Ahmadinejad was speaking in the southwestern town of Bushehr near the site of Iran's planned first nuclear power plant, being built with Russian help, and predicted the country would have nuclear electricity by this time next year.
"If you (Western powers) imagine that the Iranian nation will back down you are making a mistake," he said in a televised speech.
"On the nuclear path we are moving towards the peak," he said without elaborating.
Turning his attention to Israel, Ahmadinejad said, "The religious Palestinian people will bring down the last screen with its powerful hand on the Zionists' puppet theater. It's time to end the puppet theater of this fake regime."
The Iranian president noted that Israel's days were numbered and that it has reached its end.
Turning to the Western powers supporting Israel, he said, "Those who remain silent in light of this regime's crimes and support it should know that they are taking part in the bloodshed of the Palestinian people and will be tried in the future.
"The world's states will never forget these crimes," the Iranian president was quoted as saying by the Islamic Republic News Agency (IRNA).
Defying international pressure, Iran has been working on producing its own nuclear fuel, technology the West fears will be used to make atomic bombs. Tehran says its work is peaceful and has refused to stop.
He was speaking two days after Iran received the eighth and final consignment of nuclear fuel from Russia for the Bushehr plant. Tehran has said the plant will start in mid-2008, though past deadlines have slipped.
"Next year at this time ... nuclear electricity should flow in Iran's electricity network," he told the crowd.
Russia delivered the first shipment of uranium fuel rods on December 17 and urged Tehran to scrap its efforts to produce nuclear fuel. Tehran says its work is peaceful and has refused to stop.
Iran, the world's fourth-largest crude producer, says it wants to build a network of nuclear plants so it can preserve more of its oil and gas for export. It says it wants to make nuclear fuel itself to guarantee its supplies.
World powers last week agreed the outline of a third UN sanctions resolution against Iran which calls for mandatory travel bans and asset freezes for specific Iranian officials and vigilance on banks in the country.