The U.S. National Intelligence Estimate (NIE), published on Monday, stated that Tehran had halted weapons production in 2003, although it was continuing to enrich uranium.
The report contradicted a previous U.S. intelligence assessment in 2005 which stated that Iran was actively pursuing a nuclear bomb.
"What's to say they couldn't start another covert nuclear weapons program?" the president told a news conference at the White House.
"Iran was dangerous, Iran is dangerous and Iran will be dangerous if they have the know-how to make a nuclear weapon," Bush went on.
When asked if military action remained an option, the president answered, "The best diplomacy - effective diplomacy - is one in which all options are on the table."
Bush said his opinion that Iran was a danger had not changed: "I think the NIE makes it clear that Iran needs to be taken seriously as a threat to peace."
A senior government official in Tehran said on Tuesday that Washington should compensate Iran for the damage caused by years of "lies" about its nuclear weapons program.
"Considering the lies that they have been spreading against Iran, the Americans should now reimburse us for the colossal damages caused to the country," Gholam Hossein Elham said.
He went on to say that previous assertions by some members of the U.S. administration that Iran was attempting to create nuclear weapons were "brazen lies" and that "the Americans should pay for their words."
Iranian leader Mahmoud Ahmadinejad said on Tuesday the United States and their allies should recognize Iran's right to develop peaceful nuclear technologies.
"The United States and its allies should recognize Iran's right to peaceful nuclear energy, there is no other way," the presidential press service quoted Ahmadinejad as saying.
