Iran on Wednesday test-fired a missile it said is capable of reaching Israel, angering the United States amid growing fears that the standoff over the contested Iranian nuclear drive could lead to war.

The Shahab-3 was among a broadside of nine missiles fired off simultaneously from an undisclosed location in the Iranian desert during war games being staged by the Revolutionary Guards, state television showed.

"The aim of these war games is to show we are ready to defend the integrity of the Iranian nation," state-run Arabic channel Al-Alam quoted Revolutionary Guards air force commander Hossein Salami as saying.

The United States led Western condemnation of the tests, saying it would reinforce suspicions over Tehran's military ambitions at a time when world powers are seeking to resolve the long-running nuclear standoff.

Iran insists its nuclear drive is aimed solely at generating energy but the West fears could be aimed at making an atomic bomb and has called for a freeze of uranium enrichment.

Al-Alam said the missiles test-fired by the Revolutionary Guards included a Shahab-3 with a one-tonne conventional warhead and a 2,000-kilometre (1,240-mile) range.

"Our missiles are ready for shooting at any place and any time, quickly and with accuracy. The enemy must not repeat its mistakes. The enemy targets are under surveillance," Salami added.

The United States, which has never ruled out military action against Iranian atomic facilities, condemned the missile tests.

"Iran's development of ballistic missiles is a violation of United Nations Security Council resolutions and completely inconsistent with Iran's obligations to the world," White House spokesman Gordon Johndroe said.

He expressed concern that Iran's ballistic missiles could be used as "a delivery vehicle for a potential nuclear weapon".

News of the tests caused record high oil prices to rebound after recent falls, with the market fearing supply disruptions from the OPEC cartel's number two producer in the event of any conflict.

There has been concern an attack against Iran could be imminent after it emerged Israel had carried out manoeuvres in Greece that were effectively dry runs for a potential strike against Iranian nuclear facilities.

But in Jerusalem, Prime Minister Ehud Olmert's spokesman said Israel -- which is believed to be the Middle East's only if undeclared nuclear-armed state -- is not seeking war.

"Israel seeks neither conflict nor hostilities with Iran, but no one in the international community should remain indifferent to Iran's nuclear programme and Iran's ballistic missile programme," Mark Regev said.

The Islamic republic test-fired the Shahab-3 for the first time in November 2006, but launching its longest-range weapon amid the current tension added to Western concerns.

Germany -- one of the six nations along with permanent Security Council members Britain, China France, Russia and the United States which have drawn up a new offer to try to end the crisis, called on Iran to refrain from "sabre-rattling."

The British Foreign Office described the tests as "unwelcome".

"These missile tests can only reinforce the concerns of the international community at a time when Iran is separately developing a nuclear programme," said a French foreign ministry spokesman.

On Tuesday, an aide to supreme leader Ayatollah Ali Khamenei warned that Iran would "set fire" to Israel and the US navy in the Gulf as its first response to any American attack.

Wednesday's launch was part of The Great Prophet III war games by the missile and naval sections of the Revolutionary Guards which are aimed at improving combat readiness.

But diplomatic efforts are also continuing. Iran has responded to an offer from world powers to end the nuclear crisis, and diplomats are analysing what is said to be a complex answer from Tehran.

EU foreign policy chief Javier Solana will travel to Tehran on July 19 for talks with Iranian nuclear negotiator Said Jalili on the latest proposals, the semi-official Fars news agency reported.

The offer proposes that Iran suspend uranium enrichment -- the key sticking point in the crisis and the process which they fear could be used to make a nuclear weapon -- in exchange for technological incentives.

However, France says Iran does not say in its response that it is prepared to suspend uranium enrichment.

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