By Parisa Hafezi, Alexander Cornwell, Maya Gebeily and Humeyra Pamuk
DUBAI/TEL AVIV/BEIRUT/BUDAPEST, April 8 (Reuters) - Israel pounded Lebanon with its heaviest strikes yet on Wednesday, killing hundreds of people and drawing a threat of retaliation from Iran, which suggested it would be "unreasonable" to proceed with talks to forge a permanent peace deal with the United States.
The warning from Iran's lead negotiator, parliament speaker Mohammed Bager Qalibaf, laid bare the continued volatility in the region following Tuesday's ceasefire announcement by President Donald Trump. The two sides have laid out sharply contrasting agendas for peace talks set to start on Saturday, but it was unclear whether the two-week ceasefire would hold until then.
Qalibaf said Israel had already violated several conditions of that ceasefire by ramping up its parallel war against the Iran-aligned militia Hezbollah, while the United States had violated the agreement by insisting that Iran abandon its nuclear ambitions.
"In such a situation, a bilateral ceasefire or negotiations were unreasonable," he said in a statement.
Israel and the United States both said the two-week ceasefire did not cover Lebanon, and Israeli Prime Minister Benjamin Netanyahu said the strikes would continue.
"I think the Iranians thought that the ceasefire included Lebanon, and it just didn't," U.S. Vice President JD Vance, who will lead the U.S. delegation, told reporters in Budapest.
The two sides appeared to be far apart on Iran's nuclear program as well - one of the factors that Trump cited as the basis for war.
Trump said Iran had agreed to stop enriching uranium, which can be turned into nuclear weapons, and the White House said Iran has indicated it would turn over its existing stocks.
"The United States will, working with Iran, dig up and remove all of the deeply buried ... Nuclear 'Dust," Trump said on social media.
Qalibaf, however, said it was allowed to continue enriching uranium under the terms of the ceasefire.
Though both the United States and Iran declared victory in a five-week-old war that has killed thousands, their core disputes remained unresolved. Each side is sticking to competing demands for a deal that could shape the Middle East for generations.
Despite the uncertainty, world stock indexes surged [MKTS/GLOB] [.N] while oil prices plunged 14% to settle near $95 per barrel [O/R], after falling as low as $90.40.
Benchmark Brent crude remains roughly $25 higher than before the joint U.S.-Israel attacks began. Tehran's newly demonstrated ability to cut off Gulf energy supplies through its grip on the strait, despite decades of massive U.S. military investment in the region, shows how the conflict has already altered power dynamics in the Gulf.
'FINGER ON THE TRIGGER'
Netanyahu said Israel had its “finger on the trigger” and was prepared to return to fighting at “any moment.”
Lebanon's civil defence service said 254 people had been killed in Israel's strikes across Lebanon on Wednesday. The highest toll was in the capital Beirut, where Israeli strikes killed 91 people, it said. Residents said some of the Israeli strikes had come without the usual warnings for civilians to evacuate.
Iran also struck oil facilities in nearby Gulf countries, including a pipeline in Saudi Arabia that has been used to bypass the blockaded Strait of Hormuz, according to an oil industry source. Kuwait, Bahrain and the UAE also reported missile and drone strikes.
The Strait of Hormuz remained shut to vessels sailing without a permit and shippers said they needed more clarity before resuming transit. MarineTraffic data showed two Greek-owned and two Chinese-owned bulk carriers have passed through the strait since early Wednesday.
In a flurry of online posts, Trump announced new tariffs of 50% on all goods from any country that supplies arms to Iran, though he lacks the authority to do so.
IRAN'S RULING ESTABLISHMENT SURVIVES
Crowds took to the streets of Iran overnight to celebrate, waving Iranian flags and burning those of the United States and Israel. But there was also wariness that a deal would not hold.
"Israel will not allow diplomacy to work and Trump might change his view tomorrow. But at least we can sleep tonight without strikes," Alireza, 29, a government employee in Tehran, told Reuters by phone.
The war was launched on February 28 by Trump and Netanyahu, who said they aimed to prevent Iran from projecting force beyond its borders, end its nuclear programme and create conditions for Iranians to topple their rulers. U.S. Defense Secretary Pete Hegseth on Wednesday said Washington had won a decisive military victory.
But so far Iran retains both its stockpile of near-weapons-grade highly enriched uranium and its ability to hit its neighbours with missiles and drones. The clerical leadership, which faced mass protests months ago, has withstood the superpower onslaught with no sign of internal collapse.
"The enemy, in its unjust, illegal and criminal war against the Iranian nation, has suffered an undeniable, historic and crushing defeat," Iran's Supreme National Security Council said.
(Reporting by Reuters bureaus worldwide; Writing by Andy Sullivan, David Dolan, Peter Graff and Keith Weir; Editing by Kevin Liffey, Keith Weir, Ros Russell, David Gaffen and Deepa Babington)
