"The Iranians need to hear that if they are unwilling to live with verification measures... then the Security Council referral looms," Rice told the US Fox News television channel, alluding to Iran being referred to the UN Security Council for possible economic sanctions.

"I don't know that anyone has said that as clearly as they should to the Iranians," said Rice, who was in Brussels on a European tour.

But in an apparent attempt to soften her criticism of the Europeans, Rice later told a news conference: "I think a diplomatic solution is in our grasp if we have unity of message and unity of purpose."

US President George W. Bush said he was "very pleased" with European leaders' response to Rice's call for a harder line on Iran's nuclear program.

"The Iranians just need to know that the free world is working together to send a very clear message: Don't develop a nuclear weapon," Bush said in Washington.

Iranian Foreign Minister Kamal Kharazi said in Japan that Iran had no secrets to hide from the Vienna-based International Atomic Energy Agency (IAEA), which has been investigating Iran's nuclear program for two years.

"I assure Mr Minister that all our activities are peaceful," Kharazi told a joint news conference after talks with Japanese Foreign Minister Nobutaka Machimura.

"We are ready to cooperate with the IAEA as before and also to continue talks and negotiations with the three European countries," he said.

But in Tehran, President Mohammad Khatami warned European countries that Tehran could reverse commitments made on its nuclear programme, saying Iran was faced with 'psychological warfare'.

"If you feel that we are not respecting your engagements then we will adopt a different policy and the heavy consequences of this policy will burden those who have not respected their engagements," he said in a speech to foreign diplomats, state television reported.

The United States charges that Iran is secretly developing nuclear weapons and wants to step up the pressure by having he IAEA bring Tehran before the Security Council.

Britain, France and Germany are however pursuing diplomacy as the trio leads an EU initiative to get Iran to dismantle its program to enrich uranium, a key part of the nuclear fuel cycle, in return for trade, technology and political security benefits.

Iran refuses to make its suspension permanent, saying it has the right to enrichment under the nuclear Non-Proliferation Treaty.

The talks in Geneva from Tuesday to Thursday are the third round in negotiations that began in December after Iran agreed with Britain, France and Germany to temporarily suspend uranium enrichment as a confidence-building measure.

The United States supports EU diplomacy but is holding off from getting directly involved.

French Foreign Minister Michel Barnier told Rice Tuesday in Paris that US help was however needed if the diplomatic initiative were to bear fruit.

Incentives such as helping Iran join the World Trade Organization or to modernize its commercial airline fleet are unfeasible without US participation, diplomats said.

Tuesday's meeting in Geneva was on technology and trade cooperation, with political and security issues being discussed Wednesday and the crucial nuclear energy and verification dossier on Thursday, diplomats said.

The European trio is set to warn Iran about activities that verge on breaches of the deal to freeze uranium enrichment, the process which uses centrifuges to make nuclear fuel for reactors but which can also be the explosive core for atomic bombs.

The trio were "to read the riot act to the Iranians," a diplomat who asked not be named told AFP.

Britain, France and Germany are following advice from IAEA chief Mohamed ElBaradei "who has warned Iran in two letters in December and January" about quality control work on centrifuge parts despite the agreed freeze of all enrichment-related work, the diplomat said.

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