Iran courted further condemnation over its nuclear ambitions today by unveiling plans for a second power-generating plant.

The announcement of a planned new reactor in the south-west of the country, bordering Iraq, is Tehran's latest push in an unpredictable game of international brinkmanship.

Tehran says it intends to use the technology for solely peaceful purposes. Almost everyone else suspects it of wanting to make bombs.

The announcement was greeted with condemnation in Israel, where party leaders jockeying for position before elections in March spoke of pre-emptive missile strikes against any nuclear installations.

In a broadcast on state-owned television, it was reported that Mahmoud Ahmadinejad, the hardline Iranian President, and his Cabinet ministers want to build the plant - the second in a planned fleet of 20 new reactors - in oil-rich Khuzistan.

The first, Russian-built plant at Bushehr, is due to become operational next year.

Negotiations between Iran and the EU broke down in August when Tehran restarted uranium conversion - the first step in the fuel production cycle - at a plant in Isfahan. As far as is known, it is not carrying out uranium enrichment, the critical second stage which can also produce weapons grade fuel.

The main hope of any resumption of dialogue lies in compromise proposals from Russia, which is offering to enrich uranium for Iran.

Mohamed ElBaradei, the head of the Internaional Atomic Energy Authority (IAEA), warned today that there would be no victors from any escalation in the ill-feeling between the two sides.

"Everybody would hurt," he told The Independent. "You would then open a Pandora's box. There would be efforts to isolate Iran; Iran would retaliate; and at the end of the day you have to go back to the negotiating table to find the solution."

Today, Benjamin Netanyahu, the former Israeli Prime Minister and likely future Likud leader, hinted that he would consider a pre-emptive air strike against Iran’s nuclear installations if he were to be re-elected.

Netanyahu said Israel should follow the example of the late Prime Minister Menachem Begin, who ordered an airstrike on an unfinished Iraqi nuclear reactor in 1981.

"I view the development of the Iranian nuclear programme as a paramount threat and as a real danger to the future of the state of Israel," he told the Yediot Aharonot newspaper.

"Israel needs to do everything to prevent Iran from developing a nuclear threat against it."

Prime Minister Ariel Sharon, Netanyahu’s rival and leader of the new Kadima party, said last week that Israel would never allow Iran to come into possession of nuclear weapons.

President Ahmadinejad prompted outrage in October when he called for the Jewish state to be"wiped off the map", before recalling Iran's ambassadors from more than a dozen capitals, including London.

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