A senior commander of the Revolutionary Guard, the largest component of the Islamic republic's armed forces, chose this moment to outline the capability of his country's ballistic missiles. The Shahab-3 rocket has a range of 1,250 miles, allowing it to strike an array of Western targets across the Middle East.

"Today the Americans are around our country but this does not mean that they are encircling us. They are encircled themselves and are within our range," said Gen Mohammed Hassan Koussechi. "If the United States is saying that they have identified 2,000 targets in Iran, then what is certain is that it is the Americans who are all around Iran and are equally our targets," he told the official IRNA news agency.

Gen Koussechi added: "We have reached capacities that allow us to hit the enemy at a range of 2,000 kilometres." A wide array of possible targets faces Iran across the Gulf. Dubai, filled with Western companies, tourists and expatriates, is only 105 miles away.

Alliance & Leicester slumped 31pc, down 273p to £6, with its shares losing £600m of value in the last hour of trading alone on speculation it would appeal for help. A&L said it was well capitalised and did not need aid.

The sea of red in banking shares saw Bradford & Bingley fall 50¾ to 279p, while ongoing fears about Northern Rock forced its shares down 155¼ to 282¾p, with yesterday's 35pc fall coming on top of a 31pc drop on Friday.

After the market closed the Government attempted to calm the turmoil, announcing it would guarantee all Northern Rock deposits. Chancellor Alistair Darling said: "Should it be necessary, we and the Bank of England will put in place arrangements to guarantee all the deposits in Northern Rock."

A spokeswoman for the Department for Environment, Food and Rural Affairs (Defra) confirmed the exposure and said: "Initial blood tests on clinically healthy sheep on a farm within the protection zone suggest exposure to foot-and-mouth disease. These animals were identified as part of the surveillance work that is being carried out in the area. All animals on the premises are being slaughtered on suspicion. Further laboratory tests are ongoing."

Derrick Pride, the farmer from Elstead, Surrey, whose herd was slaughtered in the August outbreak, said: "It's utterly devastating. I'm so disappointed that it has all broken out again." Following last month's outbreak, the US, Ireland, Japan, Russia and the EU banned exports of British livestock

Jacques Diouf, director-general of the UN's Food and Agriculture Organisation, said surging prices for basic food imports such as wheat, corn and milk had the "potential for social tension, leading to social reactions and eventually even political problems".

Mr Diouf said food prices would continue to increase because of a mix of strong demand from developing countries; a rising global population, more frequent floods and droughts caused by climate change; and the biofuel industry's appetite for grains. "That combination of factors would most likely lead to increases in food prices," Mr Diouf told the Financial Times in an interview.

Signs of the social unrest these prices could cause were seen in Mexico this year where mass protests were triggered by rising corn prices. Mr Diouf said food represented about 10-20 per cent of consumer spending in industrialised countries, but up to 65 per cent in developing nations.

"If we continue to see an increase in their [food] prices and in their import bill for food, there is a serious potential situation," Mr Diouf said. The warning comes as wheat prices are at a high, forcing developing countries such as India and Egypt to pay record prices for their food imports in what cereal traders described as "panic buying" to beef up reserves.

Wheat prices this week rose to a record $8.86 a bushel in Chicago, up about 60 per cent since January. Dairy product prices have also been setting records, while other commodities, such as corn and soyabeans, are trading well above their historical averages. "The biofuel industry is a new factor creating demand for food for a non-food use," he said.

The country, normally the world's second largest wheat exporter after the US, cut its outlook for the new wheat crop to 15.5m tonnes, down 31 per cent from its June prediction and in line with private forecasters.

The new forecast, by the government's Australian Bureau of Agricultural and Resource Economics, sent Australian wheat futures prices on the Australian Stock Exchange soaring A$11 to a record A$450 a tonne.

Northern hemisphere crops have also been weak, demand from emerging markets is rising and world stocks are likely to hit their lowest in 30 years this crop year.

Pakistan became the latest country to start shopping for wheat despite its soaring cost, saying on Saturday that it would import a million tonnes. Egypt, Morocco, Algeria, Iraq and India have all also been booking large quantities of wheat, while Indonesia's Bogasari Flour Mills, the biggest flour miller in the world, recently told Reuters it had no choice but to import at present high prices because of a shortage of stocks.

At the same time other major producers have been pegging back crop forecasts, with France, Europe's largest producer, trimming its projection on Monday. Exports from the Black Sea have all but dried up.

As worried customers continued to besiege branches and two other banks wobbled, he performed a dramatic U-turn to guarantee the £24 billion saved with the Rock would be repaid if it went bust. But amid turbulence on the stock exchange, there was little hope that the worst is over.

