"Taking one step back against arrogant (powers) will lead to them to take one step forward," Khamenei was quoted as saying by state television in a sermon.

His comments come just ahead of a Saturday deadline for Iran to respond to a package of incentives aimed at persuading it to freeze uranium enrichment, a process that makes nuclear fuel but also the core of an atomic bomb.

"The idea that any retreat or backing down from righteous positions would change the policies of arrogant world powers is completely wrong and baseless," said Khamenei, who has the final say on all key policy issues in Iran.

Iran has been slapped with three sets of UN Security Council sanctions over its refusal to halt enrichment. It insists it has the right to nuclear technology as a signatory to the nuclear Non-Proliferation Treaty and denies Western claims it is seeking to build atomic weapons.

"Today it is time for the Iranian nation to move ahead with awareness and add to its knowledge and capabilities," Khamenei said.

"The horizon is bright for us and we know what we are doing and where we are going... the way to reach that point is not to stand but to go."

Iran on July 19 held talks with representatives of major powers including EU foreign policy chief Javier Solana and for the first time an official from Tehran's arch-foe the United States, William Burns.

Iran was given until Saturday to give its final answer to the package put together by six nations and delivered to Tehran in June.

But Iran has rejected any deadline, saying it was agreed in Geneva that it would during a two-week period examine the proposal put forward by permanent UN Security Council members Britain, China, France, Russia and the United States plus Germany.

Neverthless, Iranian officials have spoken positively about the latest negotiations over the nuclear crisis.

Iranian President Mahmoud Ahmadinejad said on Tuesday that Tehran would continue the talks provided they are "on an equal footing," while top nuclear negotiator Saeed Jalili said they were "positive and progressive."

Tehran, OPEC's second biggest oil exporter, insists that its nuclear activities are aimed at generating energy for its growing population.

"Those who make atomic bombs and those who are a menace to the calm and security of mankind are just brainless thugs who are flexing their muscles and shouting off," Khamenei said.

"They are aware that the Iranian nation is seeking nuclear energy to supply electricity. But because they know it empowers our nation, they say they will not allow it."

Iran's main foes, the United States and Israel, are leading the campaign against Tehran's nuclear programme and have not ruled out resorting to military action.

The United States and Russia have the largest nuclear weapons arsenals stockpiles in the world. Israel is widely believed to be the only nuclear power in the Middle East but has a policy of neither confirming nor denying its arsenal.

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