"I hope that their proposals will, as agreed, allow for the resumption of (conversion) activities at Isfahan," Khatami told reporters, referring to a key nuclear plant in central Iran.

"But whether they do or not, we're going to resume the activities at Isfahan," added the outgoing reformist president.

Khatami, who hands over office to ultra-conservative Mahmood Ahmadinejad in early August, announced the decision after a cabinet meeting and said it had been taken at an earlier gathering of top leaders of the regime.

The president gave no date for the resumption of conversion, the process that turns uranium ore into a gas as a precursor to enrichment.

But he said the "deadline" for ending the suspension was the end of July or beginning of August when the EU-3 of Britain, France and Germany are supposed to submit a detailed package of proposals on the future of Iran's nuclear programme.

Iran suspended both conversion and enrichment last November as part of talks with the European Union on providing guarantees that its nuclear programme is exclusively civil in return for a package of incentives.

The Europeans want Iraq to give up conversion and enrichment indefinitely but Iran is adamantly opposed, insisting on its right to produce its own fuel for its reactors under the nuclear Non-Proliferation Treaty.

"Iran knows the consequences if it begins activities that have been suspended up until now, which can only be negative for Iran," said Cecile Pozzo di Borgo, deputy spokeswoman for the French foreign ministry.

But she added the European offer "will allow a more open perspective for new relations between Iran and Europe."

Khatami reiterated Iran's contention that conversion is separate from enrichment, a position rejected by the Europeans.

"For the moment, there is no question of resuming enrichment itself. We're only talking about Isfahan but one day we will resume our enrichment activities too," he said.

The EU three have warned Iran that if it resumes either conversion or enrichment they will back US demands for it to be referred to the UN Security Council for possible sanctions.

US President George W. Bush has refused to rule out military strikes if necessary to stop Iran developing a nuclear weapon. Washington insists the whole nuclear programme is just a cover for weapons development.

"America threatens a lot but, with all their worries in Iraq and the world, I think they would never do anything so senseless," Khatami said.

"If America were to commit such an error, of course we would have losses but theirs would be bigger," he said, insisting he had no desire to raise tension with Washington.

"My government and I have made all the political, military and economic preparations for any such attack."

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