Alistair Darling was forced into the humiliating position of propping up Northern Rock by guaranteeing all of its deposits. Behind the scenes Gordon Brown ordered the move in an attempt to protect his reputation for economic competence. But the Treasury is now in the dangerous position of having effectively agreed to pledge taxpayers' money to bail out any other 'solvent' banks which run into trouble.

The desperate and unprecedented U-turn came on an extraordinary day in which:

- Some £3 billion was withdrawn from Northern Rock, driving it to the brink of collapse.
- Shares in the bank fell by another 40 per cent;
- Other lenders were dragged into the crisis, with the stock market value of Alliance & Leicester dropping by almost a third and Bradford & Bingley by 15 per cent;
- The FTSE 100 ended 106.5 points down at 6182.8;
- Economists warned that the crisis will cause the housing market to slump.

The domino effect meant that even some of the 'big five' banks - such as Halifax, Bank of Scotland, and Barclays - registered significant stock market falls. The Chancellor hopes that the decision to guarantee the savings of Northern Rock's 1.5 million customers will put an end to the siege of its branches.

A Government source added: "Our primary consideration is that there is a risk of this spilling over elsewhere. We needed to maintain confidence. THIS IS AN ABSOLUTE GUARANTEE FROM HER MAJESTY'S GOVERNMENT THAT EVERY SINGLE PENNY IS SAFE." Shares in the company - have plunged by 75 per cent this year, dealing a blow to its 176,000 shareholders.

The move by Mr Darling is seen as an effort to create a breathing space to allow time for a rival bank to make plans to buy Northern Rock. City analysts believe the brand is now in tatters and the company can no longer survive as a stand-alone bank. The Government also hopes that it has headed off the possibility of similar panic at branches of other banks.

According to an advance copy of an interview to be published in Thursday's edition of the German magazine Stern, Greenspan said that the dollar is still slightly ahead in its use as a reserve currency, but added that "it doesn't have all that much of an advantage" anymore.

The euro has been soaring against the U.S. currency in recent weeks, hitting all-time high of $1.3927 last week as the dollar has fallen on turbulent market conditions stemming from the ongoing U.S. subprime crisis. The Fed meets this week and is expected to lower its benchmark interest rate from the current 5.25 percent.

Greenspan said that at the end of 2006, some 25 percent of all currency reserves held by central banks were held in euros, compared to 66 percent for the U.S. dollar. In terms of being used as a payment for cross-border transactions, the euro is trailing the dollar only slightly with 39 percent to 43 percent.

Greenspan said the European Central Bank has become "a serious factor in the global economy." He said the increased usage of the euro as a reserve currency has led to a lowering of interest rates in the euro zone, which has "without any doubt contributed to the current economic growth."

The report said cyber crime had become increasingly professional and was now a multi-billion dollar industry. The underground economy has its own auction sites and marketplaces that sell valuable data such as credit card numbers and bank accounts.

They also sell toolkits for novice cyber criminals who lack technical know-how to craft their own attacks. Often, he said, these targeted attacks were aimed at the customers of smaller financial institutions.

"Attention has gone away from the larger banks down to credit unions and small banks that do not have the people and resources to fight off the attacks," he said. "Even the smallest bank has enough money," said Mr Beer.

Some senior ministers now believe the public is ready to embrace the controversial technology, which will enable crops to produce a higher yield and be used for bio-fuel. It is believed they are liaising with key agricultural supporters of GM to push the government into launching a national debate on the issue to highlight the benefits.

One government source said: "GM will come back to the UK, the question is how it comes back, not whether it's coming back." Attempts to introduce GM to Britain in the late 1990s met a wave of hostility from varied sources.
Activists took direct action tearing up crops while supermarkets such as Sainsbury's and Marks & Spencer barred GM ingredients from their products for fear of sparking a consumer backlash.

In 2004, the government announced that no GM crops would be grown in the country for the 'foreseeable future' sparking Lord Peter Melchett, policy director of the Soil Association, to declare, "This is the end of GM in Britain". Currently, only one UK company - the plant science company BASF - is trialing GM crops - in this case, a blight-resistant potato in tests in Cambridge and Yorkshire.

The Government claims that it still considers applications by companies to grow GM crops on a 'case by case basis'. But at the moment, it is not believed that any other UK companies are applying for licences to grow GM crops. Recent polls also revealed that about 70 per cent of the European public is opposed to GM foods.

But despite this, several ministers and key agricultural figures now believe the time is right to get the issue back on the agenda.

