A draft proposal by the so-called EU-3 says world powers should support Iran building several light-water reactors and should set up a nuclear fuel bank that would guarantee Iran access to reactor fuel but not sensitive fuel cycle technology.

It would also have the United States drop restrictions on Iran buying US commercial airplanes or parts.

But if Tehran does not accept the deal, sanctions should follow.

These punitive measures could include an arms embargo, political and economic measures, a visa and travel ban on selected high-ranking officials and a freeze of assets of individuals and organizations connected to the government.

Asefi repeated Iran's view that any economic sanctions would leave its foreign trading partners worse off.

But Israel warned Sunday that Tehran was inching closer to developing a nuclear bomb.

"The issue of Iran is a very serious one," Olmert told CNN, saying Iran's alleged bid to develop a nuclear bomb "can be measured by months rather than years".

"The technological threshold is very close. The question is, when will they cross the technological line that will allow them at any given time, within six or eight months, to have a nuclear bomb?"

Asked if he expected US and European diplomacy would stop Iran's uranium enrichment program, Olmert replied: "I prefer to take the necessary measures to stop it, rather than find out later that my indifference was so dangerous."

The Iranian program is likely to be discussed by Olmert and President George W. Bush when the Israeli leader visits Washington this week.

The UN Security Council asked Iran on March 29 to heed International Atomic Energy Agency calls to suspend its enrichment work and to cooperate with an investigation, which has so far been unable to determine whether Iran's nuclear program is peaceful or weapons-related.

"I have to admit that after two and a half years of negotiations, we are not as far along as we would like to be," German Foreign Minister Frank-Walter Steinmeier said Sunday during a visit to Kuwait.

Australian Prime Minister John Howard said Sunday on CNN that the UN Security Council, not Washington, should enter direct talks with Tehran.

"Both America and Australia believe in trying to achieve a diplomatic solution to this very difficult problem and I think in the first instance we should exhaust the United Nations process before we start examining alternative approaches," he said.