British Foreign Minister Jack Straw said Saturday that diplomacy was still possible even as other Western leaders made clear that bringing Iran before the UN Security Council for possible sanctions was still very much on the cards.

German Foreign Minister Frank-Walter Steinmeier warned that Iran could face economic sanctions if it does not come to an agreement with the international community.

The UN watchdog International Atomic Energy Agency has called on Iran to cease work that can make fuel for nuclear power reactors but also nuclear bomb material and to cooperate fully with a now three-year-old IAEA investigation of the Iranian nuclear program.

"It wouldn't be intelligent to rule out economic sanctions. Iran shouldn't underestimate its dependence on technical and economic cooperation with the West," Steinmeier said in an interview with Der Spiegel magazine.

Straw said in Davos, Switzerland that the London meeting would agree what resolution to put to an emergency IAEA board of governors session Thursday in Vienna. The IAEA's 35-nation board has the power to send the Iranian atomic dossier to the Security Council.

Non-proliferation analyst Gary Samore told AFP that the United States wants the London meeting to send a strong message to Iran and would be pushing for a statement from what is a gathering of the five permanent Security Council members -- Britain, China, France, Russia, the United States -- plus Germany that would warn Iran against nuclear fuel work.

"The statement will be calling on Iran to restore a suspension of nuclear fuel activities," said Samore, a former adviser White House adviser now at the MacArthur Foundation in Chicago.

Samore said this would be "the first time the P-5 (the permanent Council members who have veto power) is publicly together" in such a call.

In intense diplomatic lobbying over the weekend, Iran urged Western powers not to immediately refer the dispute to the Security Council, arguing that talks with Russia on a potential compromise needed "more time".

Russia proposes that enriching uranium into fuel be conducted outside Iran as a way of keeping Tehran from acquiring bomb-making technology while guaranteeing its access to nuclear energy.

The United States and the European Union conditionally back this approach but still want to see Iran referred this week to the Security Council in order to put pressure on Tehran and were lobbying intensely for this with IAEA board members, diplomats said.

But the four Western states are haggling with key Iranian trading partners Russia and China over a draft resolution for the IAEA board, according to a copy of the draft read to AFP.

The confidential draft "recommends to the Security Council that it consider making clear to Iran that outstanding questions" can be resolved "by Iran responding" to IAEA demands.

Russia fears this would open the way to an escalation in Council action, possibly to sanctions, said a senior diplomat, who asked not to be named.

Russia wants the IAEA board only to inform the Council about developments in Iran and not to urge action, the diplomat said.

The diplomat said Russia wants any decision on calling for Council action coming after a pause for diplomacy ahead of a regularly scheduled IAEA board meeting March 6.

Britain, Germany and France had called the emergency IAEA meeting after Iran resumed on January 10 work on uranium enrichment, the final step in making nuclear fuel.

Iran is threatening to retaliate with reduced cooperation with the IAEA and even reduced oil exports if it is brought before the Council.

Iranian Revolutionary Guards chief General Yahya Rahim Safavi has even issued a reminder of his ballistic missile capability -- just in case a military option was put on the table in Israel or the West.

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