Ewen MacAskill, Kasra Naji in Tehran and Chris McGreal in Jerusalem
The British government yesterday set a November ultimatum for Iran to suspend all activities linked to production of a nuclear bomb - a deadline that effectively marks the failure of more than a year of negotiations between Tehran and the European troika of Britain, France and Germany.
Refusal by Iran to comply would produce a new Middle East crisis in which the issue would almost certainly be referred to the United Nations security council, which could opt for punitive action.
Although the deadline is designed to pile pressure on Iran, the early signs from Tehran are that the theocratic regime is unwilling to comply unconditionally and that it is seeking major concessions from the west in return, including a trade agreement and transfer of civil nuclear technology.
A British official said yesterday that Iran must comply by the November board meeting of the International Atomic Energy Agency (IAEA), the UN watchdog body.
"Iran needs to meet its commitments. We would like it to meet its commitments before then, but if it doesn't, Iran needs to know and it needs to know now, that there is going to be a decision point in November and at that point a very serious option ... is referral to the United Nations security council," he said.
"We cannot have any kind of negotiation that goes on forever. At some point you have got to decide whether negotiating further makes sense, or whether you need to do something else."
The new position was agreed by British, French and German foreign ministers at a meeting in the Netherlands at the weekend.
The German chancellor, Gerhard Schröder, yesterday warned that Iran's nuclear activities were "extremely alarming" and the German foreign minister, Joschka Fischer, described the prospect of a nuclear arms race in the Middle East as the "nightmare scenario".
Israel is the only Middle East country with the nuclear bomb.
A French government source echoed the British and German positions, saying that Iran had reneged on commitments it had given to the European trio in Tehran last year.
The US, Israel and the Europeans all claim Iran is covertly engaged in building a nuclear weapon.
Tehran denies the accusation, insisting its nuclear programme is purely for the production of electricity.
The European countries' new position brings them closer to the US, which is hawkish on Iran and has long expressed scepticism about the European policy of "constructive engagement".
If the security council opted for punitive action, the likeliest course of action would be sanctions.
But senior members of the US administration have in recent months threatened Iran with more serious options, including covert military operations, and Israel has warned it could mount a pre-emptive strike against an Iranian nuclear reactor.
An Iranian source said this week that the Bushehr plant in southern Iran, being built with Russian help since the early 1990s, was scheduled for completion within the next two years.
At a meeting in Vienna on Monday, the IAEA board is expected to reiterate continued concern over Iran's intentions.
Iran this week offered some concessions ahead of the IAEA meeting. But the British official said they were late and were neither clear, nor had been formally put forward.
In a statement, Iran's defence minster, Ali Shamkhani, said yesterday that "Iran will not achieve peace by giving concessions".
On Tuesday, Mr Shamkhani suggested test-firing Iran's nuclear-capable medium-range missile Shahab 3 in front of observers, after press reports abroad suggested that an August 11 test may not have been as successful as Iranian officials had claimed. The missile is capable of reaching Israel.
In an interview with the Jerusalem Post published yesterday, the Israeli prime minster, Ariel Sharon, urged the security council to impose sanctions.
Mr Sharon said he has no doubt Iran was trying to develop nuclear weapons.
"That is their intention, and they are doing it by deception and subterfuge, using this cover or that. This is completely clear," he said. "I don't see that [international pressure"> against them is enough to stop them from obtaining nuclear weapons. And that is a very big danger."
Mr Sharon added that Israel was "taking measures to defend itself".