A confrontation could lead Iran to pull out of the nuclear Non-Proliferation Treaty (NPT), a diplomat from a non-aligned nation at the UN atomic watchdog here told AFP, saying it was a "North Korea-type situation we want to avoid."

Diplomats also say Tehran is in a stronger position than when the crisis started two years ago as the United States is bogged down militarily in Iraq.

Also, the world economy, already suffering record-high oil prices, would be further hampered if a major supplier like Iran were cut off due to sanctions or Tehran's reaction.

But the United States and European Union say they are prepared to ask the Vienna-based International Atomic Energy Agency (IAEA) to refer Iran to the UN Security Council if Tehran fails to meet a September 3 deadline to suspend nuclear fuel cycle work that can be used to make atomic weapons.

The Council could impose sanctions in order to get Iran to comply with both international nuclear safeguards and the suspension.

Iran suspended preliminary work on making enriched uranium -- which can be fuel for nuclear power reactors but also the raw material for atom bombs -- in November in order to start talks with the EU on guaranteeing that its program is peaceful.

But it resumed earlier this month, saying its right to the process was not being respected.

Washington claims Iran is secretly developing nuclear weapons and has sought Security Council referral ever since the IAEA began investigating Tehran in February 2003 for almost two decades of hidden atomic activities.

But a senior European diplomat said Washington might now be trying to move too fast as there is still room for diplomacy to work, especially as it is not clear what the UN body can accomplish.

"The American emphasis is on speed, but what for, where are we going?" the diplomat said.

The IAEA board is to meet in September to review a report on Iran. The meeting will come either shortly after September 3 in emergency session, as the United States wants, or at a regularly scheduled meeting on September 19.

The European diplomat said that holding to the September 19 date would allow time for diplomacy at a UN world summit in New York from September 14-16, which Iran's hardline president Mahmoud Ahmadinejad is to attend.

Another diplomat pointed to divisions on the IAEA board, where non-aligned states protest against a too confrontational approach to Iran, and said: "How can the United States shape an agenda in New York, when they can't shape one in Vienna?"

Analyst Ian Davis, director of the British American Security Information Council, wrote in the International Herald Tribune earlier this month that even if the Europeans and the United States engineer a successful resolution at the Security Council, "they will almost certainly be unable to get Russia and China to agree to the biting sanctions needed to force rapid Iranian concessions."

Non-proliferation expert Gary Samore, at London's International Institute for Strategic Studies said the UN body would move slowly.

"In the beginning the Council is likely not to do much more than issue a hortatory resolution" urging Iran to comply, he said, adding that escalating measures could include banning new investment in Iran's oil and gas industry.

Samore said Iranian reaction was key to how effective UN action would be.

Iran might stick just to first-stage uranium conversion, "calculating that the Council would not be willing to sanction them over this," said Samore.

But in a full-blown confrontation Iran might actually make enriched uranium or even withdraw from the NPT, which authorizes IAEA monitoring of a nation's atomic program.

Davis said stalemate at the UN could "provoke the Iranians into blocking international nuclear inspections, and ultimately strengthen the hand of US hardliners who are pushing for the bombing of Iran's nuclear facilities."

But Samore said he thought that both sides would be careful as the UN would proceed cautiously and Iran "doesn't want to act in a way that would strengthen the international coalition against them."

All rights reserved. � 2005 Agence France-Presse. Sections of the information displayed on this page (dispatches, photographs, logos) are protected by intellectual property rights owned by Agence France-Presse. As a consequence, you may not copy, reproduce, modify, transmit, publish, display or in any way commercially exploit any of the content of this section without the prior written consent of Agence France-Presse.