US President George W. Bush and French President Nicolas Sarkozy warned yesterday that a nuclear-armed Iran would pose a threat to peace, as they sought to end tension over Iraq and forge a common front against Iran.

As part of Bush's farewell tour of Europe, the leaders sat down to co-ordinate strategy for increasing international pressure on Iran over its nuclear programme and for shoring up assistance for war-battered Afghanistan.

Iran ruled out any suspension of uranium enrichment yesterday after the European Union's top diplomat, Javier Solana, delivered a package of economic incentives from world powers to persuade it to stop such work.

"I am disappointed that the Iranian leaders rejected this generous offer out of hand," Bush told a joint news conference with Sarkozy. He said European leaders understood that a nuclear-armed Iran would be a "major blow to world peace".

Sarkozy agreed, saying: "Iran obtaining the atom bomb is unacceptable." He called for a "flawless sanctions procedure" if Tehran remains defiant.

Bush and allies he has met during his trip have warned Tehran of further sanctions if it continues to develop nuclear know-how that could be used in bomb-building. Iran insists its programme is strictly for electricity generation.

Bush's warm personal bond with Sarkozy stands in marked contrast to the chilly relationship the US leader had with his predecessor, Jacques Chirac, a staunch critic of the 2003 US-led invasion of Iraq.

But Bush remains deeply unpopular in France, with many people indifferent to his visit and looking to his successor who will be elected in November.

Bush met Sarkozy, a fellow conservative, at the Elysée Palace after a welcoming ceremony on the steps outside. Afterward, Bush hailed Sarkozy as a "consistent friend".

Sarkozy dwelt on historically "privileged" US-French relations and he also made clear that France would not flinch from expressing occasional disagreements with its US ally.

Sarkozy won favour in Washington especially for taking a harder line against Iran than Chirac's former government.

At the news conference, Bush thanked Sarkozy for sponsoring a donors' conference that yielded $20 billion for rebuilding Afghanistan, where US, Nato and Afghan forces are fighting a resurgent Taliban.

Turning to the Middle East, Bush warned Syria to "stop fooling around" with Iran to destabilise Lebanon through their backing for Hizbollah. He said an Israeli-Palestinian peace deal was possible by the end of the year.

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