Rice: Two-state solution in Mideast in jeopardy

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Rice orders review of Iraq contractors
On a separate issue, Rice said a State Department review found serious problems with the way private security guards operate in Iraq and that the U.S. may need to change its policies on contractors.

Rice said she and Defense Secretary Robert Gates have told their deputies to study the situation further. Rice already has ordered rule changes so Washington has more oversight of security contractors.

In discussing Iran, Rice said the administration shares Congress' goal of imposing tougher penalties. But, she said, a multilateral approach is necessary and she urged lawmakers to work with the administration.

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Last month, the House passed, by a 397-16 vote, legislation aimed at blocking foreign investment in Iran, in particular its lucrative energy sector. The bill, sponsored by Lantos, would bar the president from waiving U.S. penalties.

She was asked whether the administration is considering a military strike in Iran and if Vice President Dick Cheney was leading the charge. The U.S., she said, is committed to diplomacy but will not rule out any option.

"Frankly, the international community has to get a lot tougher if it's going to get resolved diplomatically," she said. "The Iranians are not a state, I don't think, that will change their behavior just through talking to them."

The top U.S. diplomat also said Iran's ties to Hamas were disturbing. "To see Iranian actual penetration now of these more radical elements of the Palestinian terrorist groups is really quite troubling," she said.

On other issues, Rice:

said the Iraqis are taking steps to crack down on rebels of the Kurdistan Workers' Party who fighting the Turks. The U.S. has told Turkey that retaliatory attacks would have a "destabilizing effect," she said.
cited delicate relations with Turkey as she urged lawmakers against moving ahead with a nonbinding resolution that would label as genocide the killings of Armenians by Ottoman Turks a century ago. "This is something that was a horrible event, in the mass killings that took place, but at the time of the Ottoman Empire. These are not the Ottomans," she said of Turkey's current leaders.
said the U.S. embassy in Iraq will be completed within budget, at a cost of $592 million, and that construction delays were being addressed. She declined to estimate when it would be finished.