Iran is trying to use the talks with Western powers on its nuclear ambitions to buy time to produce an atomic bomb, Israel's military intelligence chief said on Sunday.

"Iran has crossed the technological threshold. Reaching a military-grade nuclear capability is a question of synchronising its strategy with the production of a nuclear bomb," Major General Amos Yadlin told cabinet ministers.

"Iran continues to stockpile hundreds of kilogrammes of low-level enriched uranium and hopes to use the dialogue with the West to buy the time it requires in order to move towards an ability to manufacture a nuclear bomb," a senior official quoted Yadlin as saying.

US President Barack Obama has signalled his willingness to engage in talks with Iran in a bid to resolve the nuclear standoff.

The five veto-wielding permanent members of the UN Security Council and Germany announced last week that they were ready for direct talks with Iran to resolve the long-running crisis.

Israel, widely believed to have the Middle East's sole nuclear arsenal, accuses Iran of seeking to develop a bomb but Iran insists its nuclear programme is for purely peaceful purposes.

Benjamin Netanyahu, the hawk tasked with forming Israel's next government after last month's general election, said Iran was the top challenge facing the Jewish state.

"Iran is seeking to arm itself with nuclear weapons and is the most serious threat to our existence since the war of independence" in 1948, he said.

In an interview with NBC television, on Sunday Defence Secretary Robert Gates said Iran was "not close to a weapon at this point."

But in a separate interview with CNN the same day, the chairman of the US Joint Chiefs of Staff Admiral Mike Mullen expressed concern about the quantities of low-enriched uranium that Iran had produced.

Low-enriched uranium is used as fuel in nuclear power plants. Uranium enriched to a far higher level is used to make the fissile core of an atomic bomb.