Local news agencies reported that the Iranian supreme leader called on the Islamic Jihad to continue its armed struggle against the Jewish state.

"I am very optimistic about Palestine's future and I believe Israel is moving in a downward spiral," Khamenei said. "There is no doubt that at the end of this slope, Palestine will be rescued from the teeth of the Zionists and will return to the Palestinians, and the Zionist regime will collapse."

He also criticized Arab countries, who he said were helping Israel, and said that aid would not help the Palestinians fulfill their aspirations.

President Mahmoud Ahmadinejad on Sunday instructed Iran's Atomic Energy Organization to start work on producing nuclear fuel for a Tehran research reactor, casting doubt on the prospects for a swap deal with the West.

"I (ask) Dr Salehi to start work on the production of 20% fuel using centrifuges," Ahmadinejad said in a televised speech, referring to Ali Akbar Salehi, who heads the atomic energy body.

"We are interested in cooperation with the West, but if they want to keep playing games with the Iranian nation, then we must be prepared and enrich uranium at 20% ourselves," the president said.

But he added: "The doors for interaction are still open." Ahmadinejad also said Iran had the capability to enrich uranium using laser technology, without elaborating.

Reuters contributed to this report