The US has accused Iranian government agents of plotting to assassinate the Saudi ambassador, immediately using the thwarted plot to step up sanctions and recruit international allies in a bid to further isolate Tehran.
Two men, including a member of Iran's special foreign actions unit known as the Quds Force, were charged in New York federal court with conspiring to kill the Saudi diplomat to the US, Adel al-Jubeir.
Manssor Arbabsiar, a 56-year-old US citizen who also holds an Iranian passport, was charged along with Gholam Shakuri, who authorities said was a Quds Force member and is still at large in Iran.
The Treasury Department listed addresses for Arbabsiar in two Texas cities - the Austin suburb of Round Rock and the Gulf city of Corpus Christi - and prosecutors say he frequently travelled to Mexico for business.
Justice Department officials say the men tried to hire a purported member of a Mexican drug cartel to carry out the assassination with a bomb attack while Mr al-Jubeir dined at his favourite restaurant. "The idea that they would attempt to go to a Mexican drug cartel to solicit murder-for-hire to kill the Saudi ambassador, nobody could make that up, right?" US secretary of state Hillary Clinton said.
Mrs Clinton was blunt in saying the United States would use the case as leverage with other countries that had been reluctant to apply harsh sanctions or penalties against Iran. "This really, in the minds of many diplomats and government officials, crosses a line that Iran needs to be held to account for," Mrs Clinton said. She said she and Mr Obama wanted to "enlist more countries in working together against what is becoming a clearer and clearer threat" from Iran.
The US criminal complaint said the Iranian plotters hired a would-be assassin in Mexico who was a paid informant for the US Drug Enforcement Administration and told US authorities about their plot, which they codenamed Chevrolet.
FBI director Robert Mueller said many lives could have been lost. But Preet Bharara, the US attorney in Manhattan, said no explosives were actually placed and no-one was in any danger because of the informant's co-operation with authorities.
Attorney general Eric Holder, appearing at a news conference with Mueller and Bharara, said: "The United States is committed to holding Iran responsible for its actions."
In a statement, Iranian Foreign Ministry spokesman Ramin Mihman-parast condemned such acts and said "such worn-out tricks which are upon old and hostile policies of the US and the Zionist regime is a comic show in direction of making special scenarios with the aim of sowing discord".