Updated: US holds two in 'Iran terror plot'

Agents of the Iranian government were tonight accused in the United States of being involved in a plot to assassinate the Saudi ambassador, with help from a purported member of a Mexican drug cartel.

US Attorney General Eric Holder said the US would hold Iran accountable.

Two people, including a member of Iran's special operations unit known as the Quds Force, were charged in New York federal court.

Mr Holder said the bomb plot was a flagrant violation of US and international law.

"We will not let other countries use our soil as their battleground," Preet Bharara, the US attorney in Manhattan, said at a news conference in Washington with Holder and FBI Director Robert Mueller.

Manssor Arbabsiar, a 56-year-old US citizen who also holds an Iranian passport, was charged with Gholam Shakuri, whom authorities said was a Quds Force member.

Mr Mueller says many lives could have been lost in the plot to kill the ambassador with bombs in the US.

Mr Holder said the US government would be taking unspecified action against the Iranian government as early as today.

Asked whether the plot was blessed by the top echelons of the Iranian government, Mr Holder said the Justice Department was not making that accusation.

Arbabsiar unknowingly hired an informant from the Drug Enforcement Administration to carry out the plot, prosecutors said.

Posing as a member of a Mexican drug cartel, the informant met with Arbabsiar several times in Mexico, authorities said.

The price tag was 1.5 million dollars (£960,000) and Arabsiar made a 100,000 dollars (£64,000) down payment.

Mr Bharara said no explosives were actually placed, and no one was in any danger.

Shakuri remains at large. Arbabsiar was arrested on September 29 at New York's John F. Kennedy International Airport.

He was scheduled to appear in federal court today. Prosecutors said he faces up to life in prison if convicted.

Prosecutors said Arbabsiar has confessed to his participation in the murder plot.

President Barack Obama was first briefed on the plot in June, said White House spokesman Tommy Vietor.

"The disruption of this plot is a significant achievement by our intelligence and law enforcement agencies, and the president is enormously grateful for their exceptional work in this instance and countless others," Mr Vietor said.

Secretary of State Hillary Clinton said the Treasury Department soon would put more people under sanctions. She also predicted the plot would further isolate Iran.

Iran rejected the US claims, with IRNA, the official Iranian news agency, calling the accusations "America's new propaganda scenario" against the Tehran government.

Alizreza Miryusefi, the press attache at Iran's mission to the United Nations, said the accusation was "totally baseless".