The Pope's visit is expected to bring hundreds of thousands of extra people into the city on Thursday, July 17.
The move ratchets up the dispute with the train drivers union, which plans to strike over a pay claim.
Deputy Premier and Minister for Transport John Watkins said the State Government would go to the Australian Industrial Relations Commission to seek to resolve or defer industrial action.
"The Government will not be blackmailed into giving them want they want with this industrial terror," Mr Iemma told a press conference.
He said a number of industrial agreements had been reached with pay rises of four per cent, well above the 2.5 per cent ceiling the Government is seeking to impose on all public service agreements, as they included additional productivity measures.
In the talks with train drivers, the Government is offering a four per cent a year wage rise for two years, while seeking "tighter management" of sick leave and also some head office changes.
Mr Iemma said the proposed changes relating to sick leave had been introduced with the agreement reached late last year with bus drivers, who are members of the same union as the train drivers.
"There is no cause for this whatsoever," Mr Iemma said of the planned industrial action, pointing out that there had been 14 settlements reached on new wage deals providing for four per cent wage rises, the most recent being with nurses.
"The trains not being able to provide full services would cause wholesale disruption," Mr Iemma said of the proposed strike.
Asked about the public criticism from backbenchers of his government, along with the continued speculation about contenders for his job, Mr Iemma said it all related to opposition to the planned electricity industry privatisation.
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