Foreign ministers gathered in New York have failed to agree on a strategy to defuse the escalating crisis over Iran's nuclear ambitions, with Russia and China refusing to back a Western push towards sanctions.

After talks which ran into the night, an official at the United Nations told reporters this morning that ministers from the five permanent members of the UN Security Council and Germany had yet to reach a consensus on a possible resolution.

The official said that there had been disagreement over a US-backed move for a resolution under Chapter VII of the UN charter which authorises sanctions and, ultimately, the use of force.

"I think the prospects for an agreement this week are not substantially good," the official, who spoke on condition of anonymity, added.

Hopes of a breakthrough were briefly raised yesterday when the White House received its first communication from Tehran in 27 years.

The letter was delivered yesterday by Manouchehr Mottaki, the Iranian Foreign Minister, to Philippe Welti, the Swiss Ambassador in Tehran, who represents American interests in Iran, hours before the dinner meeting was due to begin.

Today as details of its contents emerged, however, the 18-page letter was dismissed by its recipients as a rambling philosophical treatise.

Condoleezza Rice, the US Secretary of State, told Associated Press: "There is nothing in this letter that in any way addresses any of the issues really that are on the table in the international community.

"It is most assuredly not a proposal," she said. "There is nothing in here that would suggest that we’re on any different course than we were before we got the letter."

The results of last night's talks appear to have borne this out.

Frank-Walter Steinmeier, the German Foreign Minister, said that six issues remained outstanding and told Germany’s ZDF television that he believed it would take up to two weeks to reach agreement.

The deadlock was welcomed by Ali Larijani, Iran’s senior nuclear negotiator, who praised the "realistic approach" taken by Russia and China, which both have close economic ties with Iran.

"We feel that certain countries have been acting in a more realistic manner" than others which "are trying to create headaches," he said during a visit to Greece.

The United States and Europe fear Iran is using a stated drive for peaceful atomic energy as a front for developing nuclear weapons. Tehran strongly denies this.

The matter went to the Security Council after Iran failed to meet an April deadline set by the UN nuclear watchdog to halt uranium enrichment, which can make fuel for reactors and also the fissile material needed for an atomic warhead.

In New York, Security Council members are bargaining over a Franco-British draft resolution that would require Iran to freeze all uranium enrichment and reprocessing. President Bush has not ruled out military action against Iran although Jack Straw, the British Foreign Secretary until last week, said a military strike would be "nuts".

His successor, Margaret Beckett, is said by Iran to have taken a harder line on the issue although this has been denied by Downing Street.

Russian news agencies quoted Moscow’s top envoy, Sergei Lavrov, calling for further negotiations, including more direct talks with Iran.

"There was general agreement on the need to create conditions for resuming direct negotiations on Iran’s nuclear program," Interfax news agency reported him as saying.

China also reiterated its stance that the Iranian nuclear issue could still be resolved through diplomacy. "We urge all sides to remain calm, exercise restraint, show flexibility and avoid a worsening of the situation," foreign ministry spokesman Liu Jianchao said in Beijing.

America wants the Security Council to vote on the existing draft resolution against Iran, on the assumption that Russia and China would not use their veto power to block the move.

Even if the diplomatic effort stalls at the UN, American officials are already floating a plan to win support among Western nations for financial sanctions against Iran with or without a UN mandate.

US officials believe that if Washington can apply pressure on international banks it can effectively squeeze the Iranian regime’s economy. If that does not work, Mr Bush has stated repeatedly that the military option remains "on the table".

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