Director of Military Intelligence, Maj.-Gen. Amos Yadlin, said at the cabinet meeting on Sunday that if sanctions were to be imposed on Iran, the world should still avoid forcing an oil embargo on the country. According to Yadlin, an oil embargo would cause more harm than good. The intelligence chief proposed other steps against Iran, such as limiting Iranian citizen's freedom of travel, as well as preventing Iranian diplomats from traveling. Earlier Sunday Iran said Israel would be making a "fatal mistake" should it resort to military action against Teheran's nuclear program and dismissed veiled threats from the Jewish state as a "childish game." On Saturday, Israel repeated its stand on the issue, saying it would not accept a nuclear Iran under any circumstances and was preparing for the possible failure of diplomatic efforts. While Defense Minister Shaul Mofaz stopped short of an outright threat of military action, he said Israel "must have the capability to defend itself...and this we are preparing." Iranian Foreign Ministry spokesman Hamid Reza Asefi said Israel was only trying to add to Western pressure on Iran to give up its nuclear program. "We consider Mofaz's comments a form of psychological warfare. Israel knows just how much of a fatal mistake it would be (to attack Iran)," Asefi told reporters. "This is just a childish game by Israel." Israel views Iran as its biggest threat and has joined Washington in charging that Teheran is trying to building nuclear weapons. Iran says its nuclear program is for electricity generation. Asefi's threats were not limited to Israel. He said dialogue was the best way to settle the dispute and issued a harsh warning to European powers to resume talks. "We advise them [Europe] not to choose any path except dialogue. If there is a retribution to be paid, that will include Europe too," Asefi said, adding that Iran plans to continue cooperation with the UN nuclear watchdog, the International Atomic Energy Agency. Last week, European powers drafted a resolution calling for Iran's referral to the UN Security Council to resolve its nuclear issue. The resolution, however, stopped short of calling for sanctions.