Vienna: Major world powers struck what Britain called a far-reaching agreement on Thursday to offer Iran incentives to halt sensitive nuclear fuel work and penalties if it did not.
"We believe the proposals offer Iran the chance to reach a negotiated agreement based on cooperation," British Foreign Secretary Margaret Beckett said at a news conference, adding the major powers were prepared to suspend UN Security Council action if Tehran halted uranium enrichment.
However, Iran had already insisted it would not suspend enrichment after the United States made this a condition for opening direct talks with Tehran for the first time in decades.
The West fears Iran's nuclear programme includes plans to build atomic weapons, while Iran says it is solely for power generation.
The accord was reached at a meeting in Vienna of foreign ministers from the United States, Britain, France, Russia and China - all permanent members of the UN Security Council - as well as Germany and EU foreign policy chief Javier Solana.
"We have agreed a set of far-reaching proposals as a basis for discussions with Iran," said Beckett.
In the past, Russia and China have opposed punitive measures, but Beckett did not go into details about the package.
"We are prepared to resume negotiations should Iran resume suspension of all enrichment-related and reprocessing activities as required by the IAEA, the UN nuclear watchdog and we would also suspend action in the Security Council," said Beckett.
"We have also agreed that if Iran decides not to engage in negotiation, further steps would have to be taken in the Security Council. We urge Iran to take the positive path and to consider seriously our substantive proposals which would bring significant benefits."
A senior US official in Vienna said Iran had "mere weeks" to respond to the initiative and that the powers had agreed to take "measures with teeth" if Iran rejected the deal.
But the official refused to spell out the measures or to call them sanctions.
Key Ingredient
Officials said no further details would be issued before the package was presented to Iran, which says its programme to enrich uranium is non-negotiable.
US President George Bush warned Iran that if it refused to stop enrichment, "the next step is for our coalition partners to go to the Security Council".
In Washington, US State Department spokesman Tom Casey said Bush had spoken to Russian and Chinese leaders and that the conversations had been positive.
Casey said the United States was willing to go the extra mile while Iran was using every excuse it could find not to move forward with discussions. "Iran clearly has a choice that it is going to have to make," he said.
Iranian Foreign Minister Manouchehr Mottaki said in Tehran that Iran was open to talks with Washington, which severed ties in 1980, but added, "We will not give up our nation's natural right to enrichment, we will not hold talks over it."
UN Sanctions
An EU diplomat at the Vienna meeting said the quick Iranian rebuff did not look final.
"We have not presented the package to them yet and nothing they've said so far seems to rule out taking up this opportunity," he said.
Crude oil fell below $71 a barrel, extending a slide sparked by the US offer of dialogue, which seemed to ease market fears of the Iran dispute leading to an oil supply crunch.
The Islamic Republic says it wants to purify uranium only to run civilian atomic power plants - not the much higher level required for warheads.
Defying UN Security Council calls for it to stop seeking enrichment technology, Tehran said in April it had produced its first batch of low-enriched uranium.
Before the Vienna meeting, diplomats said the incentives were expected to encompass a light-water nuclear reactor and a guaranteed foreign supply of fuel so that Iran would not need to enrich uranium itself.
Sanctions could entail visa bans and a freeze on senior Iranian officials' assets, and eventually trade measures.
US Secretary of State Condoleezza Rice, who announced the US offer of talks on Wednesday, said a military option remained as a last resort if talks or sanctions proved futile.
But Washington, angling for firm Russian support, has accepted language in a proposed Security Council resolution to underpin the offer that would rule out an immediate threat of military strikes, US and European officials said.
Russia, the Council power with the most leverage on Iran due to hefty trade relations, said the US gesture presented "a real chance" to ease the crisis and urged Tehran to grasp it.
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