Despite nine months of intensive diplomacy by European negotiators Britain, France and Germany who are offering trade, technology and security incentives in return for Iran agreeing not to make nuclear fuel, Iran on Saturday rejected the EU deal.

Diplomats cautioned that the Iranians may yet change their minds in what is a chess-like game of brinkmanship, as deadlines fall on Western threats to ask the Vienna-based International Atomic Energy Agency (IAEA) to send Iran before the United Nations Security Council which could impose punishing international economic sanctions.

But the Iranians do not seem to be swallowing the bait of guaranteed shipments of nuclear fuel, a promised trade agreement with the European Union and help in getting into the World Trade Organization (WTO), with the United States supporting the European deal.

And the European trio's hardline stance in calling last week for an emergency meeting of the IAEA's 35-nation board of governors risks backfiring.

The Europeans wanted the meeting to be a warning to Iran, a means of convincing Tehran to maintain its suspension of fuel cycle activities so that talks can continue, rather than the endgame of stopping negotiations and sending the issue to the Security Council.

But "the Iranians are quite annoyed about the IAEA meeting being called before they had reacted to the EU proposals," which were submitted Friday, a Western diplomat close to the IAEA told AFP.

The diplomat said the Iranians, who have said they wish to work under IAEA safeguards, may now be angry enough to break the agency's seals at a uranium conversion plant in Isfahan which they want to re-start.

"They are clear about wanting to go ahead with this facility and are not going to wait to be condemned (by the IAEA board) before they do it," the diplomat said.

Hardline Iranian President Mahmood Ahmadinejad summed up Iran's insistence on its rights under the nuclear Non-Proliferation Treaty (NPT) to do fuel cycle work when he warned at his swearing-in ceremony in Tehran Saturday that his country would not accept "tyranny".

And as for the threat of Security Council referral, foreign ministry spokesman Hamid Reza Asefi said: "If one day, Iran's case is referred to the UN Security Council, we are not worried. If the Europeans choose this way, it's up to them to see if it's to their benefit or not."

The EU offer would allow Iran to pursue peaceful nuclear energy activities but Asefi said the proposals were "unacceptable ... they provide no guarantees for Iran's interests and are contrary to the Non-Proliferation Treaty."

Iran has repeatedly said its suspension of uranium conversion and enrichment, agreed on in November to get the talks with the EU going, is temporary and voluntary, as both activities are allowed under the NPT.

Diplomats said Iranian intransigence may be fed by anger that the United States is helping India with its nuclear program, despite the fact that India is a nuclear weapons power which has not even signed the NPT.

Iran is also concerned the Europeans cannot deliver on their promises, such as making nuclear technology available, unless the United States lifts its embargo against Iran and joins fully in the EU offers.

The United States, which is not a party to the EU deal offer, charges that Iran is using its civilian nuclear program as a cover to secretly develop atomic weapons and should not be allowed the "break-out capacity" that making fuel, which in highly refined form can be bomb material, represents.

Also, the Iranians may be calculating that Russia, which is building Iran's first nuclear power plant and is to supply it with nuclear fuel, and China, a big client of Iranian oil, would not back sanctions at the Security Council.

However, Washington-based non-proliferation analyst Joe Cirincione said Iran may be surprised.

Asked "Will the Russians continue to provide Iran with a nuclear capability if the matter goes to the UN Security Council?, he replied: "What the Iranians would be betting on is that Russia and China will continue trading with them no matter what, and that's a risky bet."

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