VIENNA, Austria - The five permanent members of the U.N. Security Council agreed Wednesday to start working on U.N. sanctions against Iran next week, but failed to bridge differences on how harsh the penalties should be, diplomats and officials said.

Iran's president Mahmoud Ahmadinejad, gestures as he greets his supporters during his visit to the city of Shahriar, 30 kilometers (18 miles) southwest of Tehran, Iran, Wednesday, Oct. 11, 2006. [AP]

They told The Associated Press that while the U.S. called for broad sanctions to punish Iran's defiance in pursuing its nuclear program, Russian and Chinese representatives at a top-level Vienna meeting favored less severe measures.

The diplomats and government officials demanded anonymity in exchange for discussing the confidential meeting of the five Security Council countries and Germany - the six powers whose repeated attempts to entice Iran to enter negotiations finally broke down last week over Tehran's refusal to give up uranium enrichment.

In New York, U.S. Undersecretary of State Nicholas Burns told the Council on Foreign Relations that package of incentives meant to persuade Iran to halt uranium enrichment remained on the table.

But he said Iran's stance left little choice but to "head back to the Security Council in a couple of days, at the end of this week or early next ... to begin the process of writing and then passing, we hope, a sanctions resolution that will raise the cost to the Iranians of what they are doing in the nuclear round."

Reflecting the importance of the meeting of the six powers, Russia, Britain, France and Germany sent top negotiators directly answerable to their foreign ministers, while the U.S. and China were represented by their chief representatives to the Vienna-based International Atomic Energy Agency. Burns participated via video hookup.

One of the diplomats, who had been briefed on the substance of the meeting, said that while Burns had urged broad sanctions, such as a total ban on missile and nuclear technology sales - the Russians and Chinese backed prohibitions of selected items as a first step.

He also said the Chinese and Russian envoys called for renewed negotiations with the Iranians in parallel to working on sanctions to punish Tehran for defying a Security Council demand that it freeze enrichment, a possible pathway to nuclear arms.

Burns told the Council on Foreign Relations that the countries trying to stop Iran's programs "had come to a fork in the road." Despite a substantial package of incentives and an offer of direct negotiations with the United States, Iran "turned us down," he said.

"If at any time the Iranians wish to come forward and negotiate with the United States and these other countries, then we'll be very happy to do so," Burns said.

The differences among the Security Council powers reflected continued divisions over how harshly to penalize the Islamic republic for ignoring a Security Council deadline to stop all enrichment activities by the end of August.

"All agree for the need for sanctions but there are problems with how harsh they should be," said one of the diplomats, whose country is accredited to the International Atomic Energy Agency, or IAEA.

He said the meeting did not discuss North Korea and its claim to have tested a nuclear bomb, but all participants agreed juggling two nuclear crises complicated international nonproliferation efforts.

Iran, OPEC's No. 2 producer of crude, is apparently ready to face the threat of sanctions because it is confident they will be more symbolic than damaging because of international concerns any tough penalties could prompt Tehran to retaliate by cutting off oil exports.

Restating his country's defiance, Iranian President Mahmoud Ahmadinejad was quoted by state television Wednesday as saying "the day sanctions are imposed on Iran by its enemies would be a day of national celebration for the Iranian nation."

In separate comments earlier, Ahmadinejad called the prospect of sanctions "a hollow threat."

"These three or four countries are bullying, they have no right to intervene," he said, in reference to the United States, France, Britain and Germany. "The Security Council has no right to intervene."

The Security Council demanded a halt to enrichment after the Iran ignored calls from the IAEA to suspend such activities until doubts about the country's nuclear program have been cleared. Uranium must be enriched before it can be used in either nuclear reactors or atomic weapons. Iran says its nuclear program is for peaceful purposes only.

Senior EU negotiator Javier Solana had met with top Iranian negotiator Ali Larijani over the past few weeks in a new attempt to persuade Tehran to suspend enrichment and start nuclear talks with the six-nation alliance.

But those talks failed last week over Iran's refusal to freeze enrichment even for a limited time.

While the representatives of five of the six nations at the Vienna talks subsequently met with IAEA chief Mohamed ElBaradei, the Americans did not attend, said a U.N. diplomat.

There was no reason given for their absence, but one of the diplomats speculated it could have been a show of U.S. displeasure with ElBaradei, whom Washington in the past has accused of being too soft on Iran.