TONY Blair forcibly argued last night that peace could not be achieved in the Middle East without the co-operation of Iran and Syria but he warned there would be stringent conditions attached to their engagement.

In a hard-hitting speech at the Lord Mayor's Banquet in the City of London, the Prime Minister held out the possibility of a partnership with Iran on condition that its government abandoned ambitions for a nuclear weapon.

However, his view contrasted with that of US President George Bush, who yesterday called for the worldwide isolation of Iran "until it gives up its nuclear ambitions". He was speaking after an hour-long meeting with Israeli Prime Minister Ehud Olmert.

This could be seen as a response to emboldened Democrats and critics on his own side who have been pressing MrBush to open discussions with Iran and Syria over issues such as Iraq.

Mr Blair appeared willing to reinforce his long-held belief that stability in theMiddle East could not be achieved without all the vested interests involved in the peace process.

Maintaining that a "whole Middle East" strategy was an imperative to help root out the threat from global terrorism and extremism, the Prime Minister condemned Iran's refusal to comply with the UN's rules to suspend enrichment.

"Instead, they are using the pressure points in the region to thwart us. So they help the most extreme elements of Hamas in Palestine; Hizbollah in the Lebanon; Shia militia in Iraq. That way, they put obstacles in the path to peace, paint us, as they did over the Israel/Lebanon conflict, as the aggressors, inflame the Arab street and create political turmoil in our democratic politics.

"It is a perfectly straightforward and clear strategy. It will only be defeated by an equally clear one - to relieve these pressure points one by one and then, from a position of strength, to talk, in the way I described in July in my speech in Los Angeles: offer Iran a clear strategic choice;

they help the (peace process), not hinder it; they stop supporting terrorism in Lebanon or Iraq; and they abide by, not flout, their internal obligations. In that case a new partnership is possible. Or alternatively they face the consequences of not doing so: isolation, " he declared.

In what will be Mr Blair's last address to the Lord Mayor's banquet, he robustly defended Britain's relationship with the United States and Europe.

"Global challenges can only be met by global alliances. A nation like Britain has no prospect - none - in the world as it is developing today, of pursuing its national interest except in close concern with others. That is why, no matter how tough the test - and these past years since 9/11 have shown how tough it can be - the alliances Britain has with America and within Europe must remain the cornerstones of our policy, " he said.

Iran said yesterday it was ready to consider any official US request to hold talks. "If they really want to hold talks with Iran, they should officially propose it and then Iran will review it, " said Foreign Ministry spokesman Mohammad Ali Hosseini.

However, diplomats said it would be difficult for America and Britain to seek Iranian help over Iraq at the same time as they are pushing for United Nations sanctions against Tehran over its nuclear programme.

The Syrian ambassador to the US indicated that his country would be willing to engage with the US and the UK but, until the report of the Iraq Study Group, the bipartisan panel led by James Baker, who served as Secretary of State to George Bush Sr, it is unclear what the terms of engagement will be.

Imad Moustapha, speaking to BBC Radio, said: "In one way or another, Syria wants to become a part of the solution to the problem. We are willing to engage and we can help - I'm not claiming we have the magical wand - we can help play a constructive role."