Obama says Iran to face toughest possible sanctions

"This is part of a pattern of dangerous and reckless behavior by the Iranian government," Obama said in his first public comments on the affair.

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U.S. authorities on Tuesday said they had broken up a plot by two men linked to Iran's security agencies to assassinate Saudi Ambassador Adel al-Jubeir. One was arrested last month while the other was believed to be in Iran.

Iran called the accusations a fabrication designed to create tensions in its relations with its neighbors, already under strain over its nuclear program.

"Repeating stupid and useless methods by hopeless Western policy-makers to create Iranophobia will not be fruitful and they will fail again," Iranian Supreme Leader Ayatollah Ali Khamenei was quoted as saying by the official IRNA news agency, although he did not directly address U.S. allegations over the thwarted plot.

FINANCIAL SCREWS

The U.S. Treasury Department said it was weighing more sanctions against Iran's central bank to tighten the financial screws and deepen the country's estrangement from the international financial community.

"We're looking quite intensively at how to ratchet up the pressure," Treasury Undersecretary David Cohen told a Senate committee.

Obama came to office in 2009 promising to seek diplomatic engagement with Iran. But his outreach failed to halt Iran's nuclear advances and he has instead spearheaded several packages of international sanctions.

The plot raises tensions to a new level between the Obama administration and Iran, which says its nuclear work is peaceful and aimed at generating electricity.

Obama told reporters during a news conference with South Korean President Lee Myung-bak the United State would continue "to apply the toughest sanctions and continue to mobilize the international community to make sure that Iran is further and further isolated and pays a price for this kind of behavior."