Analysis - Iran-U.S. tension rising ahead of elections

By Fredrik Dahl

VIENNA (Reuters) - A U.S. push to isolate Iran looks unlikely to make Tehran back down over its nuclear programme and other disputes, setting the scene for sharpening rhetoric and rising tension at a time when the two foes are preparing for elections.

U.S. President Barack Obama, seeking a second term next year, says the Islamic republic will face the harshest possible sanctions for an alleged plot to assassinate a Saudi diplomat in Washington and has not ruled out military action.

And the U.N. atomic agency is expected to publish intelligence data next month likely to strengthen suspicions that Iran may be working to develop nuclear bombs, providing the West with additional arguments to punish Tehran.

Iran, which holds a parliamentary election in March followed by a presidential ballot in 2013, angrily rejects both the allegations - that it planned to kill Saudi Arabia's envoy to Washington and that its atomic activities have military aims.

"It is difficult to see any movement from either side to improve relations during the next year and a half," said a senior Western diplomat in Tehran.

"On the contrary, a hardening of the positions of both countries is to be expected because they stand to gain most from this in terms of domestic politics."

The diplomat and others said they did not see the row escalating into a military conflict, which could have dire consequences for an already struggling world economy.

"I don't believe the spectre of military confrontation with the U.S. haunts the Iranian leadership," said Ali Vaez of the Federation of American Scientists, a think tank in Washington.