Britain, France and Germany are still hoping to convince Iran to limit work on the nuclear fuel cycle as an "objective guarantee" the process will not be diverted to make weapons. Their offer of trade and other incentives has already been rejected.

"We have sent a message to the Westerners that we will resist to the end in order to master civil nuclear technology and will not give up our rights," ultra-conservative President Mahmoud Ahmadinejad said this week.

Reflecting the sentiment among many Iranian officials that they are in a position of strength -- given that oil prices are high and the US is bogged down in Iraq -- the president boasted that "they have seen our firmness and have backed down."

The International Atomic Energy Agency in September found Iran in non-compliance with the nuclear Non-Proliferation Treaty, paving the way for a Security Council referral if Iran does not halt nuclear fuel work and cooperate fully with an IAEA investigation.

But rather than immediately push for the case to go to New York, EU diplomats are now focussing on a proposal from Moscow that would involve Iran being able to conduct ultra-sensitive uranium enrichment work only on Russian soil but at the same time maintain some fuel cycle capabilities.

But this idea too has been shot down by Tehran -- which maintains that nuclear fuel cycle work is perfectly legal under the terms of the Non-Proliferation Treaty.

The proposal's rejection by Iran came before Russia even had a chance to formally present it and before the EU-3 had the opportunity to fix a date and venue for renewed talks to discuss it.

Diplomats at the IAEA in Vienna say the two sides are bickering over substance and form of any meeting.

The message from Tehran seems to be perfectly clear: nuclear power is a matter of rights, pride, security and regime survival, and any compromise is out of the question -- regardless of the consequences.

"If we abandon the nuclear fuel cycle, in 30 or 40 years we will have no more oil and then the countries that have the nuclear fuel cycle will create some kind of nuclear OPEC and say: 'If you want fuel, you will have to change your foreign policy and culture'," is the reasoning of Iran's top negotiator, Ali Larijani.

Speaking to a gathering of Revolutionary Guards, the hardliner signalled a possible further step away from a suspension of enrichment-related work. In August, the country had already ended a freeze on uranium conversion agreed with the EU-3 in November 2004 by Iran's former, more moderate negotiating team.

"In my view the suspensions accepted by Iran were unreasonable. The suspension of enrichment was enough to build confidence, but the halt in making (centrifuge) parts and conducting research was not justifiable," he was quoted as saying.

"The Westerners will have to get used to our new attitude," he said, before adding -- in a comment that one EU diplomat described as particularly worrying -- that "if Iran goes nuclear, nobody will be able to challenge it because the stakes would be too high."

Although EU diplomats close to the talks insist they are engaged in a long-haul process, they admit that at present their two-year-old effort remains entirely deadlocked.

"The Iranians are digging in. Everytime we speak to an official, we hear the same thing: 'What can you do to force us to give up nuclear technology?'," said one European diplomat.

"We want to give the Russian proposal a chance, but let's just say a Security Council referral is still on the cards."

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