"Now, we are in the midst of preparing a package of incentives and disincentives, carrots and sticks, for the Iranians," Bolton said in an interview with Xinhua, stressing that this is going to be "a very stark choice" for Tehran.

"Either you suspend the enrichment activities, which is clearly in the position of all the permanent five members (of the Security Council), in which case, the European Union is prepared to resume negotiations that was suspended last year. Or, if you do not take that package, the alternative package of sanctions and other measures will show to Iran how isolated it could be in the international community, if it is not prepared to give up its uranium enrichment activities," Bolton said.

The American ambassador did not elaborate on the specific measures to be included in the package, but said that "the effect of sanctions would be to increase pressure on the regime of Tehran and whether or not that's going to be necessary is really entirely in Iran's hands."

"If they made the decision to give up pursuit of nuclear weapons and stop supporting international terrorism, they could have different relationship with us," Bolton said, adding, "that's why this package of incentives and disincentives is so important because it would make unmistakably clear, we hope, to the Tehran government what their alternatives are."

Iran has insisted that its nuclear program is fully peaceful, denying Washington's accusation that the Islamic Republic is secretly developing nuclear weapons under a civilian front.

Concerning the reforms of the United Nations, Bolton, known for being critical of the 60-year-old international organization, said,"our top priority right now is what's called the Mandate Review," while maintaining that "we've got a long list of reforms we'd like to see implemented."

The Mandate Review is part of the broader UN management reform recommended by UN Secretary-General Kofi Annan and endorsed by the UN Summit in September 2005. Heads of the UN member states agreed at the summit to review UN mandates which are more than five years old to see whether they are ineffective, out-dated, duplicative, "so that we can consolidate and restructure the programs, save some money, and then perhaps re-direct some money to other higher priorities," Bolton added.

"I think it's very important that the secretary-general takes the step he can already take to make changes in management," he said.