"American commandos are not able to enter Iran so easily to spy. It would simplistic to accept such an idea," said Ali Agha Mohammadi, a spokesman for Iran's Supreme National Security Council.

"We know our borders," he added, dismissing reports of US covert actions as part of a "psychological campaign" directed against Iran's clerical regime.

His comments followed a report in the New Yorker magazine that US commandos had been operating inside Iran since mid-2004 to search out potential targets for attack -- something the magazine said could come as early as mid-2005.

The Pentagon has also rejected the report, saying it was "riddled with errors." Mohammadi also said the report "was not even worth thinking about".

But on Monday, US President George W. Bush also said he could not rule out a resort to military action if the United States failed to persuade Iran to abandon a nuclear energy programme it charges is a cover for developing the bomb.

Iran insists its nuclear programme is merely directed at generating electricity, and is in the midst of talks with Britain, France and Germany aimed at finding a long-term solution to ease international worries.

"I hope we can solve it diplomatically, but I won't ever take any option off the table," Bush told US network NBC.

US secretary of state-designate Condoleezza Rice also urged united world action to keep Iran from building nuclear weapons, and repeated threats of hauling the Islamic republic before the UN Security Council with a view to imposing sanctions.

"I would take, as a first step, that if the Iranians do not show that they're going to live up to their international obligations that we refer them to the Security Council," she said, adding that "at some point that may be exactly where we need to go."

"Iran's policies," she argued, "are 180 degrees to our own interest at this point."

In a response, influential former president Akbar Hashemi Rafsanjani declared that Iran would not be intimidated by "foreign enemies" and cautioned Washington against dreaming of an attack.

"We are not afraid of foreign enemies' threats and sanctions, since they know well that throughout its Islamic and ancient history, Iran has been no place for adventurism," Rafsanjani, a possible contender in the June presidential election, told the state news agency IRNA Tuesday.

The UN nuclear watchdog, the International Atomic Energy Agency (IAEA), has been investigating Iran for two years. IAEA chief Mohamed ElBaradei has said there is no proof that Iran is hiding weapons work but that "the jury is still out."

But the New Yorker article said US hawks are convinced European negotiations with Iran will fail, and when they do, the United States will act against the country, which was lumped into an "axis of evil" by Bush in 2002.