Foreign Secretary David Miliband has warned that Iran has “one chance” to draw back from the brink of a potential nuclear confrontation.

Speaking at the Lord Mayor’s banquet at Mansion House last week, Mr Miliband made it clear that the potential threat of Iran attaining a nuclear capability still represented the single greatest threat to world peace.

He also called on Europe and the Arab world to give much greater support to the Middle East peace initiative launched by President Obama.

Reiterating Prime Minister Gordon Brown’s long-term desire for a world free of nuclear weapons, Mr Miliband cited the UN Security Council’s quick response when North Korea attempted to launch a satellite using ballistic missile technology.

Mr Miliband continued: “That leaves Iran, whose nuclear ambitions are a threat to stability in a very unstable part of the world, with Arab states and Israel both expressing very serious concern at their intentions.”

While there was “no quarrel” with the Iranian people or their right to civilian nuclear power Britain, as a member of the UN Security Council, could not ignore Iran’s defiance of its international obligations as set out in successive UN Security Council resolutions nor its refusal to co-operate with the International Atomic Energy Agency (IAEA), which has been unable to establish whether or not Iran's programme was being used only for peaceful purposes.

“Iran will never have a better opportunity than it does today. President Obama is holding out his hand. But they need to respond positively, not with negative rhetoric and dangerous actions. They have one chance; they owe it to their people to use it wisely; and we all have a responsibility to make clear to them the folly of confrontation,” said Mr Miliband.

On the Middle East, Mr Miliband said that while the conflict could not be resolved without American involvement, the US could not go it alone. He reaffirmed Britain’s support for both a two-state solution and the Arab Peace Initiative.

“The Quartet supports a two state solution to the Israeli-Palestinian conflict, providing security and justice for Israelis and Palestinians; so does Britain, based on 1967 borders, with Jerusalem the capital of both countries and the right terms for refugees.

“Europe and the Arab states need to strengthen President Obama’s hand by demonstrating that they will go the extra mile to support a just and permanent solution. That is why the Arab Peace Initiative — which offers Israel normal relations with the Arab world in return for a Palestinian state — is so valuable and important. The EU must also think ambitiously about how it can support peace, from security to refugee compensation,” he said.

Meanwhile, the Foreign Office has welcomed the news that new Israeli Prime Minister Binyamin Netanyahu will talk to Palestinian leaders and has made a commitment to a two-state solution.

A Foreign Office spokesperson said: “We look forward to working with the new Israeli government towards a lasting peace in the region. We welcome Prime Minister Netanyahu's intention to hold talks with Palestinian leaders.”