At a major security conference in Munich, Germany, US Vice President Joe Biden said Washington was prepared to offer the Islamic republic incentives to stop uranium enrichment but stressed it faced isolation if it did not comply.

"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," he said.

The new US administration of President Barack Obama is "reviewing" Iran policy, Biden told an audience of world leaders and decision-makers in a major foreign policy address.

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

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

Iran denies 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.

To convince Iran to suspend enrichment, which at highly refined levels can be used to make an atomic bomb, major powers have offered it a package of political and economic incentives.

Biden's comments marked a break 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.

German Chancellor Angela Merkel, whose country has joined the five permanent UN Security Council members in trying to resolve the standoff, warned Iran that diplomacy could not drag on as it has for several years.

"We need to be ready for tougher sanctions," she said. "It is a must to stop Iran having nuclear weapons."

But sanctions require the agreement of all five security council veto-holders, and Russia and China have proved difficult to bring on board.

Russia, notably, has been building a nuclear power plant in Iran and has resisted calls for tougher sanctions, and French President Nicolas Sarkozy urged Moscow 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.

On Friday, Iranian parliament speaker Ali Larijani -- once Tehran's top nuclear negotiator -- railed here against past US policy but left the door ajar to the Obama administration.

"If there were a change in strategy by the United States ... and they would come to the chess game, it would be in their interests and the interests of the whole region," he said.

Larijani held talks Saturday with EU foreign policy chief Javier Solana, who has been negotiating with Tehran on behalf of the major world powers.

An EU diplomat said it was important to "keep the lines of communication open" with Iran, particularly as presidential elections approach.

"What we need to do now is work out how we boost the sanctions, and the carrots" in the package of incentives, the diplomat told AFP, on condition of anonymity.

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