US authorities announced on Wednesday that sanctions on the transfer of money would be eased to help relief efforts.

Senior Iranian officials welcomed the measures and said it was a positive step towards improved relations.

But Bush said Tehran needed to do more if it wanted better ties with Washington.

Among these were the handing over of al-Qaeda suspects held in the country, and the end of what Bush called Iran's nuclear weapons programme.

The US president was speaking on the day a memorial service was held for the victims of last Friday's earthquake in Bam.

As the city mourned the loss of up to 50,000 of its approximately 100,000 citizens, there was the odd glimmer of hope as reports - mostly unsubstantiated - surfaced of people found alive amid the rubble.

The US easing of sanctions means that, over the next 90 days, donations from American citizens and non-governmental organisations can be made to groups in Iran without needing specific authorisation from the US treasury.

Sensitive technology, including computers and satellite telephones, can also be exported to the country.

"What we're doing in Iran is we're showing the Iranian people the American people care, that they've got great compassion for human suffering," Bush told reporters.

Aid workers from the US have already joined the effort to help survivors, in the first official representation by Americans since Washington cut ties with Iran after the 1979 Islamic revolution.