"Bush's remarks are intervening, warmongering, insulting, a repetition of his past propagation, and worse than all, truly insulting towards the Iranian nation", the Iranian President Mohammad Khatami said in answer to US President’s casting Iran, alongside Iraq and North Korea, as the "axis of evil", using the term given to the German, Japan Italy Axis during the last world war II.

"It seems that the National Security Council, the Defence Department and the Israeli lobby in Washington have side-stepped the State Department", one US-based Iranian analyst observed.

Speaking at the Congress, a combative President George W. Bush told Americans early Wednesday morning that the war against terrorism "had only just begun", and warned Iraq, Iran and North Korea that the US "would not allow itself to be threatened" by weapons of mass destruction they are producing or in the process to acquire.

Mr.Hamid Karzai, the interim Afghan Premier, watched the address.

Though he stop short of emphasising, but informed American and Middle Easter sources told Iran Press Service that among sanctions the Bush Administration is considering against the Islamic Republic is to call on his European allies and major oil importers to stop buying Iran crude, thus increasing the regime’s already very difficult economic situation.

At the core of verbal escalation between Tehran and Washington are the harsh, acrimonious, and vindictive speeches by Iran’s leader, Ayatollah Ali Khameneh’I against the United States and its leaders, denouncing American military intervention in Afghanistan and his brutal refusal of any co-operation with Washington-led campaign against terrorism.’

Then came reports of Iranian intrigues and provocations in Afghanistan western provinces aimed at destabilising the UN-installed interim government of Mr. Hamed Karzai and finally Tehran’s attempt to smuggle arms and ammunitions for the Palestinian Authority.

Sensing clearly the threats contained in President Bush’s address, Mr. Khatami warned him that "the great Iranian nation would never yield to arrogant demands" of the foreigners.

"There is no doubt that Mr. Bush is serious in stressing that he would not allow Iran to acquire weapons of mass destruction and I would not be surprised to learn that he has some kind of plans for Iran", Mr. Fatemi commented.

Speaking during the routine cabinet meeting, Mr. Khatami observed: "our nation has proved it is ready to pay the needed cost for its independence, freedom and Islamic Republic".

"What is of top importance is that adopting such aggressive moods merely leads to further unity and solidarity among the Iranian nation in their confrontation with those governments whose appetite will never be saturated and are always intending to intervene in others' affairs", Hojjatoleslam Khatami replied.

Earlier, the regime’s Foreign Minister Kamal Kharrazi had angrily denounced as "arrogant" Mr. Bush"s remarks concerning Iran and described them as a "blunt case of interference in Iran’s internal affairs".

"With these arrogant statements, the American government has further unveiled its true image as a hegemonic power that wants to dominate the whole world through force", Mr Kharrazi said, urging the American President to present proof of his accusations. "Repeated accusations will not help him", he noted.

Iran has persistently denied that it is producing weapons of mass destruction and, to prove its point, has opened up its nuclear facilities now under construction in the port of Bushehr, on the Persian Gulf, to IAEA inspection.

The United States cut all its ties with Iran after the victory of the Islamic revolution of 1979 and the subsequent hostage taking of 55 American diplomats by Iranian students.

Joining the President and Ayatollah Ali Akbar Hashemi-Rafsanjani, the regime’s number two man, Mr. Kharrazi said the remarks by the American president are intended to "divert public opinion from heightened atrocities being committed by the racist Israeli regime against innocent Palestinians in occupied lands".

The Iranian president said, "the arrogant and intervening tone of President Bush in his recent remarks reminded everyone of the tone of the early American history politicians and he talked about the Iranian nation using truly insulting words."

"When Bush is terribly worried by the worsening economic situation, Muslim nations which possesses a quarter of the world’s oil should not give it away cheaply to Americans", Mr. Hashemi-Rafsanjani suggested a gathering of Islamic media and the support for the Palestinian Intifada".

In his speech, interrupted several time by warm applauses, President Bush said America will always stand firm for the non-negotiable demands of human dignity: the rule of law, limits on the power of the state, respect for women, private property, free speech, equal justice and religious tolerance," Bush said.

"America will take the side of brave men and women who advocate these values around the world – including the Islamic world – because we have a greater objective than eliminating threats and containing resentment. We seek a just and peaceful world beyond the war on terror."

The address focused on Mr Bush's three great goals for America" - winning the war on terrorism, protecting the homeland and conquering the recession.

"We will prevail in war, and we will defeat this recession," he said, urging Congress to pass his controversial tax-cutting economic package. He also challenged Americans to commit 4,000 hours to community service in an effort to tap the surge in patriotism since the September 11 attacks. "We can overcome evil with greater good," he told them.