DUBAI - Iran said on Tuesday it had successfully tested medium-range missiles capable of hitting Israel in response to threats of military action against the country, Iranian media reported.

Israel says it could attack Iran if diplomacy fails to force it to halt its disputed nuclear energy program. The United States also has military force as a possible option but US officials have repeatedly encouraged the Israelis to be patient while new economic sanctions are implemented against Iran.

The Islamic Republic announced the "Great Prophet 7" missile exercise on Sunday after a European embargo against Iranian crude oil purchases took full effect following another fruitless round of big power talks with Tehran.

Iran's official English-language Press TV said the Shahab 3 missile with a range of 1,300 km (800 miles) - able to reach Israel - was tested along with the shorter-range Shahab 1 and 2 and other missile classes.

"The main aim of this drill is to demonstrate the Iranian nation's political resolve to defend vital values and national interests," Revolutionary Guards Deputy Commander Hossein Salami was quoted by Press TV as saying.

He said the tests were in response to Iran's enemies who talk of a "military option being on the table".

"The maneuvers are an answer to the rude words spoken against Iran," Fars news agency quoted him as saying.

Analysts have challenged some of Iran's military assertions, saying it often exaggerates its capabilities.

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Senior researcher Pieter Wezeman of the Stockholm International Peace Research Institute said Iran's missiles were still relatively inaccurate and of limited use in conventional warfare.

With conventional warheads, "their only utility is as a tool of terror and no more than that," he said by telephone.

He added, however, that they could be suitable for carrying nuclear warheads, especially the larger ones.

Another think-tank, the International Institute for Strategic Studies, said in a 2010 report that all of Tehran's ballistic missiles were "inherently capable of a nuclear payload", if Iran was able to make a small enough bomb.

Iran denies Western accusations that it is seeking to develop nuclear weapons capability. The world's No. 5 oil exporter maintains that it is enriching uranium only to generate more energy for a rapidly growing population.

Iranian drones to be tested

Fars said dozens of missiles involved in this week's exercises had been aimed at simulated air bases and that Iranian-built unmanned drones would be tested on Wednesday.

Iran repeated its claim it is reverse-engineering the sophisticated U.S. RQ-170 drone that it says it brought down during a spying mission last year.

"In this drone there are hundreds of technologies used, each of which are valuable to us in terms of operations, information and technicalities," General Amir Hajizadeh was quoted by the ISNA news agency as saying.

Tehran regularly states its claimed military dominance in the Gulf and has jangled nerves across the oil industry, which is concerned about any disruption in global crude supplies.

Iran has previously threatened to block the Strait of Hormuz, through which passes more than a third of the world's seaborne oil trade, in response to increasingly harsh sanctions imposed by the United States and its allies.

Wezeman said Iran had a large standing armed force, but that its weapons were generally outdated. "And those weapons only get older and older and they don't have access to new technology because they are under a United Nations arms embargo."

Ahmadinejad: Sanctions will lessen dependence on crude exports, help Iran

In his first comments since the European Union oil ban took force, President Mahmoud Ahmadinejad said sanctions would benefit Iran by lessening its dependent on crude exports.

"We must see the sanctions as an opportunity ... and which can forever take out of the enemy's hands the ability to use oil as a weapon for sanctions," Fars news agency quoted him as saying.

The EU embargo aims at pushing Iran to curb uranium enrichment that Western countries say is aimed at developing an atomic weapons capability.

On Monday, a group of Iranian parliamentarians proposed a bill calling for country to try to stop oil tankers shipping crude through the Strait of Hormuz to countries that support sanctions against it.

However, the Iranian parliament is relatively weak, analysts say, and the proposal has no chance of becoming law unless sanctioned by Iran's clerical supreme leader.

That is seen as unlikely in the near term given that Western powers have said they would tolerate no closure of the Strait while Iranian leaders, wedded to strategic pragmatism for the sake of survival, have said they seek no war with anyone.

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