U.S. Defense Secretary Leon Panetta said on Thursday that military action against Iran could have unintended consequences, The Associated Press reported.

Speaking to reporters at the Pentagon, Panetta said he agrees with earlier assessments that a strike would only set Iran’s nuclear program back by three years at most.

“You’ve got to be careful of unintended consequences here,” Panetta was quoted as saying. “And those consequences could involve not only not really deterring Iran from what they want to do, but more importantly, it could have a serious impact in the region and it could have a serious impact on U.S. forces in the region.”

Earlier this week, the International Atomic Energy Agency (IAEA) released a report saying it had credible intelligence Iran is seeking nuclear weapons technology.

“The agency has serious concerns regarding possible military dimensions to Iran's nuclear program,” the IAEA report said. “After assessing carefully and critically the extensive information available to it, the agency finds the information to be, overall, credible.”

The report added, “This information indicates that Iran has carried out activities relevant to the development of a nuclear explosive device.”

Panetta said the IAEA report is in line with intelligence assessments that suggest Tehran is trying to develop its nuclear capabilities, but added that there continues to be divisions within Iran over whether to build a bomb.

He was asked what will happen if sanctions don’t work and responded, “I think our hope is that we don’t reach that point and that Iran decides that it should join the international family." He said, however, that the U.S. agrees that military action should be the last resort.

Israeli media has been widely speculating on the possibility that Israel will strike Iran’s nuclear program. The speculations were based on unverified claims that Prime Minister Binyamin Netanyahu and Defense Minister Ehud Barak have been lobbying for ministerial support for the strike.

The British Daily Mail newspaper seemed to confirm the Israeli reports on Thursday, with a report of its own which stated that an Israeli attack on Iran’s nuclear facilities could come as soon as December 25.

The paper quoted an unnamed senior Foreign Office official who said the attack could come “as early as Christmas or very early in the new year.” Israel, the official said, would not wait for Western approval for such an attack, if it felt that Iran was truly at the point of no return.

Iran has threatened to start a ‘street war’ in Tel Aviv if its nuclear program was attacked.

“Israel is not big enough to launch a military strike on Iran, but if it takes such a foolish decision, the Iranian military will fight with the Zionist soldiers in Tel Aviv streets... and will force them out of the Palestinian soil,” the head of the Iranian Parliament’s National Security and Foreign Policy Commission said.

Meanwhile, State Department spokesman Mark Toner said Thursday the U.S. is consulting with international allies over what the next steps should be.

“Certainly we’re going to look at ways that we can ramp up economic pressure on Iran,” Toner was quoted by AP as having said.

He added that all six countries that negotiate with Iran on nuclear issues — the U.S., Britain, China, France, Germany and Russia — “are united in their recognition that Iran’s nuclear program raises ... serious questions that need to be addressed.”