WASHINGTON - US President Barack Obama and Iranian President Mahmoud Ahmadinejad upped their war of words this weekend, trading harsh rhetoric over Iran's actions following disputed elections there. As news seeped out of Iran of further relatively minor protests - and their forceful suppression - the US indicated for the first time that its planned diplomatic engagement with Teheran was now "on ice." Meanwhile Mir Hossein Mousavi, who claims he actually won the June 12 presidential vote that sparked the unrest, indicated he would seek official permission for any future rallies, effectively ending his role in street protests. A large number of protesters were arrested during a riot in the Janat-Abad District of western Teheran on Friday. Sources said that local residents who screamed at the Basij security personnel making the arrests were warned that they would be dragged from their homes and never seen again. Sources also claimed that deaths in the intermittent ongoing protests were not being reported, that there were fatalities in a protest outside the parliament in Teheran on Wednesday and that some bodies had been removed from hospitals at night by police without families being notified. "The bodies of our martyrs are not being returned to their families," said one source. "Instead, their loved ones are forced to write a letter of 'confession,' referring to the dead as 'terrorists,' blaming [defeated would-be] president Mir Hossein Mousavi for their crimes and blessing the Basiji." Hundreds of people gathered on Friday afternoon in Behesht-e Zahra Cemetery in memory of the martyrs, and were told that the dead could not be buried in the family section of the cemetery, but rather in an empty, separate field, a source said. Along with opposition figures and journalists, some Iranian police personnel have also been arrested for refusing to take to the streets, sources said. In a telephone interview, one contact also claimed that various clerics in Qom and other prominent members of the regime were holding secret meetings in an attempt to form an alternative collective leadership to replace Supreme Leader Ali Khamenei. There was no confirmation of this elsewhere, however. "We are surprised at Mr. Obama," Mahmoud Ahmadinejad said in remarks broadcast on state television Saturday. "Didn't he say that he was after change? Why did he interfere?" He said of the American administration, "They keep saying that they want to hold talks with Iran ... but is this the correct way? Definitely, they have made a mistake." Obama had been widely criticized within the United States for taking a muted stance on the elections, despite widespread allegations of fraud and increasingly bloody crackdown on opposition demonstrators. He has taken a more strident tone in recent days, however, delivering some of his harshest words on Friday. "The violence perpetrated against them is outrageous," he said during a press conference with German Chancellor Angela Merkel at the White House. "We see it and we condemn it." Administration officials have said that his earlier, measured remarks were aimed at keeping the United States out of the internal election dispute, so as not to detract attention from the local Iranians protesting in the street. At the same time, the administration has wanted to keep the door open to talks with whoever emerges from the Iranian leadership on pressing issues such as Teheran's nuclear program as part of its strategy of engagement. Several Iranians and analysts praised the president for that approach, saying it was important that America not be seen as behind the opposition activity. Ahmadinejad's response could signal that prospects for such outreach have now dimmed on both sides. While he is charging that the US is not laying the proper groundwork for talks, the Obama administration is also indicating it is recalibrating its approach. It has rescinded invitations from early in the spring to Iranian diplomats to attend July 4 celebrations at embassies around the world, which had constituted a break with years of protocol and a sign of efforts to ease the relations between the two countries in a prelude to direct talks. In announcing the reversal White House pointed out that no Iranians had accepted the invitations in any case. A senior State Department official described engagement as currently "on ice" as the US watches the developments in Iran unfold and reassess how it wants to interact with the new leadership. Obama on Friday for the first time indicated that his offer of direct talks was now in question. "There is no doubt that any direct dialogue or diplomacy with Iran is going to be affected by the events of the last several weeks," Obama said, without elaborating. He also rejected Ahmadinejad's call for an apology, saying, "I don't take Mr. Ahmadinejad's statements seriously about apologies, particularly given the fact that the United States has gone out of its way not to interfere with the election process in Iran." Ahmadinejad told Obama Thursday to "show your repentance" for criticizing Tehran's response. "I would suggest that Mr. Ahmadinejad think carefully about the obligations he owes to his own people," Obama added. "And he might want to consider looking at the families of those who've been beaten or shot or detained. And, you know, that's where I think Mr. Ahmadinejad and others need to answer their questions." It was Obama's first direct criticism of any of Iran's leaders. Even more, it was coupled with his first specific boost for defeated candidate Mir Hossein Mousavi. "Mousavi has shown to have captured the imagination or the spirit of forces within Iran that were interested in opening up," Obama said. The remark sought to clarify what many view as Obama's biggest misstep, when he said last week in a television interview that there may not be much difference between Ahmadinejad and Mousavi. Opposition supporters, faced with one senior cleric's demand that protest leaders be severely punished or even executed, enter the third week of their campaign against the election results in increasingly tight straits. The opposition may have little opportunity to keep momentum going within the limits of the law, and the international attention that appeared to bolster their morale could be waning. Also, Mousavi's Web site, his primary means for communicating with supporters, remained down on Saturday. "The problem is we have no one to lead us," a 30-year-old resident of Isfahan told AP on Saturday on condition of anonymity because he feared government reprisal. "We are waiting for a new message, but Mousavi does not want to continue, because, after all, he is part of the system. "People are angry and afraid," he said. "They are afraid of the future and angry because they failed to achieve change with their ballots." People continue to resist the government oppression, he said, although very few dare to defy the government on the streets due to massive police presence. But they continue to shout from the rooftops at night in Teheran and Isfahan, he said. The shouting was particularly loud after ruling clerics accused protesters Friday of challenging and opposing God with their dissent. Mousavi alleges he was robbed of victory through widespread and systematic fraud. The regime rejects the claim, refusing to consider new balloting, and on Friday, the Guardian Council - Iran's top electoral body - proclaimed the vote the "healthiest" held since the revolution. Iran's supreme leader Khamenei has ruled out a revote. Since the election, opposition protesters repeatedly have clashed with security forces who arrested hundreds of people, including journalists, academics and university students. At least 17 people have been killed, in addition to eight members of the pro-government Basij militia, officials have said. The demonstrations petered out last week under an ever-intensifying crackdown. Mousavi, meanwhile, has sent mixed signals to supporters, asking them not to break the law while pledging not to drop his challenge. Amnesty International called the prospect of quick trials and capital punishment for some detainees "a very worrying development." It said Iran was the world's No. 2 executioner after China last year, with at least 346 known instances of people put to death. The group also called on the regime to release dozens of detained journalists it said faced possible torture. The Associated Press contributed to this report.