Iranian Missile Hits Diplomatic Nerve

Iran test fired a new missile today that can deliver a 1-ton warhead on Israel or U.S. bases in the region, hitting a nerve in the tense Middle East as well as in nervous oil markets.

The televised firing of Iran's new Shahab 3 missile, which Iran says can travel 1,250 miles, was a blatant warning that it can retaliate against Israel and the United States if it is attacked.

Israel and Iran have been engaged in an escalating war of words, with Iranian President Mahmoud Ahmadinejad saying Israel should be wiped off the map and Israel warning that it may have to carry out an airstrike to prevent Iran from developing a nuclear arsenal.

The United States, which has bases in the Middle East, has tried to downplay the possibility of a war with Iran but has warned Iran it will not allow it to interfere with oil shipments in the area.

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Iran launched nine missiles during war games today near the strategically vital Strait of Hormuz, a waterway that carries 40 percent of the world's oil supply. One of the missile launches, broadcast on Iranian TV, was a new version of the Shahab 3 missile.

"Our hands are always on the trigger, and our missiles are ready for launch," Gen. Hossein Salami, the Air Force commander of Iran's elite Revolutionary Guards, told Iran's official IRNA news agency today.

In late June, Vice Adm. Kevin Cosgriff, who was then the commander of the U.S. Navy's 5th Fleet, said any attempt by Iran to seal off the Strait of Hormuz would be viewed as an act of war. The U.S. 5th Fleet is based in Bahrain, across the Gulf from Iran.

State Department officials would not confirm the distance the missiles traveled. In February, Iran tested a modified missile in an attempted space launch. While many say that attempt failed, the missile is said to have reached an altitude of 130 miles.

"I'm not going to get into intelligence information about what we know or do/did not know about the kinds of missiles or how many were launched today, but the press reports are that these are medium- and long-range missiles. I'm not sure -- medium and long-range ballistic missiles. I'm not sure in what sense those are defensive weapons," said State Department spokesman Sean McCormack.

Officials did, however, confirm that Iran is expected to take delivery of the SA-20 missile shield system from Russia by the end of the year, contrary to remarks made today by Secretary of Defense Robert Gates.

News of the missile launch and the tough talk surrounding it sent oil prices skittering higher, up $1.80 a barrel to $137.84 in early trading.

The White House condemned the missile test today, saying, "The Iranians should stop the development of ballistic missiles, which could be used as a delivery vehicle for a potential nuclear weapon immediately."

In Israel, Mark Regev, a senior spokesman for Prime Minister Ehud Olmert, told ABC News that Israel "does not seek hostilities with Iran. But it is clear the Iranian military nuclear program and Iran's ballistic missiles program are of grave concern to Israel."

Israel's military sent warplanes over the eastern Mediterranean for a large military exercise in June that U.S. officials described as a possible rehearsal for a strike on Iran's nuclear facilities. The Iranian blast also reverberated on the U.S. presidential campaign trail.

When asked during an exclusive interview on "Good Morning America" what the United States should do, Sen. Barack Obama, the Democratic candidate, replied, "What we should have been doing from the start, instead of engaging in over-the-top rhetoric, what we should be doing is gathering our allies together in a serious effort to apply sanctions to Iran and encourage them to change their behavior."

Asked by Diane Sawyer whether he believed Israel had a right to a preemptive strike against Iran, Obama said, "Israel always has the right to protect itself from serious threats and Iran is a serious threat."

Republican presidential candidate Sen. John McCain declined in an exclusive interview with ABC News' Charlie Gibson to endorse an Israeli air strike on Iran's nuclear facilities.

"I can't know whether a strike would be justified because I don't know the progress or the nature or the significance of the threat," McCain said.

"We cannot allow a second holocaust as I said, but I do believe that there's many options," McCain added.

The Republican agreed with Obama that the U.S. must rally other countries to impose tough sanctions on Iran, but he singled out Russia for its reluctance to crack down on Iran.

McCain took a swipe at Obama's willingness to negotiate with Iran.

"I've stated on a number of occasions that to sit down without preconditions is a serious mistake because I think it lends prestige and status to anyone who is dedicated to the extinction of its neighbor," McCain said.

In a statement issued by his campaign, McCain said the Iran missile tests "demonstrate the need for effective missile defense now and in the future."

U.S. Secretary of State Condoleezza Rice echoed McCain, calling today's tests "evidence that the missile threat is not an imaginary one."

"Those who say that there is no Iranian missile threat against which we should build a missile defense system perhaps ought to talk to the Iranians about their claims," Rice said while traveling to Sofia, Bulgaria.

U.S. plans for a missile shield and an agreement signed Tuesday with the Czech Republic to allow a tracking system on its soil prompted Russia to say ominously it would use "military-technical methods" if it is built.

ABC NEWS's Kirit Radia and the Associated Press contributed to this report.