Mohammad Khatami said Iran would feel "no moral obligation" to maintain a suspension of uranium enrichment nor allow tougher inspections by the International Atomic Energy Agency if Iran were slapped with yet more criticism.

At the Vienna headquarters of the IAEA, the US ambassador to the agency, Kenneth Brill, said these threats constituted intimidation and suggested that Iran had something to hide.

The United States claims Iran is secretly developing nuclear weapons.

"People who are trying to produce electricity (for peaceful uses as Iran claims) don't engage in these kinds of behavior," Brill said, referring to Iran's efforts to develop advanced P-2 centrifuges capable of making bomb-grade uranium.

But Khatami did offer some reassurance by dismissing any immediate talk of quitting the nuclear Non-Proliferation Treaty, which the IAEA is charged with overseeing.

"For the moment, we do not want to leave the NPT or stop applying the additional protocol," which gives inspectors more power, Khatami told reporters after a cabinet meeting.

"But if the European resolution is adopted in its current form, that means the Europeans do not respect their obligations to us and we will not have any obligations to them," he said.

The British-French-German draft under discussion in Vienna calls for the probe into Iran's suspected nuclear weapons programme to be stepped up, and chastises the clerical regime for its failure to allay suspicions it is seeking nuclear weapons under the cover of generating atomic energy.

Stopping nuclear fuel cycle work and allowing tougher inspections are two so-called "confidence-building" measures that go beyond the NPT, but are seen by the IAEA as essential to easing international concern over Iran's intentions while inspections are carried out.

Intensive talks at the IAEA failed late Wednesday to produce agreement on a draft resolution, diplomats said, adding that they would try again Thursday to finalize a text.

"We're not far," said one diplomat, noting that delegates to the 35-nation board of governors had to go through the time-consuming process of obtaining approval for alterations to the text in their home capitals.

At the European Union summit in Brussels, leaders are set Friday to demand "full transparency" from Iran over its nuclear programme while also pledging efforts to deepen ties with the Islamic republic.

Khatami said Iran would not capitulate to calls for it to cease all fuel cycle activities, saying "we will not accept a resolution that is illegal."

Iran has been particularly incensed at the prospect of being slapped with yet another tough resolution at the IAEA, as it was the EU's "big three" who helped broker its continued cooperation with the IAEA during a visit by their three foreign ministers to Tehran last October.

In return for Iranian compliance with a string of IAEA demands, the Europeans promised to help wrap up the investigation in Iran's favor, something that would open the door to wider trade with Europe and access to peaceful nuclear technology.

In contrast, the United States wants the IAEA to send the Iranian dossier to the Security Council but does not have support for this on the agency's board.

IAEA chief Mohamed ElBaradei said in Vienna Monday that cooperation from Iran had so far been "less than satisfactory," even though Iran says it has met its side of the bargain.

The IAEA, which has been investigating Iran's nuclear programme since February 2003, is still grappling with two main remaining issues -- contamination of some equipment by highly enriched uranium (HEU) and Iranian research into advanced P-2 centrifuges capable of making weapons-grade uranium.

ElBaradei told the board Monday that the two questions remained open, especially since "information provided by Iran with regard to the P-2 centrifuge program, after repeated requests, has been changing and at times contradictory."

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