However, with a UN diplomatic source in New York saying preliminary work on drafting a sanctions resolution is likely to begin in mid-January, President Barack Obama's team is keeping its options open.

"Even as we leave the door open to engagement," world powers agree that Iran will pay the consequences if it does not meet its international nuclear obligations, said Darby Holladay, a State Department spokesman.

The five permanent members of the UN Security Council -- the United States, Russia, China, France, and Britain -- plus Germany are "in the process of considering next steps consistent with our dual-track policy," he told AFP.

A senior State Department official told AFP on the condition of anonymity that the Obama administration was "pivoting" toward imposing more sanctions against Iran while keeping "the door open to engagement."

Secretary of State Hillary Clinton said two weeks ago that Iran had failed to build confidence.

For example, she said Iran has balked at a US-backed International Atomic Energy Agency (IAEA) proposal to ship abroad low-grade nuclear fuel so it can be further enriched and returned to refuel a Tehran medical research reactor.

Such a move would buy breathing room as the big powers try to halt Iran's uranium enrichment -- which the West fears masks a drive to build a nuclear bomb. Denying the charge, Iran says it seeks peaceful uses of nuclear energy.

Also undermining international confidence, Clinton said, is Iran's continuing crackdown on peaceful opposition to Iran's disputed election in June that gave incumbent Mahmoud Ahmadinejad another term in office.

She said Iran also fanned fears about its intentions when it failed to come clean on a secret uranium enrichment plant near the holy city of Qom, and noted that Iran has subsequently announced plans for 10 to 20 new nuclear plants.

A UN diplomat said on the condition of anonymity that there is "growing concern" among the P5-plus-1 over Iran and preliminary work on a new sanctions resolution is "expected to start (in New York) in mid-January."

One Western country "believes new sanctions should target the insurance, banking and financial sectors," the diplomat said, declining to name the country.

Several diplomats said the United States and at least some of its Western partners want to avoid hitting Iran's life blood -- its energy sector -- for fear it would trigger a broad-based Iranian nationalist reaction.

They also doubt such sanctions would gain the support of China and Russia, which have been more reluctant than the Western powers to impose sanctions.

They stressed it is both important not to hurt the Iranian people -- who are already suffering from the political turmoil -- and to keep the door open to talks, as some in the country's leadership appear more willing to engage than others.

Analyst Karim Sadjadpour suspects Washington may target the Revolutionary Guards, which "are managing Iran's nuclear program, liaising with extremist groups throughout the Middle East, and overseeing the brutal suppression of non-violent protestors."

Sadjadpour, an analyst with the Carnegie Endowment for International Peace, told AFP that punishing the Guards "makes sense because it potentially kills several birds with one stone," without alienating the Iranian opposition.

Suzanne Maloney, a former State Department official, said "the administration has paved the way as for sanctions as carefully as possible" even if UN Security Council debate will be difficult.

"Still, there seems to be a sense that the Russians will come through this time around, and that this will facilitate Chinese cooperation and a more meaningful set of multilateral measures," Maloney told AFP.

Maloney, who works for the Brookings Institution's Saban Center, said that she remains skeptical nonetheless about whether sanctions will change Iranian behavior.

In London, a Foreign Office spokeswoman declined to be drawn Thursday on the prospect of further sanctions, saying only: "It's important that all countries comply with UN Security Council resolutions."

"We will need to consider our response in partnershikp with the IAEA and others including the E3+3," she added.

Prime Minister Gordon Brown has raised the prospect of new sanctions if Tehran refuses to engage with the West, although his spokesman stressed last month that "The priority always is to get the talks to work.

All rights reserved. � 2005 Agence France-Presse. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by Agence France-Presse. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of Agence France-Presse.