Russia and the US this evening denied reports of an emerging split in the international negotiations to combat Iran's atomic ambitions.

Earlier today, diplomats attending the second day of a crisis meeting of the International Atomic Energy Authority reported that Russia had floated a proposal to allow Tehran to carry out small-scale nuclear research on its own soil.

The proposal was backed with a demand that the Islamic Republic suspends all industrial uranium enrichment for ten years. Iran had agreed to freeze large-scale work for two years.

The suggestion triggered a furious reaction in Washington where Iran's nuclear energy research is considered to be a front for a weapons programme.

Several hours later Sergie Lavrov, the Russian Foreign Minister, emerged from a scheduled Oval Office meeting with Condoleezza Rice, the US Secretary of State, to say: "There is no compromise new proposal."

Dr Rice underscored the point: "The Russians did not tell us of any new proposal that they have made to the Iranians," she said.

Scott McClellan, the White House spokesman, said that after the IAEA meeting, Washington expected the nuclear dossier to be passed to the UN Security Council which can impose sanctions.

The IAEA’s 35-nation board of governors was due to hear a report on Iran assembled by Mohamed Al Baradei, the watchdog's chief, tomorrow. The 15-page report states that Iran has failed to heed calls for it to suspend uranium enrichment and to cooperate fully with IAEA inspectors, according to a copy obtained by AFP.

As the negotiations continued in Austria, Dick Cheney, the US Vice President, warned that Iran faces "meaningful consequences" if it persists in defying the international community.

Mr Cheney, speaking to the pro-Israel lobbying group Israeli American Public Affairs Committee, also reaffirmed that the United States was keeping all options on the table in its determination to prevent Iran from developing nuclear arms.

"The Iranian regime needs to know that if it stays on its present course the international community is prepared to impose meaningful consequences," he said.

"For our part, the United States is keeping all options on the table. ... We will not allow Iran to have a nuclear weapon."

Meanwhile, President Mahmoud Ahmadinejad appeared on state television to demand compensation from the IAEA for suspending its nuclear research, as a gesture of goodwill, in 2003. Iran has said the suspension put hundreds of scientists out of work.

"The IAEA now has to compensate Iran for causing damage to the development of its science, technology and economy due to the suspension of nuclear activities," the President said.

Iran’s talks with the Europeans collapsed last year when it became evident that Iran was not going to agree to abandon enrichment. From August, the country incrementally resumed elements of the enrichment cycle.

Each step forward was accompanied by international condemnation which culminated in the IAEA’s decision last month to report the country to the Security Council.

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