Following a meeting in Geneva with Iran's chief negotiator Hassan Rowhani, the foreign ministers of Britain, France and Germany pledged to come up with proposals for a deal with Tehran by the end of July.

The EU is expected to offer help with developing civilian nuclear power, as well as commercial and political ties, in exchange for respecting a deal struck last November to freeze its uranium enrichment programme.

In the meanwhile Washington, which accuses the Islamic state of trying to develop nuclear arms, will watch the Iranians with an eagle's eye as will the International Atomic Energy Agency (IAEA).

The United States has long wanted the IAEA to refer Tehran to the UN Security Council, a move than can lead to sanctions, and negotiators say the Europeans leaned strongly on this threat in Geneva.

A diplomat said Iran's negotiators were left with no doubt that the EU-3 had started to draw up contingency plans on referring Iran to the council during the IAEA's next board meeting, if the talks failed.

After weeks of brinkmanship Tehran backed down, for now, from its threat to resume its uranium conversion cycle.

The process is a precursor to nuclear enrichment that lies at the heart of suspicions that Tehran is seeking atomic weapons.

The Iranians have refused to portray the outcome as a climbdown.

Rowhani on Friday said Iran will restart conversion work if top officials in Tehran did not find the EU proposals due in July, unacceptable.

"We will restart (work at the) the Isfahan (uranium) conversion plant, and the fuel cycle is our (non-negotiable) red line."

He added: "Since the European proposal was a new one and it is up to the regime's officials to make a decision, we brought it to Tehran. If not accepted we will begin enrichment in Isfahan."

Rowhani also warned the Europeans that if "they want to drag out the negotiations, we will begin the enrichment in Isfahan."

In Geneva, he had reiterated Tehran's official line that it was not seeking nuclear arms but had the right to pursue a civilian nuclear programme, and that this included enrichment work.

The EU-3 said it was "satisfied" with the outcome.

German Foreign Minister Joschka Fischer sounded a note of warning, telling reporters: "We have our different positions and it is not easy to narrow them."

But a Paris-based diplomat said what mattered for now, was that the dialogue with Tehran did not collapse and the November accord had survived.

US Secretary of State Condoleezza Rice on Thursday welcomed Iran's decision to keep the suspension in place as a "very positive development."

The Iran dossier will be under scrutiny again at the next meeting in mid-June of the IAEA's board of governors.

While the fuel work suspension holds, the IAEA is likely to focus on other areas of concern on Iran's programme and demand information its inspectors claim Tehran so far failed to furnish, a diplomat here said.

"The EU-Iran Geneva agreement will take the focus away from the suspension, and will put the focus on unresolved questions on Iran's nuclear program," he told AFP.

"The IAEA wants to establish the history of the nuclear programme in Iran ... a country that has hidden nuclear activities for 17 years."

One issue still troubling the UN nuclear watchdog is plans its inspectors found for a highly sophisticated P-2 nuclear centrifuge found in Iran.

Tehran said it had not worked on the centrifuges for seven years, but said a diplomat: "The worry is that they are lying ... that they have been working secretly on more developed centrifuges."

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