WASHINGTON, April 21 (Matt Spetalnick/Reuters) - President Barack Obama's administration said on Wednesday that progress toward Middle East peace would help thwart Iran's ambitions by preventing it from cynically using the conflict to divert attention from its nuclear program.

Drawing an explicit link between Israeli-Palestinian peace efforts and Washington's drive to isolate Iran, Obama's national security adviser, Jim Jones, urged bold steps to revive long-stalled Middle East negotiations.

US officials hope that shared Arab-Israeli concerns about Iran can be exploited to spur old foes to help advance Israeli-Palestinian peace and restrain Tehran's nuclear activities and rising influence in the region.

Jones coupled an appeal to Israel and its Arab neighbors to take risks for peace with a warning to Iran that it would face real consequences for its nuclear defiance. Obama is leading a push to tighten UN sanctions on Tehran.

One of the ways that Iran exerts influence in the Middle East is by exploiting the ongoing Arab-Israeli conflict, Jones told the Washington Institute for Near East Policy.

Advancing this peace would ... help prevent Iran from cynically shifting attention away from its failures to meet its obligations, he said.

The Israeli government, locked in a dispute with the United States over Jewish settlement policy, has made clear it sees confronting Iran as more of a security priority for Washington, and Middle East peace should be handled on a separate track.

Jones -- while voicing disappointment over the failure to jumpstart U.S.-sponsored indirect peace talks -- insisted progress toward peace is a U.S. interest as well.

That seemed to echo Obama's assertion last week that a two-state solution to the decades-old conflict was a vital national security interest, adding to speculation that he was considering his own broad peace proposal.

U.S.-ISRAELI BOND UNBREAKABLE

While acknowledging disagreements with Israel, Jones said the US commitment to its ally was unbreakable.

There is no space -- no space -- between the United States and Israel when it comes to Israel's security, he said.

Still, he urged all sides to avoid provocative actions, including Israeli actions in East Jerusalem and Palestinians' incitement that fuels suspicion rather than trust.

Jones reasserted that Washington is determined to prevent Iran from developing nuclear weapons, saying US efforts are aimed at avoiding a nuclear arms race in the region and the proliferation of nuclear technology to terrorist organizations.

Israel is the only assumed nuclear weapons power in the Middle East. Western powers accuse Tehran of seeking to develop a bomb, but it insists its nuclear activities are peaceful.

The Obama administration's Middle East peace moves have been stymied by a dispute over Jewish settlement construction in and around Jerusalem and by divisions among the Palestinians.

Washington has tried to get Israel and the Palestinians to launch proximity talks but has made scant headway. Israeli Prime Minister Benjamin Netanyahu gave little ground in White House talks with Obama last month. (Additional reporting by Phil Stewart; editing by Chris Wilson)