Defense Secretary Leon Panetta said ahead of a meeting Friday with Israeli Defense Minister Ehud Barak that he would warn his Israeli counterpart about the global economic consequences of a military strike on Iran’s nuclear program, adding that he still favors sanctions and diplomacy over a strike.

“To go beyond (sanctions and diplomacy) raises our concerns about the unintended consequences that could result. … There are going to be economic consequences to that, that could impact not just on our economy but the world economy,” Panetta told those travelling with him to Halifax, Canada.

Some Republican lawmakers are complaining the Obama administration is sending a schizophrenic message to Iran and the region. On one hand, it is projecting that the Pentagon now has 30,000-pound bunker-buster bombs capable of striking an underground WMD program and selling smaller bunker busters to Iran’s neighbors such as the United Arab Emirates.

Yet officials are warning about the dire implications of a military strike.

Joint Chiefs Chairman Gen. Martin Dempsey, however, said Friday that the military option is not off the table. “I don’t choose to talk about our discussions with our Israeli partners, but I will tell you we are on a dual- track approach, economic and diplomatic, with never taking the military option off the table. And I think that’s the right place to be,” he said, when asked what the message to Israel would be regarding a potential military strike on Iran’s nuclear program.

Republican Sen. Mark Kirk of Illinois is sponsoring legislation, which was introduced Friday, to sanction Iran’s Central Bank, but says he is frustrated that the U.S. Treasury is not pushing harder to tighten sanctions against Iran’s Central Bank.

“I’m worried that the Obama administration policy on Iran is one becoming aggressive weakness,” Kirk said. “They are not taking any real action against the Central Bank of Iran or other parts of the nuclear program of the Islamic Republic of Iran and then telling everyone else that they shouldn’t do anything either.”

Adam Szubin, director of the Treasury’s Office of Foreign Assets Control, said at a House hearing Tuesday that the Central Bank sanctions could actually benefit Iran while hurting the U.S. and global economies by causing oil prices to spike.

“If there is a hike in the price of oil, Iran gains. If there is a spike in the price of oil … there could be profound harm to the global economic recovery and a windfall to Iran,” he said.

A Treasury source said Friday that the department is “eager” to work with Congress on new ways to pressure Iran, “but it is critically important that the steps we take do not destabilize the U.S. and global economy while potentially benefiting Iran.”

Former Defense Secretary Robert Gates said he thinks both the U.S. and Israel are torn over how to approach Iran.

“I think the Israeli government is divided in some respects like our own over the right approach to take,” Gates said, in an exclusive interview set to air Saturday on Fox Business Network’s “Tom Sullivan Show.” “The former heard of Mossad has been out saying what a terrible mistake a military strike would be. Others cite the existential threat … a nuclear-armed Iran poses for Israel. So I think there are both sides of the issue.”

Gates said he thinks “we have a little more time” to “squeeze the regime.”

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