Outlook for nuclear "package diplomacy" on Iran gloomy

By Parisa Hafezi and Edmund Blair - Analysis

TEHRAN (Reuters) - Reports are being issued, offers are on the table, sanctions in the air. Two years after world powers first offered Iran incentives to forego uranium enrichment, Tehran is still calling the shots.

In what Iranian state media dub "package diplomacy", the Islamic Republic and six world powers propose rival plans to end a stalemate over Iran's atomic ambitions. Both, like those that went before, seem destined for the shredder of history if Iran continues uranium enrichment and the West demands its cessation.

"I do feel that everyone diplomatically is treading water," said Ali Ansari of the University of St Andrews in Scotland.

The shadow dance between the West and Iran is mirrored in domestic rivalries between hawks and doves in Tehran and differences between the powers over what sanctions can achieve.

Washington's exasperation is scarcely concealed, its pronouncements tending often to the bellicose, while China and Russia, closer trading partners of Iran, are more restrained.

The diplomacy comes before this month's report by U.N. watchdog, the International Atomic Energy Agency (IAEA), and after talks with Tehran about allegations it conducted covert studies into designing a nuclear warhead. Iran denies this and the broader Western allegation it is pursuing nuclear arms.

The five permanent members of the U.N. Security Council -- the United States, Britain, France, China and Russia -- plus Germany, known as the 5+1, are offering incentives to coax Iran to halt uranium enrichment, their main precondition for talks.

With the United States embroiled in election debates and battling violence in Iraq, Iran appears confident any refusal to rein in nuclear work will not bring serious repercussions -- even though Washington has not ruled out military action.

"If they are convinced that the West is not in a position to take serious action against them ... I don't think they will accept any incentives," said one Iranian analyst in Tehran.

NEW LOGIC

Details of the latest 5+1 overture have not been released, but Iran rejected the 2006 version of trade, nuclear and other incentives which was the basis for the new initiative.

Privately, some Western diplomats admit that after three U.N. sanctions resolutions since 2006 -- all demanding Iran halt enrichment and all ignored -- the powers must think again.

"The next resolution should probably be in a new logic -- stronger and really going into serious sanctions. The Iranians think it is never go to work," said one Western diplomat.

The last three resolutions were relatively limited in scope -- including targeting individuals, some firms with military links and several banks. Although analysts say they have had some economic impact, Iran brushes them off and says its windfall oil earnings are cushioning the blow.

Any "new logic" may hinge on the winner of this year's U.S. presidential race, where views on handling Iran differ starkly. The two countries have not had diplomatic ties since 1980.