"We will be willing to talk to Iran, and to offer a very clear choice: continue down the current course and there will be continued pressure and isolation; abandon the illicit nuclear programme and your support for terrorism and there will be meaningful incentives," Biden said.

The new US administration of President Barack Obama is "reviewing" Iran policy, Biden told an audience of foreign leaders and other officials in a major foreign policy address at the annual Munich Security Conference.

"The Iranian people are a great people, and Persian civilisation is a great civilisation," Biden said.

"But Iran has acted in ways that are not conducive to peace in the region or to the prosperity of its own people; its illicit nuclear programme is but one of those manifestations."

Biden's comments underlined a key difference between Obama and his predecessor, former president George W. Bush, who once labelled Iran a member of the "Axis of Evil". US-Iran relations have been frozen for three decades.

The United States and its Western allies believe Iran is aiming to develop atomic weapons under the guise of a civilian nuclear energy programme.

Tehran denies that its nuclear programme is military in nature and has pressed on with uranium enrichment, insisting that it will be used solely for peaceful purposes geared toward electricity generation.

Washington has also accused Tehran of supporting terrorist groups such as Hamas and Hezbollah and providing arms to groups in Iraq opposed to the presence of US troops there.

European leaders present at the Munich conference on Saturday also urged action on Iran's nuclear programme.

German Chancellor Angela Merkel called for tougher sanctions against Iran if Obama's new diplomatic efforts fail to convince Tehran to change its ways.

"We need to be ready for tougher sanctions," she said, with Biden listening in the audience. "It is a must to stop Iran having nuclear weapons."

Meanwhile French President Nicolas Sarkozy, seated alongside Merkel, urged Russia -- a veto-wielding member of the UN Security Council, which has slapped a series of sanctions on Iran -- to help mediate with Tehran.

"It's up to Russia to demonstrate what face it wants to show the world. If it wants peace, it should show it. If it wants to be a major world player, then it should help us resolve the crisis with Iran," he said.

Russia has been building a nuclear power plant in Iran and has resisted calls for tougher sanctions.

Major world powers have offered Iran economic and energy incentives in exchange for halting uranium enrichment but the Islamic Republic has so far remained defiant on their calls.

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