* War on Iran creates short-term risks, Dimon says

* But regional powers have shown desire for peace, he

says

* Dimon concerned about US's lack of wartime capacity

By Mike Stone and Alexandra Alper

WASHINGTON, March 24 (Reuters) - JPMorgan Chase ( JPM )

Chief Executive Officer Jamie Dimon said on Tuesday he

was "a little optimistic" about the long-term prospects for

stability in the Middle East despite the short-term risks

created by the war in the Gulf.

The conflict, launched by the U.S. and Israel against Iran

on February 28, has upended markets, sent oil prices soaring,

fuelled global inflation fears and convulsed the post-war

Western alliance.

Dimon, however, said the conflict had highlighted a shift in

mentality within the region that could now create conditions for

the durable resolution of long-standing tensions.

"Here's why I'm a little optimistic," he said during the

Hill & Valley Forum - a politics and tech conference in

Washington - pointing to what he said was a desire among Saudi

Arabia, the UAE, Qatar, the U.S., and Israel for "permanent

peace in the Middle East."

"It's probably riskier in the short run, because we don't

know the outcome of it," he added.

WAR EXPOSES US LACK OF WARTIME CAPACITY, DIMON SAYS

U.S. President Donald Trump has faced heavy criticism from

political opponents over the war, and even some U.S. officials

have said Iran did not pose an imminent threat to the United

States.

"Iran is a terrorist threat ... This is an actual killing

agent," Dimon said, pointing to Tehran's involvement in regional

proxy conflicts and support for armed militia groups.

But he said that Israel also had a part to play to ease

regional tensions.

"Israel's got to do a little more, in my view, to help begin

some kind of long-term Palestinian state," he said.

While he voiced cautious optimism over the region's future,

Dimon said the conflict had exposed the United States' lack of

industrial capacity to rapidly scale up arms production in

wartime.

He said he had visited the Pentagon earlier on Tuesday and

was deeply frustrated with its procurement rules, policy

constraints, multi-year budget rigidities and regulatory

compliance burdens.

"Of course you also know that there's going to be a lot more

money spent on the military, which we really need to do," Dimon

said. "We just want to be part of helping their supply chain."