WASHINGTON, Oct 28 (Reuters) - The international community should avoid confrontational rhetoric and deal with Iran's nuclear ambitions with the diplomatic approach used with North Korea, the head of the U.N. nuclear watchdog said on Sunday.

Mohamed ElBaradei, the chief of the International Atomic Energy Agency, told CNN in an interview that talk of war could spur Iran to accelerate its nuclear work and fuel tensions that could lead to disaster in the Middle East.

"My fear is that if we continue to escalate from both sides that we will end up into a precipice, we will end up into an abyss," he said.

Iran's critics should "stop spinning and hyping the Iranian issue because that's an issue that could have a major conflagration, and not only regionally but globally," ElBaradei told CNN's "Late Edition with Wolf Blitzer."

Washington announced sanctions on Thursday against more than 20 Iranian companies, banks and individuals as well as the Defense Ministry, hoping to increase pressure on Tehran to stop uranium enrichment.

The sanctions followed a sharpening of rhetoric by the Bush administration on Iran, including including a controversial remark by President George W. Bush that a nuclear-armed Iran could lead to World War Three.

Bush has insisted he wants a diplomatic solution, although he has not ruled out military action if all else fails.

"We're committed to a diplomatic process in dealing with Iran," White House spokesman Tony Fratto said on Friday. "We would never take options off the table, but the diplomatic process is what we want to move forward with."

ElBaradei repeated on CNN his earlier remarks that Iran was still years away from having the ability to produce a nuclear weapons and that there was still no evidence Tehran was building a bomb.

"We are working now with Iran to clarify the past and the present, but I have not received any information that there is a complete active nuclear weapon program going on right now," he said.

The international community still had time for "creative diplomacy," said ElBaradei. He contrasted the invasion of Iraq over suspicions of illicit weapons to the regional diplomacy with North Korea that have made tentative progress this year.

"The earlier we go into negotiation, the earlier we follow the North Korean model, the better for everybody," he said.

Arizona Republican Sen. John McCain, one of the more hawkish presidential candidates on Iran, backed the Bush administration's tough approach, but said Washington should exhaust all other options.

"Before we continue to talk about the military option, before we really seriously say we're going to use it, then we ought to explore all these other options to try to dissuade them," he told ABC's "This Week with George Stephanopoulos."

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