The benchmark S&P/ASX200 index rose 44.8 points, or 0.5 per cent, to 8,970.8 on Tuesday, while the broader All Ordinaries gained 51.7 points, or 0.57 per cent, to 9,165.1.
In morning trade the ASX200 rose back above 9,000 for the first time since March 3, but gave back some of those gains in the afternoon to finish a touch below Thursday's closing level.
In Washington, President Donald Trump told reporters outside the White House that Iran had been in touch after peace talks collapsed over the weekend.
"I can tell you we've been called by the other side. They'd like to make a deal very badly," the president claimed.
"We've been called this morning by the right people, the appropriate people."
Wall Street rallied in response, with the S&P500 rising more than one per cent to recoup all of its losses since the war began on February 28.
But IG market analyst Tony Sycamore said domestic headlines had conspired to limit the bourse's advance.
Speaking in New York, Reserve Bank of Australia deputy governor Andrew Hauser warned the war could create a "nightmare" scenario of re-accelerating inflation with slowing economic growth.
Investor sentiment may have also been rattled by a trio of long-running surveys released on Tuesday that reported sharp declines in both Australian business conditions and consumer confidence, with the magnitude of the drop only equalled by the onset of COVID-19 and the global financial crisis.
Still six of the bourse's 11 sectors finished higher on Tuesday, while five ended lower.
The tech sector was the biggest mover, rocketing 3.4 per cent higher, as Wisetech Global added 3.8 per cent, Xero gained 3.9 per cent and Megaport grew 4.5 per cent.
In the heavyweight mining sector, BHP rose 3.2 per cent to a six-week high of $56.10 after officials from China's state iron ore buyer reportedly eased restrictions on buying BHP's cargoes following a visit by the company's incoming CEO, Brandon Craig.
Fortescue climbed 1.6 per cent to $20.60, Rio Tinto gained 1.3 per cent to $174.29 and South32 added 1.1 per cent to $4.67.
Goldminers were mostly lower even as the precious metal changed hands for $US4,800 an ounce, up about $35 from Monday.
Northern Star dipped 0.1 per cent, Evolution slipped 0.2 per cent and Newmont slid 1.7 per cent.
In the financial sector, Westpac dropped 2.6 per cent to $41.48 after signalling its markets division would deliver lower income stemming from the war with Iran.
The other big banks were mixed, with ANZ dropping 1.0 per cent to $38.46 and NAB subtracting 0.6 per cent to $44.69, while CBA added 0.2 per cent to $183.52 and Macquarie climbed 3.7 per cent to $232.
In the energy sector, uranium developers posted strong gains, with Deep Yellow climbing 9.0 per cent, Boss Energy adding 7.8 per cent and Lotus Resources growing 9.7 per cent.
The successful start-up of a new nuclear reactor in South Korea capable of supplying 1.7 per cent of the country's total power generation may have boosted sentiment.
Woodside and Santos, meanwhile, dropped 0.6 per cent and 0.9 per cent, respectively, as Brent crude slipped back under $US100 a barrel.
Brent was trading at $98.90 around 5pm, while the Australian dollar was changing hands at 70.96 US cents, from 70.44 US cents at 5 pm on Monday.
Earlier on Tuesday, the Aussie breached 71 US cents for the first time since mid-March, climbing as high as 71.02 US cents.
ON THE ASX:
* The S&P/ASX200 gained 44.8 points, or 0.5 per cent, to 8,970.8.
* The broader All Ordinaries 51.7 points, or 0.57 per cent, to 9,165.1.
One Australian dollar trades for:
* 70.96 US cents, from 70.44 US cents at 5pm AEDT on Friday.
* 112.86 Japanese yen, from 112.47 Japanese yen.
* 60.20 euro cents, from 60.29 euro cents.
* 52.45 British pence, from 52.53 British pence.
* 120.59 NZ cents, from 120.85 NZ cents.
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