Russia and China said on Thursday diplomacy was the best way to tackle the dispute over Iran's nuclear ambitions, a day before a U.N. watchdog delivers its verdict on whether Tehran has met Security Council demands.

Iran's chief nuclear negotiator Ali Larijani delivers a speech at a conference on Iran's Nuclear Policies and Prospects in Tehran, April 25, 2006¡£ [Reuters]

Mohamed ElBaradei, chief of the International Atomic Energy Agency, is widely expected to tell the council and the agency's board on Friday that Iran has not stopped enriching uranium or fully answered IAEA queries as the U.N. body asked a month ago.

"A diplomatic option suggests different ways to react. We will discuss this issue with our European partners, the United States and the international community," President Vladimir Putin said, stressing that any response should be coordinated.

"We oppose the proliferation of weapons of mass destruction including by Iran. But we believe Iran should have an opportunity to develop peaceful nuclear energy projects," he said after meeting German Chancellor Angela Merkel in Siberia.

Unlike several of his ministers, Putin did not explicitly rule out possible sanctions until there was proof of Western suspicions that Tehran was secretly seeking atomic weapons.

Iran insists its nuclear programme is purely peaceful, but it has also vowed to pursue large-scale enrichment of uranium, which can be used in bombs as well as power stations.

China gave no sign it was ready to line up behind Western powers seeking sanctions against the Islamic Republic, but analysts said it was unlikely to block their way.

Again advocating negotiations, the Foreign Ministry in Beijing called for calm, restraint and patience.

"A diplomatic solution is the correct choice and is in the interests of all parties," spokesman Qin Gang said. "China urges all parties to avoid measures that could worsen the situation."

The United States, backed by Britain and France, favours limited sanctions if Iran refuses to halt enrichment very soon. Russia and China, the Security Council's other two veto-holding permanent members, have hitherto opposed any embargo.

Consequently the Western powers will not push a sanctions measure next week, but may propose a resolution to make U.N. demands set out in a March 29 council statement legally binding.

If Iran does not comply within a reasonable timeframe, the United States and its allies will try to introduce punitive measures in a subsequent resolution, a council diplomat said.