The Iranian government sent a letter Sunday to the UN watchdog International Atomic Energy Agency (IAEA) withdrawing its demand to exempt 20 centrifuges from a freeze of nuclear fuel cycle activities and accepting full suspension of uranium enrichment, Iranian nuclear negotiator Hossein Moussavian told AFP.

Hardliners in Iran had said the exemption should be maintained for research purposes but Moussavian said: "I confirm from my side that we have delivered the letter to the IAEA to confirm that Iran will permit the IAEA to place these components, 20 centrifuges, under agency surveillance."

"Iran will not conduct any testing (of the centrifuges)," Moussavian said.

EU negotiators Britain, France and Germany had given Iran until late Sunday to agree to a full freeze, based on an agreement they had already worked out in Paris on November 7.

If Iran did not finally comply, the European trio were ready to propose a tough resolution at an IAEA meeting, which was supposed to end after two days on Friday but was adjourned until Monday due to the deadlock, diplomats said.

With Iran agreeing to a full suspension, the European trio submitted Sunday a relatively soft draft resolution on Iran's nuclear program, diplomats said.

The text is expected to be adopted by consensus by the IAEA on Monday.

The United States wants the IAEA to send Iran before the UN Security Council, which could impose sanctions, for what it says is a covert nuclear weapons program but this is almost totally unlikely now that Iran has agreed to a full suspension and accepts the European resolution, diplomats said.

The European trio has for over a year been working for "constructive engagement" towards Iranian cooperation with the IAEA rather than confrontation with Iran.

The trio brokered an uranium enrichment suspension in October 2003 that fell apart when Tehran continued making centrifuges.

US officials said Washington was ready to back the latest European proposal as long as Iran fully suspended uranium enrichment, the process that uses centrifuges to make fuel for nuclear reactors but what can also be the explosive core of atomic bombs.

A European diplomat cautioned however that this freeze, which Iran had originally agreed to with the European trio on November 7 in Paris, and the draft resolution were "certainly a big step forward but it's not the end of the story."

"There are still difficult questions about Iran's enrichment program," with Iran wanting the freeze to be temporary and the EU, as well as the United States, seeking for it to be permanent, the diplomat said.

It also was not clear if Iran was not simply trying to delay the IAEA.

Moussavian told AFP Iran would "discuss further with the EU3 (Britain, Germany and France) in December when discussions for a long-term arrangement (on the freeze) commence."

It was not clear if this meant that Iran plans to review in December, once the IAEA board meeting is out of the way, whether centrifuges can be used for research, diplomats said.

The surveillance of the 20 disputed centrifuges is to be by camera, rather than seal, in what was a face-saving gesture for Iran, but Tehran had also originally said the centrifuges should be able to be used while under camera surveillance.

Gary Samore, of London's International Institute for Strategic Studies (IISS) think tank, said Iran may be trying to concede just enough to avoid having the IAEA send it to the UN Security Council for possible sanctions, and then work towards resuming its nuclear program.

In any case, the draft resolution was a painstaking compromise between US hardline demands and Iranian threats to stop cooperating, diplomats said.

The resolution calls for continuing investigations into sensitive aspects of Iran's program as agency chief Mohamed ElBaradei has said that while no diversion of nuclear materials for weapons purposes has been detected, he can not yet rule out that there is covert activity.

Moussavian said the last problem in the resolution had been a phrase that "underlines that the full and sustained implementation of this confidence-building measure is essential to addressing outstanding issues."

Diplomats said the word "essential" was left in while Iran won a re-working to add the phrase "not legally binding," as it claims it has the right to enrich uranium according to the nuclear Non-Proliferation Treaty (NPT), even it is for now voluntarily agreeing to a freeze.

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