He also warned that extremist forces would be emboldened if the United States were driven out of the region, leaving Iran to pursue a nuclear weapon and set off an arms race.
“Iran could conclude that we were weak and could not stop them from gaining nuclear weapons,” Bush said.
Bush and other U.S. officials have long accused Iran of supplying weapons to insurgents in Iraq, but in a speech to veterans the president hardened his stance by lumping Tehran and al Qaeda together.
“The most important and immediate way to counter the ambitions of al Qaeda and Iran and other forces of instability and terror is to win the fight in Iraq,” Bush said.
His verbal attack on Iran came just hours after Iranian President Mahmoud Ahmadinejad said the power of the United States was rapidly collapsing in Iraq and that Tehran was ready to step in to help fill the vacuum.
White House spokesman Scott Stanzel said there was no change in U.S. policy toward Iran.
The United States is leading efforts to isolate Iran over its nuclear program, which western countries contend is aimed at building bombs. Iran denies those accusations and says it is only seeking nuclear-generated electricity.
“The United States is rallying friends and allies to isolate Iran’s regime and to impose economic sanctions,” Bush told veterans at the American Legion annual convention. “We will confront this danger before it is too late.”
The U.N. Security Council has imposed two sets of sanctions on Tehran since December.
Bush said U.S. forces in Iraq have recently seized rockets manufactured in Iran and that attacks on American bases and troops with Iranian-supplied weapons had increased in the past few months.
He also said Tehran has sent arms to the Taliban in Afghanistan.
“The Iranian regime must halt these actions,” Bush said. “Until it does, I will take the actions necessary to protect our troops. I have authorized our military commanders in Iraq to confront Tehran’s murderous activities.”
With 164,000 U.S. troops in Iraq and patience growing thin in the Democratic-controlled U.S. Congress and the American public, Bush has been defending his Iraq war strategy.
A report by the U.S. commander on the ground in Iraq, Gen. David Petraeus, and the U.S. ambassador to Iraq, Ryan Crocker, due to be sent to Congress by September 15, could trigger a change in Iraq policy.
Bush said the United States was committed to a partnership with Iraq, but “this long-term relationship need not require the level of engagement that we have in Iraq today.”
(Additional reporting by Tabassum Zakaria in Washington.)
