By Andrew Hammond

RIYADH, April 22 (Reuters) - Italian Prime Minister Romano Prodi said on Sunday military action against Iran would be unacceptable and called on Saudi Arabia to continue a diplomatic drive to ease tension between Tehran and the West.

The United States and Western countries suspect Iran of seeking to develop nuclear weapons, a charge Iran denies. Saudi Arabia shares U.S. concerns and accuses Tehran of backing anti-Western Shi'ite Muslim groups in Iraq and Lebanon.

"Efforts at dialogue must continue, since this is the only way we can reach fair, satisfactory and permanent solutions. The military solution will always be unacceptable," Prodi said in an address to Saudi Arabia's unelected parliament.

"It is up to us to face the old and new challenges. The Arab-Israeli conflict is still there and there are political developments such as new ambitions for advanced technologies and the chance of their use for military purposes," he added.

Prodi was apparently referring to Western fears the nuclear programme Iran says is aimed at generating electricity may be used to produce atomic weapons.

Fears are high in the region that Washington or its ally Israel could launch military action against Iran to preempt any acquisition of an atomic bomb.

Saudi Arabia has emerged as leader of an Arab diplomatic effort to stave off conflict between Iran and the United States.

Western diplomats in Riyadh say the United States has been unsure how to respond to the Saudi hand extended to Iran. Iranian President Mahmoud Ahmedinejad visited Riyadh last month.

"The (Saudi) diplomatic movement has produced results," Prodi said in the speech, translated into Arabic. "This is a notable development which we support wholeheartedly."

Prodi also praised Saudi Arabia for warming up to Syria, another Iranian ally, at an Arab summit in Riyadh this month which called for Israel to accept an Arab land-for-peace proposal that would give Palestinians independence.

"I have always insisted on including Syria in finding solutions to different conflicts ... Europe has launched a new policy towards Damascus and I hope the Syrian leadership will take advantage of this new opportunity," he said.

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