RIYADH, SAUDI ARABIA, DEC. 27 -- -- King Fahd accused Iran today of pursuing regional territorial ambitions and urged the Tehran government instead to join Arabs in trying to "liberate" Jerusalem from Israeli occupation.

His statement came as the leaders of the six nations of the Gulf Cooperation Council -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- met for the second day to discuss ways to deter Iranian attacks on their coastlines and oil tanker routes.

Fahd, chairman of the council and host of the four-day summit, complained that Iran was "directing arrows at our hearts instead of helping us to liberate Jerusalem and the Arab Islamic territories in Palestine."

The king paid "warm tribute to the Palestinian heroes" for their wave of protests against Israeli forces in the occupied West Bank and Gaza Strip. Israel took the West Bank from Jordan and the Gaza Strip from Egypt in the 1967 Middle East war.

Fahd charged that Iranian leaders were motivated by "territorial ambitions and {the desire for} hegemony and exporting ideologies alien to our Arab and Islamic societies."

The king's remarks were carried by the official Saudi Press Agency.

Fahd said he hoped for a peace that would "lead to good relations based on the Islamic creed of brotherhood and solidarity" between Persian Iran and its Arab neighbors.

Fahd also indicated that his oil-rich kingdom and its partners in the council would bankroll Iran's postwar reconstruction projects.

The second day of top-level discussions came amid relative calm in the region, with no reports of Iraqi or Iranian strikes on shipping in the Persian Gulf.

{In Tehran, Iranian Prime Minister Mir Hossein Mousavi said today that Iran has produced chemical weapons but will use them only if forced to do so, Agence France-Presse reported. Mousavi made the remarks, carried by the official Iranian news agency, in presenting the government's budget to parliament.

{In the past, Iran has said only that it had the capability of producing chemical weapons. Mousavi's statement today was the first by an Iranian leader acknowledging that the country is currently manufacturing the weapons.

{Mousavi also said Iran is now producing its own antitank rockets, several types of missiles, radar systems, gunboats and pilotless aircraft, and had begun development of a fighter plane.

{He also said that defense spending would take up nearly half the budget for Iran's next fiscal year, which begins March 21.}

The king told the summit's opening session yesterday that Iran's conditions for ending the seven-year-old war were unreasonable and warned that Arab and other powers could be dragged into the conflict if it is prolonged.

Today, Fahd praised Iraq for accepting a U.N. Security Council cease-fire resolution that Iran has said it will not embrace until Baghdad is branded the aggressor in the war.

Arab diplomatic sources said they viewed the king's remarks as indicating that if the war continued and expanded, gulf leaders might be forced to seek help from the United States or other powers, although Fahd made no such specific reference.

The sources also said they viewed his statement as a call for the gulf nations to get tough with Iran if it continued to reject Iraq's peace overtures and persisted in attacking commercial shipping.

Syria's foreign minister, Farouk Charaa, arrived here unexpectedly yesterday and briefed Fahd on his recent talks with Iranian leaders in Tehran. He returned later to Damascus.

Syria is Iran's main ally among Arab powers, and council nations have been pressing Syria to mediate with Iran for an end to the war.

{Reuter reported that Oman and the United Arab Emirates, southern gulf states with longstanding ties to Iran, have urged the summit to keep open a dialogue with Tehran.}

Relations between Saudi Arabia and Iran have been tense since late summer, when riots in the Saudi city of Mecca killed more than 400 people, most of them Iranian, making a pilgrimages to the holy city. The Saudis have accused Tehran of instigating the violence.

Summit sources said Kuwait and Saudi Arabia were trying to talk their allies into seeking an international arms embargo against Iran.

The council nations account for about 50 percent of the world's proven oil reserves. Iran rejects their ostensible neutrality in the gulf war, claiming that Saudi Arabia and Kuwait have contributed more than $38 billion to the Iraqi war effort.

The summit was called to examine Kuwait's complaints against Iranian missile attacks on its coast and offshore oil installations. Iran has warned gulf Arab states that their shipping routes will remain open to attack until they persuade Iraq to stop air raids on Iranian shipping.

Gulf council sources, speaking on condition of anonymity, said council leaders would study recommendations by their defense ministers to set up a joint military industry. Details were not available.