Hundreds of thousands of Iranians marched and some burned U.S. flags to mark the revolution as Tehran showed off ballistic missiles in defiance of United States efforts to curb its military power.
Iranians celebrated the 1979 overthrow of Shah Mohammad Reza Pahlavi, who was supported by the US, "waving Iranian flags, chanting "Death to America" and burning USA and Israeli flags", reported The Associated Press.
Banners held by marchers or hung along the streets bore slogans including "Death to America", "Death to Israel", "we will trample on America", "40 years of challenge, 40 years of USA defeats".
Iranian President Hassan Rouhani delivered a fiery speech in Azadi Square in Tehran on Monday.
'Iran will continue to expand its military might and missile program, ' Rouhani said.
This year's celebrations come amid heightened tensions with the United States, which last year withdrew from the 2015 nuclear agreement between Tehran and world powers and reimposed tough sanctions on the Iranian economy.
"I do not ignore the threats of the Iranian regime but neither am I intimidated by them", Netanyahu said in a statement and video issued by his office as Iran celebrated the 40th anniversary of its revolution.
The leaders spoke at a rally marking 40 years since the Islamic revolution, a political quake that ended millennia of monarchy and still reverberates around the region.
It was not clear whether the amnesty would also apply to political prisoners.
"I bow in admiration to Iran's resilient people who - despite hardships and grievances - today poured into streets by the millions to mark 40th anniv of their Islamic Revolution, which some in the U.S. wished would never come", Iranian Foreign Minister Mohammad Javad Zarif tweeted.
The state has played up this year's anniversary as 40 is symbolic of maturity in the Islamic tradition and the age at which Prophet Mohammed received revelations from God.
An anchor on state television warned of hostile foreign media trying to downsize the participation of Iranians in the march but expressed confidence that "they would be confounded by the unprecedented level of attendance".
The problem, for Khamenei, is that there is a public record of such virulent, hateful chanting going as far back as the 1979 Islamic Revolution.
He compared the U.S. sanctions and economic hardships to "riding a bicycle when someone puts a stick in the wheels" but pointed to advances in other fields as more than making up for them.
Last year, Bolton told a meeting of Iranian exiles that "before 2019, we here. will celebrate in Iran".
"On the revolution's 40th anniversary we are at the top for scientific achievements like nanotechnology or accurate missiles", he said.
Soldiers, students, clerics and black-clad women holding small children thronged streets across Iran, many with portraits of Ayatollah Ruhollah Khomeini, the Shi'ite cleric who toppled the Shah in an Islamic uprising that still haunts the West.