The 35-nation board of the International Atomic Energy Agency (IAEA) was set to meet Thursday at 3:00 pm (1300 GMT) to consider a resolution put forward by EU negotiators Britain, France and Germany calling on Iran to stop the sensitive nuclear fuel work, a spokesman said.

While the draft resolution, seen by AFP, stops short of calling for the matter to be taken to the UN Security Council for possible sanctions, as Washington wants, it sets a September date for a report on the Islamic country which could pave the way to referral, diplomats said.

The EU and US are trying to find a consensus on how to rein in Iran, after it raised the stakes in its row with the international community on Wednesday by breaking the seals placed by IAEA inspectors on the uranium conversion plant in Isfahan.

The move gave the facility full operational capacity after Iran ended a nine-month shutdown there on Monday.

Iran has been under investigation for more than two years by the IAEA , which has accused it of hiding controversial nuclear work but has yet to find any proof of a weapons programme.

Conversion turns uranium ore or yellowcake into a feed gas for enriching uranium, which can be the fuel for reactors or the explosive core of atom bombs.

Washington has taken the most hardline stance, accusing Tehran of using a civilian nuclear program as cover for a quest for atomic weapons, a charge Iran denies.

While defying the international community by reopening the plant, Iran also showed flexibility this week when hardline president Mahmoud Ahmadinejad said he would put forth new proposals to keep negotiations with the EU going.

France, Britain and Germany have headed the negotiations on behalf of the EU bloc.

The European trio is trying to break a deadlock on the board over pressing Iran to stop fuel activities it resumed after having suspending them in November to get the EU talks going.

In Washington, deputy State Department spokesman Adam Ereli said the US hoped the IAEA meeting would "send Iran a strong message" on the need to stop uranium conversion.

But he also signaled that Washington was ready to give Tehran some more leeway.

"What we're trying to do, frankly, is to give Iran a chance to do the right thing," the spokesman told reporters.

Analysts have said Washington might find it hard if Iran is taken to the Security Council to garner broad support for sanctions, with Europe, Russia and China anxious to avoid jeopardizing their access to oil and lucrative trade. Iran considers its right under the Non Proliferation Treaty (NPT) to make nuclear fuel as part of a peaceful atomic program.

At the United Nations, Secretary General Kofi Annan urged Iran the European powers to continue their talks to break the impasse and avoid any action that might lead to further escalation.

"I believe that the best way to break the impasse is to continue the discussions" between Iran and the EU-3, the UN chief said after a luncheon with Japan's UN envoy Kenzo Oshima, the president of the UN Security Council for August.

China's UN ambassador Wang Guangya said it would not be helpful to haul Iran before the Security Council.

"We all want a peaceful solution to the Iranian issue. So I think the best place is the efforts between the EU and (the) Iranians or the IAEA," Wang said.

The EU's IAEA draft resolution, which is opposed by non-aligned states on the agency's board, "urges Iran to re-establish full suspension of all enrichment-related activities including the production of feed material, including through tests of production at the Uranium Conversion Facility" in Isfahan, according to a copy of the text obtained by AFP.

A diplomat close to the IAEA said non-aligned nations "do not want a resolution on Iran", fearing this could isolate Tehran and cause a backlash.

The diplomat said Europe as well as the United States want to see the resolution adopted and for another IAEA board meeting to be held in early September to haul Iran before the Security Council for possible sanctions if it is still making nuclear fuel.

The draft resolution calls for IAEA director general Mohamed ElBaradei "to provide a comprehensive report on the implementation of Iran's NPT safeguards agreement" by September 3, in a filing that would set the stage for a board meeting.

EU diplomats expressed confidence the draft would be adopted by the IAEA's board Thursday.

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