The strategy was being worked out by European Union negotiators Britain, France and Germany ahead of a UN deadline Saturday for Iran to halt such fuel work, they said.

Iran's determination to proceed with work on nuclear fuel has scuttled talks on guaranteeing that Tehran is not secretly developing nuclear weapons, as the United States claims it is.

The work, which Iran resumed in August after a voluntary hiatus of nearly nine months, has set off an international crisis that threatens almost two years of diplomacy by the so-called EU3 to give the Islamic Republic trade and other benefits if it abandons sensitive fuel activities.

Non-aligned states as well as Russia and China oppose a confrontation over Iran, preferring to try to resolve the crisis diplomatically, especially since the Iranians are doing only preliminary fuel work and not yet making the enriched uranium that can power civilian reactors or be the raw material for atom bombs.

This has forced the United States and its European and other allies to proceed cautiously in order to rally support at both the Vienna-based UN watchdog International Atomic Energy Agency (IAEA) and the Security Council in New York, diplomats said.

With Iran insisting on its right under the nuclear Non-Proliferation Treaty (NPT) to make nuclear fuel, the European trio is now ready to take a hard line when the IAEA meets in Vienna on September 19, they say.

The IAEA's 35-nation board of governors could send Iran before the Security Council, which could impose punishing economic or other sanctions.

A Western diplomat told AFP that if Iran failed to halt the work by Saturday, when IAEA chief Mohamed ElBaradei will be filing a report on Iranian compliance to the board, Britain will press "for a reporting of Iran's case to the Security Council even by a vote, if consensus is not there."

The IAEA traditionally adopts measures unanimously, avoiding votes that can be divisive and dilute the moral force of its decisions, diplomats said.

Britain would "then seek a statement by the president of the Security Council urging Iran to fulfill the requirements set out in IAEA board resolutions" urging it to fully suspend nuclear fuel work, the Western diplomat said.

A second Western diplomat said the idea was for the Security Council to "take up the issue in a way that complements and reinforces the IAEA."

If Iran refuses this "the way they've been denying the IAEA board requests, the Security Council could then consider using its international legal authority to require Iran to take those steps," the diplomat said.

Non-proliferation analyst Gary Samore, a senior fellow at London's International Institute for Strategic Studies (IISS), said the Council will move gradually, if at all, towards actual sanctions unless Iran provokes it by making enriched uranium.

"In the beginning the Council is likely not to do much more than issue a ...resolution" urging Iran to comply, he said, adding that escalating measures short of full sanctions could include banning new investment in Iran's oil and gas industry.

A European diplomat said: "I think that's the only thing you can do, a gradualist approach."

Iran has threatened retaliatory measures if it is taken to the Security Council, with analysts saying this could involve withholding oil from the world market or simply going ahead with enrichment.

Iran has embarked on a diplomatic initiative to win international backing for its right to what it says are strictly peaceful nuclear activities.

Top Iranian nuclear negotiator Ali Larijani said in New Delhi Wednesday that Iran was "fully committed and bound by international regulations relating to the nuclear field."

Larijani has said Iran does not consider the EU3 to be the sole negotiating partner on its nuclear programme.

But no other countries have come forth saying they are willing to hold such talks or have even been asked to do so.

While Larijani had said in Vienna last week that he would like to see non-aligned nation South Africa involved, Abdul Samad Minty, South Africa's governor on the IAEA board, told AFP: "We have not had any formal consultation on this matter."

Speaking by telephone from South Africa, Minty said his country would like to see the EU3-Iran negotiations resume.

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