"The Islamic republic is now trying to bamboozle its way to an agreement.. That will cement Iran's place as a threshold military nuclear power," Netanyahu told the UN General Assembly.
"Allowing that to happen would pose the gravest threat to us all."
A week-long round of talks between Iran and six powers ended on Friday with no breakthrough toward a deal to ensure Tehran's nuclear program cannot be used for military purposes.
Netanyahu said the threat posed by Iran's nuclear program was greater than the danger posed by jihadists in Iraq and Syria against whom the United States and its allies have launched airstrikes.
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"To defeat ISIS and leave Iran as a threshold nuclear state power is to win the battle and lose the war," he said, using the acronym for the Islamic State fighters.
The prime minister took a swipe at Iranian President Hassan Rouhani who spoke out against the Sunni extremists during his UN address, accusing him of shedding "phony tears" while engaging in a "terror campaign" of his own.
Israel has repeatedly warned the West against making concessions to Iran over its nuclear program and opposes a role for Iran in the international effort to defeat the so-called Islamic State (IS) group.
"Iran's nuclear military capabilities must be fully dismantled," Netanyahu told the Assembly, drawing applause.
Netanyahu made a splash two years ago when he turned up at the UN General Assembly with a large cartoon drawing of a bomb to illustrate the threat posed by Iran's nuclear program.