"We have to prepare for the worst, and the worst is war," Mr Kouchner said in an interview on French TV and radio. He was speaking ahead of a visit to Russia on Monday, during which Iran is likely to feature prominently. Iran's nuclear programme will also be one of the main issues for the UN nuclear watchdog's annual conference, starting in Vienna on Monday.

Iran denies it is trying to acquire nuclear weapons, and says it only wants nuclear power to generate electricity for civilian purposes. But it has repeatedly rejected UN demands to give up the enrichment of uranium, which the US and other Western states fear is being diverted to a nuclear weapons project.

The BBC's diplomatic correspondent Jonathan Marcus says France has changed its approach to world affairs under its new President Nicolas Sarkozy, adopting a harder line on several issues, and seeking to improve relations with the United States. But it is the tougher rhetoric aimed at Tehran which will please Washington the most, he says.

Until now the UN Security Council has imposed economic sanctions on Iran, but did not allow for military action. The United States has not ruled out a military attack against Iran to prevent it from acquiring a nuclear weapon.

The run on the bank continued yesterday as police were called in to keep the peace when angry and desperate customers besieged branches across the country despite assurances from the Treasury and Bank of England that their savings were secure. Branches due to close at midday opened until 2pm, but many hundreds of people were still trying to get their money when the branches closed and minor scuffles and arguments broke out.

Senior executives at Northern Rock spent yesterday at its Newcastle head office monitoring events, but the lender is seen to have little future as an independent entity. It held talks about a possible takeover by Lloyds TSB before the crisis and is expected to be sold off cheaply to a rival. The bank, which saw £1 billion taken out by worried savers on Friday and at least £500m removed yesterday, is prepared for a further flood of withdrawals when branches open tomorrow. Many will be by customers with nearly £10 billion in postal accounts, who can only make withdrawals by writing to the bank.

"The question is why wouldn't you take your money out and put it somewhere else," said one senior banker, who predicted £12 billion worth of withdrawals from the bank, which has £24 billion in deposits from savers. Though Northern Rock is solvent, a lot of people have been gripped by the fear that they might lose some of their savings. It is a huge problem.

In the first six months of this year, it was responsible for one in five new mortgages and offered generous loans - up to 125% of the value of the property - to first-time buyers.

One banking analyst warned: "It is not beyond the realms of possibility that they could lose half of their deposit base, if not more. We have not had a decent run on a bank for many, many years. The difference now is the internet and that means you can get your money out very quickly. Banking is about confidence and that has gone from Northern Rock in a spectacular way."

"We had the first confirmed use of an Army weaponized UAV," said Col. Don Hazelwood, project manager for Army Unmanned Aircraft Systems at Redstone Arsenal, Ala. The Army is mounting precision-guided weapons on hundreds of unmanned aerial vehicles in Iraq and Afghanistan, Hazelwood said.

The MQ-5B Hunter will carry the laser-guided GBU-44/B Viper Strike, a 42-pound glide bomb with a one-yard wingspan that can strike within one meter of its aim point. The number of UAVs in combat is rising, from about 1,000 last year to 1,350 expected by the end of this year. Flight hours have soared from 60,000 last year to 140,000 so far this year, Hazelwood said.

The number of video terminals that display live imagery beamed from UAVs has jumped to 1,000, up from 200 six months ago, he said. They are installed in Stryker vehicles on their way to Iraq, and should be in Apache cockpits by next summer, said Kim Henry, a spokeswoman at the Army's Redstone Arsenal, Ala.

"These terminals receive video from any of our platforms. You can see where you are located and see what UAV operators are seeing as well. Now the Apache pilot is able to see before he gets to a target," Owings said.

The terminals allow soldiers to see around corners, over hills and buildings, and into neighboring areas during combat, said one senior Army leader who recently returned from Iraq. He said more surveillance, communications and reconnaissance technologies are changing things.

I was at Maryland University just outside Washington DC, where Professor Challapa and his team are inventing the next generation of citizen surveillance. Gait DNA, for example, is creating an individual code for the way I walk. Their goal is to invent a system whereby a facial image can be matched to your gait, your height, your weight and other elements, so a computer will be able to identify instantly who you are.

"As you walk through a crowd, we'll be able to track you," said Professor Challapa. "These are all things that don't need the cooperation of the individual. Then there's the problem of language. Unless we're going to train every American citizen and soldier in 16 different languages we have to develop a technology that allows them to understand - whatever country they are in - what's going on around them".

"I hope in the future we'll be able to have conversations, if say you're speaking in French and I'm speaking in English, and it will be natural. And the computer will do the translation? Yep. All by computer," he said.

