The negotiations were being held at an undisclosed location in the French capital and conducted at "senior official" level, with the troika of Britain, France and Germany representing the 25-nation EU.

"It is part of the continuing diplomatic process aimed at finding a resolution with Iran ahead of the meeting of the International Atomic Energy Agency (IAEA) in the week starting November 25," a British diplomat said.

"There are various proposals and packages on the table but our policy is not to discuss them with the press. All I can say is that we are very keen to get an agreement before the IAEA meeting," he said.

The United States hopes that the Vienna-based IAEA will decide to take Iran before the Security Council for running what Washington claims is a secret nuclear weapons programme, and that the UN will then impose economic sanctions.

To avert that outcome, the Europe Union is trying to persuade the Islamic Republic to suspend uranium enrichment, a process which makes fuel for civilian reactors but which can also be used to manufacture the material for the explosive core of atomic weapons.

Diplomats in Vienna told AFP Thursday that the two sides were edging towards a possible compromise under which Tehran would agree to a six-month suspension in order to give time for a broader agreement and avoid the threat of sanctions.

The idea was put forward in a paper passed to the Iranian side on Tuesday. "This paper fudges the uranium enrichment question by saying suspension needs to hold until the conclusion of negotiations over the long-term status of Iran's program," said a Western diplomat who requested anonymity.

Tehran has till now resisted Europe's demand for an indefinite suspension, arguing that it would infringe its right to maintain a civilian nuclear power programme.

Europe's three powers are offering Iran nuclear technology, including access to nuclear fuel, increased trade and help with Tehran's regional security concerns if the Islamic Republic halts enrichment.

In Brussels EU heads of state and government issued a statement Friday opening the prospect of a lucrative trade pact for Tehran if agreement is reached.

"If the present exchanges resulted in a successful conclusion, the European Council (of EU leaders) agreed that the negotiations on a Trade and Cooperation Agreement should be resumed as soon as suspension was verified," they said.

Officials in Tehran said earlier that the atmosphere surrounding Friday's talks was more relaxed than it had been at previous meetings, and a senior Iranian negotiator Hossen Mousavian said he was "optimistic" a deal would be struck.

Iran's supreme leader Ayatollah Ali Khamenei used Friday prayers to deny that the country had plans to develop nuclear weapons.

Addressing himself to newly re-elected US President George W. Bush live on national television, he said: "No sir, we are not seeking to have nuclear weapons. Our nuclear weapon is this country, and the youth of its people."

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