmoud Ahmadinejad vowed today to ``resist with force'' any outside efforts to slow the nuclear work, Agence France-Presse cited him as saying on state television.

Mofaz is heading the Israeli team taking part in a strategic dialogue with the U.S. this week in Washington, a forum in which the sides meet every few months to discuss regional threats.

Nicholas Burns, the former U.S. undersecretary of state for political affairs, told the forum that diplomacy needs ``time and patience'' to succeed. Burns was instrumental in building the U.S. strategy of escalating sanctions on Iran through the UN Security Council.

`Space for Diplomacy'

``Before we can even begin to consider the prospect of force, we need to pursue this diplomatic process,'' Burns said. ``I assume there is time left and do believe there is space for diplomacy.''

The five permanent members of the Security Council, the U.S., Russia, China, France and the U.K., plus Germany have proposed an economic and technological incentives package for Iran in exchange for a halt to enrichment.

At talks in Geneva on July 19, European diplomats and U.S. Undersecretary of State William Burns gave Iran two weeks to reply to the offer and to their repeated calls for it to halt enrichment. That deadline is next week.

``Iran needs to earn the trust of its negotiating partners,'' Burns said.

On Syria, Mofaz said he supported the indirect contacts between Israel and its neighbor, and said he supports continuing those talks.

``We have to negotiate with Syria, but without preconditions and without a deposit,'' Mofaz said.

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Janine Zacharia in Washington at jzacharia@bloomberg.net.

Last Updated: August 1, 2008 15:52 EDT