Obama accused Ahmadinejad of making "offensive" and "hateful" comments when he said most of the world thinks the United States was behind the attacks to benefit Israel. The Iranian president defended his remarks from a day earlier at the United Nations General Assembly and suggested that a fact-finding panel be created by the UN to look into who was behind them.
"It was offensive," Obama said in an interview with the Persian service of the BBC that was to be broadcast to the Iranian people. "It was hateful."
"And particularly for him to make the statement here in Manhattan, just a little north of ground zero, where families lost their loved ones, people of all faiths, all ethnicities who see this as the seminal tragedy of this generation, for him to make a statement like that was inexcusable," Obama said.
Obama said Ahmadinejad's remarks will make the American people even more wary about dealing with his government.
"For Ahmadinejad to come to somebody else's country and then to suggest somehow that the worst tragedy that's been experienced here, an attack that killed 3000 people, was somehow the responsibility of the government of that country, is something that defies not just common sense but basic sense - basic senses of decency that aren't unique to any particular country - they're common to the entire world," he said
In a news conference at a Manhattan hotel, Ahmadinejad shot back, saying he had not made any judgments about who was responsible for 9/11 and lashed out at the US wars in Iraq and Afghanistan as an overreaction to the attacks.
"I did not pass judgment, but don't you feel that the time has come to have a fact finding committee," he said of his General Assembly address that prompted the US delegation to walk out of the session along with those from all 27 European Union nations, Australia, New Zealand, Canada and Costa Rica.
America should "not occupy the entire Middle East ... bomb wedding parties ... annihilate an entire village just because one terrorist is hiding there," Ahmadinejad said.
The Iranian leader routinely makes incendiary remarks, including verbal threats to destroy Israel, that the West believes are aimed at diverting attention from heavy international pressure on Tehran to end uranium enrichment and prove that it is not trying to build a nuclear weapon.
Iran, which insists it is enriching uranium only to fuel nuclear reactors to generate electricity, is under four sets of UN Security Council sanctions as punishment for its failure to make its nuclear ambitions transparent.
It has continued to defy international demands to come clean about its intentions despite offers of incentives to co-operate.
Earlier this week, the five permanent members of the Security Council - the US, Britain, France, Russia and China - and Germany renewed their invitation for Iran to return to the table amid signs that Tehran might be willing to resume long-stalled negotiations.
Ahmadinejad said Friday that he thought Iran might be able reopen contact next month to set a framework for negotiations with the group, known as the P5+1. He added that he would "consider" a halt to uranium enrichment if an outside source would provide the 20-percent enriched fuel Iran needs for a medical research reactor.
But Obama seemed unimpressed with the Iranian position. He sharply criticized Iran's leadership for hurting its people by incurring severe financial and trade sanctions when it refuses to comply.
"Right now what the Iranian government has said is, it's more important for us to defy the international community, engage in a covert nuclear weapons program, than it is to make sure that our people are prospering," he told the BBC. "And the international community I don't think prefers the choice that has been taken."
Obama stressed, however, that the door to negotiations remains open. Ahmadinejad has so far refused to return to talks because of the latest round of sanctions that followed Iran's failure to respond to Obama's initial overtures.
AP sm
