North Korea (searchpressed the United States on Monday to respond to its "bold proposal" to settle the nuclear dispute and said it will continue to strengthen its military until Washington drops its "hostile" stance.

North Korea floated a proposal to settle the nuclear crisis last month in talks in Beijing. It has not publicly elaborated on the offer. U.S. officials say the North asked for massive economic assistance in return for scrapping its nuclear activities.

U.S. Secretary of State Colin Powell (search) has said the United States was reviewing the deal.

U.S. officials say that during the Beijing talks, North Korea claimed it had nuclear weapons and was contemplating exporting or using them, depending on U.S. actions.

Washington has repeatedly said the North must first end its nuclear activities before it is rewarded with economic aid.

"If the U.S. does not positively respond to the DPRK's bold proposal, it will be held accountable for scuttling all efforts for dialogue and seriously straining the situation," said Rodong Sinmun, a state newspaper in Pyongyang. The DPRK is the acronym for the Democratic Peoples Republic of Korea, or North Korea.

"The DPRK will mobilize all its potentials to bolster the war deterrent force in every way as long as the U.S. keeps pursuing its hostile policy toward the DPRK," it said.

Separately, North Korea warned Monday that Washington's renewed labeling of the communist state as a sponsor of terrorism will aggravate the nuclear standoff.

The United States last Wednesday named seven countries -- Cuba, Iran, Iraq, Libya, North Korea, Syria and Sudan -- as sponsors of terrorism during 2002. The same countries were listed last year.

The seven nations are banned from receiving U.S. weapons and U.S. economic aid, and effectively prevented from receiving World Bank (search) loans.

"The U.S. smear campaign against the DPRK will only make the settlement of the nuclear issue between the DPRK and the U.S. more complicated and aggravate the situation," said an unidentified spokesman at the North's Foreign Ministry, according to the North's KCNA news agency.

The nuclear crisis flared late last year when Washington said North Korea admitted running a secret nuclear weapons program in violation of a 1994 treaty.