West coaxes Iran on incentives at UN watchdog debate

VIENNA (Reuters) - Western powers nudged Iran to accept a package of incentives to halt an atomic fuel program under debate at the U.N. nuclear watchdog on Thursday, soft-pedaling previous threats of penalties.

But in Tehran, Supreme Leader Ayatollah Ali Khamenei said Iran would not yield to Western pressure. Alluding to Iran's drive to enrich uranium, he said "the continuation of this scientific move is among (our) prominent and main objectives".

The five U.N. Security Council permanent members plus Germany offered Iran a batch of sweeteners on June 6 to stop purifying uranium, which Tehran says would generate electricity but which the West sees as a disguised atomic bomb project.

The International Atomic Energy Agency's 35-nation governing board debated two reports by IAEA chief Mohamed ElBaradei citing Iran's continued obstruction of IAEA probes into its nuclear intentions and its refusal to halt enrichment.

"We hope that Iran's leaders will think about what is best for the economic prosperity and long-term security of the Iranian people," the U.S. ambassador to the IAEA, Gregory Schulte, told the Vienna-based board.

He said Iran could choose between two paths, one offering peaceful nuclear technology and another "bringing to bear the weight of the Security Council". But he did not mention sanctions often threatened before the June 6 incentives offer.

IRAN WEIGHS PACKAGE

Iranian ambassador Ali Asghar Soltanieh told the meeting the package was under serious consideration.

"The carrot and stick policy has always been counterproductive," he said, adding Iran was prepared to enter into negotiations without any preconditions to remove ambiguities about the peaceful intent of its nuclear activities.

"We are determined to keep the door of negotiations and dialogue open," he told journalists, adding he expected Tehran to respond "in due course".

The six powers have given Iran until a Group of 8 industrialized nations summit in mid-July to answer. If Iran rejects the package, the Western powers may push for U.N.-backed sanctions, a step China and Russia have resisted.

The top three European Union powers, France, Britain and Germany, took a cautious line, telling the board Iranian cooperation with the IAEA had "declined almost to zero" but that the big powers aimed to strike a deal based on mutual respect.

The EU trio, which conceived the overture to Iran, said diplomacy was in a delicate phase, adding: "We express our hope that the Iranian authorities will respond positively to this ambitious offer". It made no mention of punitive options.

In a hint at lingering differences between the U.S.-EU alliance and Russia and China over how hard to push Iran, no statement was issued on behalf of all six powers.

"Russia and China didn't want one," said one EU diplomat.

But others said Britain presented a letter to board chairman Japan on behalf of the six reiterating their agreement to offer incentives, with punitive options played down.

Iran's foreign minister said he was both "optimistic and realistic" that there will be a deal, but the country still wants to enrich uranium at home, Spanish daily El Pais reported.

Asked about a Western-backed Russian offer to enrich uranium for Tehran, which could prevent sensitive technology being mastered in Iran, Foreign Minister Manouchehr Mottaki said the Iranians would continue to examine the proposal.

PUTIN EXPECTS EARLY RESPONSE

Russian President Vladimir Putin, speaking after talks with Iranian President Mahmoud Ahmadinejad in Shanghai, was quoted by RIA news agency as saying he expected Iran to respond to the package in "the nearest future".

Putin and Ahmadinejad were in China for a summit of the Shanghai Cooperation Organization (SCO). The Iranian offered energy cooperation at the meeting to oil-thirsty China and other member states, but avoided direct mention of the nuclear row.

Chinese President Hu Jintao was due to meet the Iranian leader on Friday. Beijing's long-standing ties and growing trade with Iran give it some leverage in the nuclear dispute, but it is constrained by the economy's dependence on Iranian oil.