Iran is attempting to build a nuclear weapon that could ignite an atomic arms race raging across the Middle East, President-elect Obama warned.

He also said Iran sponsors terrorist organizations such as Hamas and Hezbollah.

Hamas has been launching hundreds of rockets and missiles into southern Israel, damaging or demolishing buildings, causing civilian casualties. In response, Israeli forces have entered the Gaza Strip to take out Hamas terrorists and seize their weapons caches.

Iran supplies missiles and rockets, and other weapons, to Hamas terrorists, at least partly funneled through scores of tunnels running from Egypt into the Gaza Strip.

As for Hezbollah, that terrorist group in southern Lebanon in 2006 launched thousands of rockets and missiles into civilian areas of Israel, weapons that Hezbollah obtained from Iran.

Obama, who takes office Jan. 20, said Iran "is going to be one of our biggest challenges."

He spoke on ABC News "This Week."

"We have a situation in which not only is Iran exporting terrorism through Hamas, through Hezbollah, but they are pursuing a nuclear weapon that could potentially trigger a nuclear arms race in the Middle East," Obama said.

During his successful campaign to be elected president last year, Obama said the United States will stand with Israel. Further, Sen. Hillary Clinton (D-N.Y.), whom Obama will nominate to be his secretary of state, has said if Iran launches a nuclear attack on Israel, the United States will "obliterate" Iran.

Also during his campaign, Obama said he wishes to engage Iranian leaders in talks about Iranian conduct, and he repeated that stance in the ABC interview with George Stephanopoulos.

"I’ve outlined my belief that engagement is the place to start," Obama said, expressing hope that "the international community is going to be taking cues from us in how we want to approach Iran."

At the same time, while he is willing to talk to Iranians, the United States doesn’t want to see a nuclear arms race in the Middle East, Obama indicated.

""We respect the aspirations of the Iranian people, but … we also have certain expectations in terms of how an international actor behaves," Obama said.

Yes, the United States will provide Iran with "a new emphasis on respect and a new emphasis on being willing to talk," Obama said. But that new stance also will be accompanied by "a clarity about what our bottom lines are. And we are in preparations for that. We anticipate that we’re going to have to move swiftly in that area."

While Obama declined to discuss what he has been told in classified security briefings about the Iranian threat, military analysts have said Iran already has sufficient nuclear material to construct a weapon, and could have several atomic bombs by the end of this year, at the rate Tehran is producing fissile materials in centrifuges.

Because Iran has that nuclear program, and as well is acquiring missiles with steadily longer ranges, U.S. military and diplomatic leaders are concerned. Iran has fired multiple missiles in salvos, fired a missile from a submerged submarine, and announced plans for a space program, which would involve basically the same technology as an intercontinental ballistic missile capable of striking the United States.

Accordingly, President Bush has proposed building the European Missile Defense system in the Czech Republic (radar) and Poland (interceptors in ground silos). The EMD would be based on the existing Ground-based Midcourse Defense system now installed in Alaska and California.

Democrats in Congress have placed restrictions on the EMD program, saying the EMD interceptor, a variant of the GMD interceptor, nonetheless would have to undergo testing that could consume two years. Also, construction on the EMD may not begin until the Czech and Polish parliaments legislate agreement.

Obama has said he favors missile defense, but only systems that are proven to work.

The president-elect also said on ABC that he will place a high priority on homeland defense.