CRAWFORD, Texas (CNN) -- U.S. President George W. Bush and German Chancellor Angela Merkel say they will continue to pursue a diplomatic solution to Iran's nuclear program.
Speaking at Bush's ranch in Crawford, Texas, Merkel said the threat posed by a potential nuclear program in Iran is "a serious one." But she said she and Bush agreed the Iranian issue can be solved through diplomatic means. The next step, she said, will be a U.N. Security Council resolution, and work is under way to prepare for that.
If talks with Iranian representatives and Javier Solana, foreign policy chief for the European Union, are unsuccessful, Merkel said, "further steps will have to be made." Those might include further sanctions, she said.
Germany has reviewed its business ties with Iran, and may make further reductions in those if circumstances warrant, she said.
Hadley said later some steps have already been taken. "There have been steps taken by German banks, for example, to step away from Iran as the awareness has become more widespread that Iran is using banks, and sometimes its relationships with European banks, to basically launder funds that are used to support terror or for proliferation ... I think what she was saying is we may have -- that Germany may have to do more and call on its companies to do more in the future."
Bush said, "What the Iranian regime must understand is, we will continue to work together to solve this problem diplomatically, which means they will continue to be isolated.
"What the Iranian people must understand is, we respect their heritage, we respect their traditions, we respect their potential. It's their government that has made the decisions that are denying them a bright future."
Asked what will be done if diplomatic efforts are exhausted, Bush told a reporter he "didn't feel comfortable" answering a "hypothetical."
However, Merkel said, "I'm deeply convinced diplomatic possibilities have not yet been exhausted. We can solve this by using diplomatic means, and also we want to solve this by diplomatic means."
Both leaders said any Security Council action will require the support of China and Russia.
Bush said the two also discussed reforming the U.N. Security Council, an issue he acknowledged he has been "studiously noncommittal" on. The United States believes Japan should have a seat on the council, he said, and other than that, "we're for U.N. Security Council reforms, and I'm willing to listen to good ideas. Angela brought up some good ideas today."
For her part, Merkel pledged, "we're going to continue to work towards reform."
Bush and Merkel said they had discussed a variety of other subjects, including the Middle East, trade negotiations and climate change. E-mail to a friend