THEY have huddled with the North Koreans in Berlin, talked tough in Beijing and played cat-and-mouse at the United Nations in New York. Now America’s nuclear negotiators are staring failure in the face.

According to Chinese and western sources, hints of compromise by the US have merely hardened the resolve of Kim Jong-il, North Korea’s dictator, to keep his atomic weapons and to outlast President George W Bush in office.

Bush reluctantly authorised his team to work on a pact that would release North Korean money frozen in foreign banks in exchange for a sign of progress, such as allowing UN nuclear inspectors back into North Korea’s secret installations.

The US envoy, Christopher Hill, has even offered Kim a written security guarantee for his regime if he disarms, the sources said.

However, the North Koreans have detected weakness on the American side and are well-informed about divisions between the State Department and other policy-makers in Washington.

Chinese and western officials predict a new round of nuclear talks this week will result in an embarrassing rebuff for Bush from the North Koreans.

“They will never make a deal that they cannot cheat on,” said a western diplomat in Beijing.

“Sometimes they are totally uncompromising and sometimes they will negotiate tactically,” said Professor Shi Yinhong, a Chinese foreign affairs expert. “But they never seriously considered denuclearisation,” he added.

President Hu Jintao of China sent an envoy to chastise Kim after North Korea fired ballistic missiles and tested a nuclear bomb last year.

Chinese diplomats then voted for UN sanctions against Pyongyang and Shi said they would support even tougher economic measures if the North Koreans carried out a recent threat to test another device.

None of this has deterred the North Koreans, who conduct a thriving trade from their sprawling embassy compound in the Chinese capital — much of it in apparent violation of the UN sanctions.

Last week, workers were busily packing up crates of consumer goods near North Korea’s embassy for shipping to the impoverished nation. “The most popular item is Chinese thermal underwear,” confided a woman trader.

The array of goods testified to the peculiar requirements of Pyongyang’s elite: sacks of dried fish for drinking snacks, karaoke microphones, Chinese breast enlargement creams, love potions and hand-cranked lamps for when the electricity goes off.

The importance of foreign outposts to the regime was underlined last week after Kim’s exiled oldest son was discovered leading a luxurious life in the gambling enclave of Macau.

Japanese television reporters caught the podgy figure of Kim Jong-nam, 35, strolling out of the Mandarin Oriental hotel on Friday.

He waved off questions, saying in English: “It’s my private life.” Reporters traced Kim’s hedonistic progress around Macau’s casinos, saunas, late-night bars and expensive restaurants, noting his penchant for vintage cognac.

Kim Jr is reported to have spent most of the past three years in Macau, probably entrusted by his father with recovering £12.2m frozen at Banco Delta Asia, a bank in the former Portuguese colony.

This money was at the centre of talks in Beijing last week between Daniel Glaser of the US Treasury and a North Korean delegation led by a finance expert, O Kwang Chol.

American officials alleged in 2005 that Banco Delta Asia was “a willing pawn” in criminal dealings by North Korean agents to launder money and to place counterfeit US dollar bills in the international financial system.

They alleged that some officers of the bank colluded with North Koreans to accept large cash deposits of dubious currency. The Americans had earlier seized £24.4m in North Korean-printed dollar bills that were of such high quality that they were dubbed “supernotes”.

But the Americans were forced to concede that not all the money was illegal after Banco Delta Asia’s lawyers made the embarrassing claim that its cash dealings had been authenticated by HSBC, the British-based banking giant.

“Since the bank did not have the sophisticated technology to analyse large deposits of US currency, such deposits were sent to HSBC New York for analysis before being finally credited to the depositors’ account,” the lawyers said in a letter quoted in the International Herald Tribune newspaper. HSBC has not disputed the report.

The discovery has seriously undercut America’s bargaining power on the issue and will make the North Koreans all the more intransigent when talks resume on Thursday.

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