United Nations Secretary General Kofi Annan has said Iran was keen on pursuing "serious and constructive" negotiations with Britain, France [Images] and Germany [Images] on its nuclear programme even as the three nations said Tehran should be referred to the Security Council.

Hours after the three countries, E3, said their two and half years of talks with Iran on curbing its nuclear programme had reached an impasse, Annan called for giving diplomacy time to resolve the issue.

Annan's comment came after he had a 40-minute telephonic talk with chief Iranian negotiator Ali Larijani Thursday who reaffirmed that his country is interested in negotiations, but within a time frame.

• The Iran vote and after

"Basically, I called him to urge him to avoid any escalation, to exercise restraint, to go back and give negotiations a chance and that the only viable solution lies in negotiations," Annan told reporters.

"He in turn affirmed to me that they are interested in serious and constructive negotiations, but within a time frame," Annan said.

But he warned that once the negotiation process fails, it would be for the Security Council to decide what action to take. "I wouldn't want to preempt them," he said.

Western diplomats cautioned that Iran might be trying to buy time to continue on its path to develop nuclear weapons and pointed out that it had not offered to reseal the facilities and equipment from which it had broken seals put by the International Atomic Energy Agency.

Taking cue from EU3 statement that the talks had reached a dead end, the United States immediately intensified the pressure on Iran, accusing it of defying the international community and failing to prove that its nuclear programme is for solely peaceful purposes.

American Secretary of State Condoleezza Rice [Images] joined her British, French and German counterparts in demanding that Iran end its "dangerous defiance" of the international community and abandon its enrichment activities, but stopped short of demanding that sanctions be imposed on Tehran.

"Nobody is saying that there have to be immediate sanctions in the Security Council. Everybody wants to give the Iranians a chance to reconsider their position," she told CBS News.

While demanding that Iran fall in line with the demands of IAEA, Rice also did not completely rule out the possibility of military action.

"The president of the United States never takes any of his options off the table," she said.

But apparently to assuage the feelings of Europeans some of whom see same pattern as before the Iraq war in the American statements, she said the military action is not on the agenda at this point. "We are on a diplomatic track," she added. 

Diplomats said the United States is likely to face a tough situation if it calls for sanctions as it would have to convince both Russia [Images] and China, who have veto power, to go along or at least abstain if it can find nine affirmative votes in 15-member council.

Iran insists that its nuclear programme is for producing power and other peaceful purposes, but Western nations say that it is using this as a cover to develop nuclear weapons.

The Security Council is the only organ of the United Nations which can impose sanctions, but so far no one is talking about them.

Diplomats say that IAEA board would have enough votes to refer the issue to the council should the United States and EU3 insist, but they are not sure how the things would work out once the council take charge of the issue.

The diplomats say Russia has indicated it would not oppose reference to the council after Iran rejected its proposal offering to enrich uranium for power production.

But they said the United States is pressing Moscow [Images] to cast an affirmative vote rather than abstain.

Western diplomats are talking in terms of limited sanctions which could include travel and trade ban, but not on sale of oil.

Officials say sanctions normally should not stop the sale of oil already contracted by the world's fourth largest oil exporter.