Iran defiant in nuclear row

TEHRAN (Reuters) - Western powers are warning Iran of more sanctions if it rejects an incentives offer and presses on with sensitive nuclear work, but the Islamic Republic is showing no sign of backing down.

On Saturday, Iran again ruled out suspending uranium enrichment despite the offer by six world powers of help in developing a civilian nuclear programme if it stopped activities the United States and others suspect are designed to make bombs.

"The deadlock is still there," an Iranian political analyst who declined to be named said a day after European Union foreign policy chief Javier Solana delivered the incentives package to Iran's Foreign Minister Manouchehr Mottaki.

Solana said Iran should stop enrichment during negotiations on the offer, a precondition it has repeatedly rejected.

"There is determination that if the Iranian regime rejects the latest offer ... that the consequence of the regime's decision will result in greater isolation," said Stephen Hadley, national security adviser of U.S. President George W. Bush.

Hadley was speaking to reporters aboard Air Force One on Sunday during Bush's farewell tour of Europe, where he received offers of support for efforts to prevent Iran from obtaining nuclear weapons.

Iran's refusal to stop enriching uranium, which it says is only for the generation of electricity but which can also provide material for bombs, has drawn three rounds of U.N. sanctions since 2006.

"Suspension of enrichment is by no means acceptable to Iran," one leading Iranian politician, deputy parliament speaker Mohammad-Reza Bahonar, said.

The package agreed by the United States, Russia, China, Britain, France and Germany last month is a revised version of one rejected by Iran in 2006.

Solana said he expected Iran's reply soon but senior member of parliament Alaeddin Boroujerdi said Tehran was in no hurry.

"They will never accept the proposal as it is," one Western diplomat in Tehran said. "As usual they are playing for time."

"BLOW TO WORLD PEACE"

The United States says it wants a diplomatic solution to a standoff that has helped push oil prices to record highs but has not ruled out military action as a last resort.

Bush said on Saturday a nuclear-armed Iran would be "a major blow to world peace."

A top British official said before Solana's Tehran trip: "If they were to reject this initiative, then we would expect there to be further EU sanctions imposed before the end of July."

The three U.N. sanctions resolutions imposed so far were relatively limited in scope -- including targeting individuals, some firms with military links and several banks.

Flush with record oil revenues that have helped it withstand such punitive measures, Iran has long ruled out ending its quest for its own enrichment industry.

The incentives package included help for Iran to develop a civilian nuclear programme with light water reactors -- seen as harder to divert into bomb-making than technology Tehran now has -- and legally binding nuclear fuel supply guarantees.

It also covered trade and other benefits, including the possibility of Iran buying civil aircraft from the West.

"We are offering a proposal which we would like to be the starting point for real negotiations," said Solana, describing the world powers' offer as generous and comprehensive.

Tehran argues it has the right under international treaties to master the complete nuclear fuel cycle for civilian purposes -- from mining uranium to enriching it. It aims to start test-running its first nuclear power plant at Bushehr this year.

"If the package includes suspension it is not debatable at all," government spokesman Gholamhossein Elham said on Saturday when asked about the incentives offer from major powers.

(Additional reporting by Hashem Kalentari and Zahra Hosseinian in Tehran; Jeremy Pelofsky aboard Air Force One; Writing by Fredrik Dahl; Editing by Mariam Karouny )