A senior Bush administration official said Washington believes Russia and China would agree to pursue U.N. sanctions against Iran if it rejects the offer or the talks fail.

Direct talks with Tehran on the nuclear dispute would mark a big change in U.S. relations with Iran following a break in formal diplomatic ties after the 1979 Islamic revolution and 52 Americans were held hostage in the U.S. embassy for 444 days.

The Iranian government had no immediate comment on the offer, made on the eve of talks on Iran's nuclear activities among the major powers in Vienna. Tehran has rejected similar conditions before and the foreign policy spokesman for Iran's parliament reportedly was dismissive of the U.S. precondition.

"The fact that the U.S. has announced its readiness for talks can be viewed as positive but the U.S. precondition is not suitable," said Kazem Jalali, spokesman for parliament's foreign policy and national security committee, according to Iran's student news agency ISNA.

If the Iranians turn down the U.S. offer, the senior U.S. official said "there is also agreement that therefore we would have to proceed through the Security Council with a resolution and over time, depending on the Iranian response, move toward sanctions."

Russia and China have opposed U.N. sanctions against Iran but the U.S. official said they were now expected to support such a move if the talks fail.

"What they've agreed is, if Iran does not accept this offer of negotiations, or accepts and then does not negotiate in good faith, we will return to the Security Council, we will get a resolution," he said, speaking on condition of anonymity.

France, Britain and Germany, which have spearheaded talks with Iran, welcomed the U.S. proposal and said they hoped it would push along negotiations.

Russia and China's U.N. ambassadors also praised Washington's overture, but Beijing's envoy urged the United States not to put conditions on its proposal.

Secretary of State Condoleezza Rice made clear Iran must show it wants to negotiate "in good faith" or face the consequences. "It's time to know whether Iran is serious about negotiation or not," she told a news conference.

The offer of direct talks was part of a package of incentives and sanctions to persuade Iran to curb its nuclear program. Rice said the "essential elements" of the package have been agreed with Britain, France and Germany and will be discussed further on Thursday when she meets ministers from those countries as well as Russia and China in Vienna.

Iran, the world's fourth largest oil exporter, says its nuclear program is aimed at peaceful energy production.

The head of the U.N.'s International Atomic Energy Agency, Mohamed ElBaradei, who met Rice in Washington last week, urged Iran to create the right conditions needed for the United States to join the nuclear talks.

Some European diplomats were skeptical that Iran would agree.

"I think it will be hard for Iran to say yes to this. And the Americans may not even want the Iranians to say yes," an EU diplomat familiar with the talks told Reuters on condition of anonymity. "But Bush can ... say that it was the Iranians and not Washington who rejected dialogue."

Tehran has said it is willing to negotiate on the number of uranium-enriching centrifuges it uses for research, but has stressed it would not stop running the devices entirely as the U.N. Security Council has called for.

Escalating tensions over Iran's nuclear program and concerns that it could retaliate by limiting its supply of crude oil have shaken global markets.

U.S. stocks rose as crude futures fell $1.83 a barrel in New York trading after Rice's comments on Iran.

The United States has said it is open to narrowly focused talks with Tehran about Washington's charges of Iranian meddling in Iraq. But the Bush administration has repeatedly dismissed calls from members of Congress, ex-officials and prominent analysts for dialogue on the nuclear issue.

The United States, aiming to win Russian support, has accepted language in a proposed U.N. Security Council resolution that would rule out the immediate threat of military action against Tehran, U.S. and European officials said.

The compromise involves citing only the articles in Chapter 7 of the U.N. Charter that omit references to the use of force, the officials said.