Iran tops the list of "potential trouble-spots" worldwide, according to US Vice-President Dick Cheney.
Cheney was sworn in for a second term as vice president
But Mr Cheney said diplomacy was the best way, for the time being, to ease the crisis over Iran's nuclear plans.
As George W Bush began a second term as president, Mr Cheney said the US did not want another war in the region.
Iranian leaders, who reject suspicions they are building nuclear weapons, have said US forces will not risk a "lunatic" attack on their country.
President Mohammad Khatami said Tehran was fully prepared to defend itself but it did not expect the US, already overstretched in Iraq, to mount an offensive.
Speaking just before his inauguration, Mr Cheney told MSNBC: "We don't want a war in the Middle East, if we can avoid it.
"And certainly in the case of the Iranian situation, I think everybody would be best suited by or best treated and dealt with if we could deal with it diplomatically," he said.
But if Iran continued to resist demands to rein in its nuclear programme - which Tehran insists is solely to produce electricity - the US would seek international sanctions against the country from the UN Security Council, the vice-president warned.
He also suggested that Israel might itself take action against Iran to safeguard its own future - indicating that this would be highly undesirable.
Iran was also cited as a centre of tyranny by the new US Secretary of State, Condoleezza Rice, in her confirmation hearings this week.
An article by veteran investigative journalist, Seymour Hersh, has claimed US special forces are already operating discreetly inside Iran to identify nuclear sites.
'Saddam to blame'
Mr Cheney also said he miscalculated how long it would take Iraq to recover from the impact of Saddam Hussein's rule.
He blamed the brutality of the regime for what he said was the slowness of Iraqis to "take control of their own affairs" following the US invasion.
"The brutality that he [Saddam Hussein] used in 1991 to put down the revolt at the time I think just had devastating consequences in terms of the ability of the Iraqi people to recover from his rule," he said.
The Bush administration has been repeatedly criticised by its opponents for not admitting mistakes were made in the handling of the occupation of Iraq.