UNITED NATIONS – President Bush and Iranian President Mahmoud Ahmadinejad engaged in an unabashed war of words here Tuesday, each pointing to the other as the prime cause of instability in the Middle East and beyond.

Bush, addressing the opening session of the U.N. General Assembly, sought to assure the Muslim world that the United States isn’t waging a war on Islam. But he singled out Iran and its proxies as standing in the way of the spread of democracy across the Middle East.

Bush restated his demand that Iran abandon its suspected drive for nuclear weapons. Striving to speak directly to the Iranian people, he said the Tehran government is stifling the country’s “tremendous potential.”

“The greatest obstacle to this future is that your rulers have chosen to deny you liberty and to use your nation’s resources to fund terrorism and fuel extremism and pursue nuclear weapons,” Bush said. “Despite what the regime tells you, we have no objection to Iran’s pursuit of a truly peaceful nuclear power program.”

Eight hours later, Ahmadinejad stood before the same podium in the General Assembly hall and denounced the United States – without naming it – for occupying Iraq, backing Israel and using democracy as a pretext for trying to dominate the globe.

The controversial Iranian leader, who has previously questioned the Holocaust and called for Israel’s elimination, seemed to reject demands that Iran halt enrichment of uranium, which Tehran insists is for civil power generation.

“All our nuclear activities are transparent, peaceful and under the watchful eyes of the IAEA inspectors,” he said, referring to the International Atomic Energy Agency. “Why then are there objections to our legally recognized rights?”

The tough talk underscored the growing tension between the United States and an increasingly confident Iran, which appears to be expanding its sway across the Persian Gulf.

Bush’s comments on Iran, while tough, were more restrained than in recent weeks. Last month he called Iran a “grave threat” in a speech to the American Legion. That helped fuel speculation that some sort of U.S. military action against Iran might be coming.

But while the president spoke publicly in softer tones, he and other administration officials continued to work behind the scenes to forge consensus among U.S. allies for eventual sanctions against Tehran.

Secretary of State Condoleezza Rice met with counterparts from Europe, Russia and China over dinner Tuesday evening to chart strategy.

Earlier, Bush met with French President Jacques Chirac and the two leaders appeared in sync on how to handle Iran, one day after Chirac appeared to suggest that negotiations with Iran should begin even before Tehran suspends enriching uranium that could be used for nuclear weapons.

Bush said that three European Union nations – Britain, France and Germany – would continue talks with Iran aimed at getting Iran to verifiably suspend its uranium enrichment. Once Iran does that, Washington would join negotiations. If Iran fails to suspend, then the Western powers would “discuss the consequences … and one of the consequences, of course, would be some kind of sanction program,” Bush said.

Bush didn’t mention Ahmadinejad specifically in his speech. Instead, he denounced the Tehran government and leaders of other governments and terrorist groups that are hampering the White House’s push to expand democracy in the region.

He blasted Hezbollah for launching “unprovoked attacks on Israel,” lashed out at Hamas for “working to destabilize the region,” and accused Syria’s government of turning Syria “into a tool of Iran.”

However, Bush went to great lengths to stress that his disagreements aren’t with the people of the Middle East.

“My country desires peace,” Bush said. “Extremists in your midst spread propaganda claiming that the West is engaged in a war against Islam. This propaganda is false and its purpose is to confuse you and justify acts or terror. We respect Islam.”

Bush’s speech was a rare attempt to reach out directly to foreign audiences, according to Jon Alterman, head of the Middle East programs at the Center for Strategic and International Studies, a center-right think tank in Washington.

But Alterman said the speech might not be effective.

“What the world is waiting for is a sense of humility and an acknowledgement of lessons learned,” he said, referring to the invasion of Iraq and other perceived U.S. missteps in the region.

Some experts on the region said Bush’s speech was more for domestic consumption than a foreign audience.

“This speech is intended to raise the prospects for Republican candidates for the fall,” said Stephen Schlesinger, director of World Policy Institute at the New School in New York. “It’s an attempt to shape public opinion.”

Democratic National Committee Chairman Howard Dean dismissed Bush’s speech as election-year campaigning.

“Today we heard more of the same rhetoric from a desperate President Bush who is worried more about his party’s political prospects this November than about how to protect and fight and win the real war on terror,” Dean said in a written statement.

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