"And this idea about a total surveillance society, is that science fiction?" I asked. "No, that's not science fiction. We're developing an unmanned airplane - a UAV - which may be able to stay up five years with cameras on it, constantly being cued to look here and there. This is done today to a limited amount in Baghdad. But it's the way to go."

So far there is no gadget that can actually see inside our houses, but even that's about to change. Ian Kitajima flew to Washington from his laboratories in Hawaii to show me sense-through-the-wall technology. "Each individual has a characteristic profile," explained Ian, holding a green rectangular box that looked like a TV remote control.

Using radio waves, you point it a wall and it tells you if anyone is on the other side. His company, Oceanit, is due to test it with the Hawaiian National Guard in Iraq next year, and it turns out that the human body gives off such sensitive radio signals, that it can even pick up breathing and heart rates.

"First, you can tell whether someone is dead or alive on the battlefield," said Ian. "But it will also show whether someone inside a house is looking to harm you, because if they are, their heart rate will be raised. And 10 years from now, the technology will be much smarter. We'll scan a person with one of these things and tell what they're actually thinking."

He glanced at me quizzically, noticing my apprehension. "Yeah, I know," he said. "It sounds very Star Trekkish, but that's what's ahead."

The Israeli government was not saying. "The security sources and IDF [Israeli Defence Forces] soldiers are demonstrating unusual courage," said Ehud Olmert, the prime minister. "We naturally cannot always show the public our cards."

The Syrians were also keeping mum. "I cannot reveal the details," said Farouk al-Sharaa, the vice-president. "All I can say is the military and political echelon is looking into a series of responses as we speak. Results are forthcoming." The official story that the target comprised weapons destined for Hezbollah, the Iranian-backed Lebanese Shi'ite group, appeared to be crumbling in the face of widespread scepticism.

According to Israeli sources, preparations for the attack had been going on since late spring, when Meir Dagan, the head of Mossad, presented Olmert with evidence that SYRIA WAS SEEKING TO BUY A NUCLEAR DEVICE FROM NORTH KOREA. The Israeli spy chief apparently feared such a device could eventually be installed on North-Korean-made Scud-C missiles.

"This was supposed to be a devastating Syrian surprise for Israel," said an Israeli source. "WE'VE KNOWN FOR A LONG TIME THAT SYRIA HAS DEADLY CHEMICAL WARHEADS ON ITS SCUDS, BUT ISRAEL CAN'T LIVE WITH A NUCLEAR WARHEAD."

By its actions, Israel showed it is not interested in waiting for diplomacy to work where nuclear weapons are at stake. As a bonus, the Israelis proved they could penetrate the Syrian air defence system, which is stronger than the one protecting Iranian nuclear sites.

This weekend President Mahmoud Ahmadinejad of Iran sent Ali Akbar Mehrabian, his nephew, to Syria to assess the damage. The new "axis of evil" may have lost one of its spokes.

Pentagon planners have developed a list of up to 2,000 bombing targets in Iran, amid growing fears among serving officers that diplomatic efforts to slow Iran's nuclear weapons programme are doomed to fail. Pentagon and CIA officers say they believe that the White House has begun a carefully calibrated programme of escalation that could lead to a military showdown with Iran.

Now it has emerged that Condoleezza Rice, the secretary of state, who has been pushing for a diplomatic solution, is prepared to settle her differences with Vice-President Dick Cheney and sanction military action. In a chilling scenario of how war might come, a senior intelligence officer warned that public denunciation of Iranian meddling in Iraq - arming and training militants - would lead to cross border raids on Iranian training camps and bomb factories.

A prime target would be the Fajr base run by the Iranian Revolutionary Guard Quds Force in southern Iran, where Western intelligence agencies say armour-piercing projectiles used against British and US troops are manufactured. Under the theory - which is gaining credence in Washington security circles - US action would provoke a major Iranian response, perhaps in the form of moves to cut off Gulf oil supplies, providing a trigger for air strikes against Iran's nuclear facilities and even its armed forces.

Senior officials believe Mr Bush's inner circle has decided he does not want to leave office without first ensuring that Iran is not capable of developing a nuclear weapon. The Sunday Telegraph has been told that Mr Bush has privately promised her that he would consult "meaningfully" with Congressional leaders of both parties before any military action against Iran on the understanding that Miss Rice would resign if this did not happen.

The intelligence officer said that the US military has "two major contingency plans" for air strikes on Iran. "One is to bomb only the nuclear facilities. The second option is for a much bigger strike that would - over two or three days - hit all of the significant military sites as well. This plan involves more than 2,000 targets."