Iran was given a two-week deadline expiring Saturday to give a final answer to a package of incentives offered by the five permanent UN Security Council members plus Germany aimed at persuading it to freeze its sensitive nuclear activities.

But Iran has rejected any deadline, saying it was only agreed that it would during a two-week period examine the proposal put forward by the international community.

The US State Department said Wednesday that the Iranians were aware of and had acknowledged the Saturday deadline following talks in Geneva on July 19 with representatives of the six powers, including EU foreign policy chief Javier Solana.

Asked about Tehran's insistence that it was not subject to any deadlines, contrary to expectations of the international community, department spokesman Sean McCormack said, "There are consequences diplomatically for defying the just demands of the Security Council.

"It's clear. This is the other side of the two-track approach," he said referring to the longstanding carrot and stick approach pursued by world powers in dealing with Iran's refusal to end uranium enrichment, a process that could be used to develop a nuclear bomb.

"Nobody is really desirous of going down that pathway. The P-5 plus one does not want it," McCormack said.

But he warned, "This is serious stuff and we along with the P-5 plus one are absolutely prepared to go down that pathway should the Iranian regime take the world down that pathway."

McCormack's spoke after Iran's supreme leader Ayatollah Ali Khamenei said on Wednesday that the country will not retreat in the face of demands by world powers for Tehran to halt enrichment activities.

"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.

"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.

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