The US lacks reliable intelligence on Iran's weapons capability, including its possible plans to develop a nuclear bomb, a US Congressional report says.
Iran may be bluffing about its military strength, the US report says
The House Intelligence Committee report says more must be spent spying on Iran.
Given the "significant gaps" in US intelligence, the report questions whether the US can engage in effective dialogue with Iran.
Iran this week offered to discuss its nuclear work with world powers who suspect it is trying to build a bomb.
Iran maintains its nuclear programme has a purely civilian purpose and has rejected a UN demand to immediately stop uranium enrichment.
Iran's proposal for "serious talks" - made in response to a package of incentives offered in exchange for abandoning uranium enrichment - has drawn a cool response from Washington.
The US has indicated it is considering the threat of sanctions against Iran because its response falls short of UN demands.
Although the contents of Iran's 21-page response have not been made public, German Chancellor Angela Merkel said Tehran had not agreed to suspend its enrichment programme:
"We are still checking this, but according to everything I've heard we cannot be satisfied with this. It is not at all what we expected - which is 'we suspend our uranium enrichment programme, come to the negotiating table and talk then about the opportunities of Iran'.
"That did not happen, and we will advocate that this will still happen over the next couple of days. But the decisive sentence is missing in the statement and that has to be addressed."
The House Intelligence Committee report says: "Iran is a serious security threat on which the United States needs better intelligence."
"There is a great deal about Iran that we do not know," it says, warning that "policymakers will need high-quality intelligence to assess Iranian intentions to prepare for any new round of negotiations".
"A special concern is major gaps in our knowledge of Iranian nuclear, biological, and chemical programmes," the report says.
The committee's report recommends the US strengthen its ability to gather information on Iran's nuclear capability by hiring more agents fluent in Farsi.
According to the BBC's Jonathan Beale in Washington, the report contains worrying echoes of US intelligence failures over the weapons programme of former Iraqi leader Saddam Hussein.
The report says Iran presents a serious security threat to the US and cites intelligence sources as saying it could have a nuclear weapon within a decade.
However, the report says, Iran may equally be engaged in a campaign of denial and deception designed to make its nuclear programme appear more advanced than it is.
A spokesman for the Bush administration said intelligence chiefs were "already taking steps along the lines the committee has recommended".