Iran's nuclear negotiator and the EU foreign policy chief said yesterday that they had made progress in talks over a compromise to avoid possible United Nations sanctions over Teheran's atomic programme.

Iran's Ali Larijani said some misunderstandings had been cleared up, while the European Union's Javier Solana said the meeting was productive and that the two would meet again soon.

The EU and the United States want Iran to stop enriching uranium to qualify for trade benefits offered by world powers and pre-empt sanctions by the UN Security Council.

"We have made constructive progress. We have reached common points of view on a number of issues," Larijani said.

"And as mentioned by Solana, many of the misunderstandings were removed," he said.

The United States is pushing to begin moves next week for sanctions against Iran over Teheran's refusal to halt its nuclear fuel drive before any negotiations to put the wide-ranging incentives offer into effect.

"The meeting, the hours of work, have been productive. We have clarified some of the misunderstandings that existed before," Solana said.

"We have made progress. We want to continue that line and we are going to meet next week," he said without giving a date.

Washington's EU allies share its suspicions that Iran's nuclear work is a veiled bid to assemble atom bombs rather than a quest for an alternative electricity source as Teheran insists.

But, fearing the economic repercussions of isolating the world's No 4 oil supplier, many in the EU prefer a face-saving compromise that might lie in getting Teheran to curb enrichment after the start of a process to implement the benefits package.

It was the second day of meetings, following talks on Saturday that focused on the package and Iran's August 22 reply to it, which Western leaders criticised as obfuscatory.

In Teheran, the Foreign Ministry repeated yesterday that Iran would accept no preconditions for negotiations and again dismissed the idea that it would agree to shelve enrichment.

"Suspension is an issue that is in the past. We cannot return to the past. We want talks without any precondition," spokesman Hamid Reza Asefi told a weekly news conference.

But an EU diplomat, asking not to be named due to the topic's sensitivity, said the critical issue of how to sequence an enrichment halt and negotiations was discussed in Vienna.

Tensions surged after Iran ignored an August 31 deadline to stop enrichment work before talks to carry out the incentives.

In the talks, Solana wanted Larijani to clarify Iran's dense and nuanced 21-page reply to the offer from six world powers of commercial and other inducements to halt its nuclear fuel work.

Specifically, Solana sought to harden up hints in the response that Teheran could curb the programme via negotiations.

The United States has given no indication of willingness to compromise on the issue of starting talks with Iran before it suspends enrichment. But several EU diplomats said that the French and Germans might be willing to consider such a deal.

Iranian Foreign Minister Manouchehr Mottaki told IRNA news agency that Teheran's proposal for foreign, including Western, investment in its nuclear fuel drive proved it was peaceful.