LONDON, Sept 24 (Reuters) -

The deputy head of Iran's Revolutionary Guards warned U.S. and Israeli leaders on Monday to expect a "devastating" response from Tehran, accusing them of involvement in an attack on a military parade in the city of Ahvaz.

"You have seen our revenge before ... You will see that our response will be crushing and devastating and you will regret what you have done," Hossein Salami said in a speech before the funeral of the victims broadcast live on the state television.

Thousands of people packed the streets of the southwestern Iranian city of Ahvaz to mourn the victims of Saturday's assault that killed 25 people, including 12 members of the elite Revolutionary Guards.

Many chanted "death to Israel and America".

The coffins, wrapped in the flag of the Islamic Republic, were carried by the mourners. Many held pictures of a four year old boy killed in the attack, one of the worst against the most powerful military force of the Islamic Republic.

Four assailants fired on a viewing stand in Ahvaz where Iranian officials had gathered to watch an annual event marking the start of the Islamic Republic's 1980-88 war with Iraq.

Soldiers crawled on the street to avoid bullets. Women and children fled for their lives.

GULF TENSIONS

Top Iranian leaders also blamed the United States' Gulf Arab allies for the bloodshed that struck a blow at the heart of its security establishment.

The accusation will almost certainly antagonize Iran's regional foe Saudi Arabia. The oil superpowers are waging a war for influence across the Middle East, backing opposite sides in Syria, Yemen, Iraq and Lebanon.

The United Arab Emirates, a close ally of Saudi Arabia and Washington, rejected Iranian allegations alluding to its involvement in the violence.

Speaking at the funeral ceremony, Defense Minister Amir Hatami warned the “terrorists” to expect the revenge of the Iranian nation.

Islamic State's Amaq agency posted a video of three men in a vehicle who it said were on their way to carry out the attack.

The violence has led to a boost in support for the Guards, according to analysts, which they will likely use to silence their critics, who include pragmatic President Hassan Rouhani.

He engineered Iran's 2015 nuclear deal with world powers that ushered in a cautious detente with Washington before tensions flared anew with President Donald Trump’s decision in May to pull out of the accord and reimpose sanctions on Tehran.

Ahvaz National Resistance, an Iranian ethnic Arab opposition movement which seeks a separate state in oil-rich Khuzestan province, also claimed responsibility.

Senior commanders of the IRGC have said the Ahvaz attack was carried out by militants trained by Gulf states and Israel, and backed by America.

But it is unlikely the IRGC will strike any of these foes directly.

The Guards could put on a show of strength by firing missiles at opposition groups operating in Iraq or Syria that may be linked to the militants who staged the attack.