White House hopeful Mitt Romney Sunday held top-level talks in Israel over Iran's nuclear ambitions but quickly drew fire from the Palestinians for endorsing Jerusalem as the capital of the Jewish state.

"We must lead the effort to prevent Iran from building and possessing nuclear weapons capability," the Republican challenger said in a speech given on a rooftop overlooking Jerusalem's Old City in which he laid out key foreign policy issues facing Israel.

"We should employ any and all measures to dissuade the Iranian regime from its nuclear course," he said, expressing hope that diplomatic and economic measures would help achieve this aim, but adding that "in final analysis, of course, no option should be excluded."

"We recognise Israel's right to defend itself, and that it is right for America to stand with you," said Romney, the Republican challenger who will face off against President Barack Obama in November's US election.

Israel, which is widely believed to have the Middle East's only, albeit undeclared, nuclear arsenal, has warned that a military option cannot be ruled out to prevent Iran from developing atomic weapons capability. Tehran insists its nuclear programme is for peaceful purposes only.

According to Israeli public radio, Prime Minister Benjamin Netanyahu told Romney it was important to have "a strong and credible military threat" because sanctions and diplomacy "so far have not set back the Iranian programme by one iota."

The White House hopeful, who arrived in Israel from Britain late Saturday on a one-day visit, stepped into the quagmire of Middle Eastern politics when during his policy speech he hailed Jerusalem as Israel's capital.

"It is a deeply moving experience to be in Jerusalem, the capital of Israel," he said, in an apparent endorsement of a position held by the Jewish state but never accepted by the international community.

Netanyahu thanked him for his remarks, later telling him: "I want to thank you for those very strong words of support and friendship for Israel and for Jerusalem that we heard today."

But the Palestinians were infuriated, saying his remarks were "harmful to American interests in our region."

"They they harm peace, security and stability," Palestinian negotiator Saeb Erakat told AFP.

"Even if this statement is within the US election campaign, it is unacceptable and we completely reject it. The US election campaign should never be at the expense of the Palestinians," he said.

"Romney is rewarding occupation, settlement and extremism in the region with such declarations."

Israel, which occupied the largely Arab eastern sector during the 1967 Six-Day War and later annexed it, claims both halves of the city to be its "eternal and undivided capital."

But the Palestinians want the eastern sector as capital of their promised state and fiercely oppose any Israeli attempt to extend sovereignty there.

Most of the international community, including the United States, does not formally recognise Jerusalem as Israel's capital due to the ongoing conflict, insisting the issue can only be resolved through final status negotiations.

Romney has consistently attacked what he says is Obama's weak and misguided Middle East policy, saying in January that the president "threw Israel under the bus," by defining the 1967 borders as a starting point for Israeli-Palestinian negotiations.

On Egypt, Romney said he would work to ensure Cairo's new Islamist President Mohamed Morsi would protect the 1979 peace treaty with Israel.

"With the Islamist president elected in Egypt we hope to use the considerable weight of the world's influence to ensure a continued commitment to the agreements of peace... with Israel."

In a show of support for Israel ahead of Romney's tour, Obama on Friday signed a law reinforcing US security and military cooperation with Israel as representatives of the pro-Israel lobby AIPAC stood beside him in the Oval Office.

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