The US says five Iranian speedboats challenged three US ships in the Strait of Hormuz, threatening to blow them up.
"It is a dangerous situation and they should not have done it, pure and simple," said Mr Bush.
His comments came as the US released video footage of the incident, shot from a US ship, showing jerky images of several small boats approaching.
Mr Bush was speaking in the White House Rose Garden on the first anniversary of the Iraq troop surge, hours before leaving for a week-long Middle East trip.
During his first visit to Israel as president, Mr Bush hopes to push forward Israeli-Palestinian peace talks relaunched in Annapolis late last year.
The BBC's Richard Lister in Washington says it seems the US does not want to make too much of the incident for fear it will overshadow his visit to the region.
'You will explode'
The weekend stand-off happened in a major oil shipping route, in what the Pentagon insists were international waters.
The speedboats, believed to belong to Iran's Revolutionary Guards, came within about 200m (650ft) of the US vessels, Pentagon officials said.
"I am coming at you. You will explode in a couple of minutes," the Iranians said in a radio transmission, according to US officials.
Iran has played down the event, calling it an "ordinary occurrence".
An Iranian foreign ministry spokesman said: "This... happens for the two sides every once in a while and, after the identification of the two sides, the issue is resolved."
But the US counters the Iranian vessels only withdrew as the US ships prepared to open fire.
Published: 2008/01/08 21:11:18 GMT
© BBC MMVIII
Everything old is new again- Including the ships that go bump in the night. Thank goodness this happened after the N.I.E. came out otherwise bombs would be falling on Tehran as we speak. I hope this is not the Revolutionary Guard getting froggy with the World's Greatest Navy. It is not very smart to tease the Tiger as those young men in S.F. found out to their dismay.