Extremist groups that possess nuclear weapons or materials will be the "No. 1 security threat" facing the world in the coming years, the head of the International Atomic Energy Agency said Monday.

Mohamed ElBaradei said the Vienna-based U.N. agency needs more money to properly protect nuclear sources and to keep potentially lethal substances out of the hands of such groups.

"Deterrence does not work in the case of extremist groups ... because if they were to acquire a nuclear weapon or powerful radioactive source, they would simply use it," ElBaradei said in a speech to diplomats and politicians in Austria's parliament.

ElBaradei, in other comments, appeared hopeful the new U.S. administration would make progress in resolving the international standoff surrounding Iran's nuclear program.

Unlike his predecessor, George W. Bush, President Barack Obama has called for diplomatic contacts with Iran as a way of persuading its rulers to drop their nuclear ambitions. Tehran says its nuclear program is solely for peaceful purposes.

"I think an Iranian solution would be a win-win situation because Iran could be a positive force in the region — in Syria and Lebanon, in Iraq, in Palestinian territory," said ElBaradai, a Nobel Peace Prize laureate.

He warned, however, that Iran could also be "a source of confrontation."