Tom Baldwin, The Times correspondent in Washington, said that today's speech marked a significant shift in White House policy towards Iran

"The US has previously refused to participate in direct negotiations with Iran on the grounds that it would help the regime to gain legitimacy.

"I don't believe that there has been any direct contact since the hostage crisis 29 years ago. Prior to this, America has left all of the negotiating to the E3 of Britain, Germany and France.

"Now, as we enter the final strait of an attempt to obtain a UN Security Council resolution, I think it has been recognised that the administration needs to be seen to do everything it can to exhaust the diplomatic process.

"Ms Rice used one particularly interesting phrase. She said that this is the 'last excuse'.

"There has been quite a lot of contact between the various stakeholders over the past few days. Bush and Blair discussed the issue during Blair's visit to Washington last week, and the President has also held talks with Angela Merkel, Jacques Chirac and President Putin.

"Meanwhile, the E3 has been in contact with Russia and China, the other UN Security Council members.

"The outcome of these negotiations remains unclear, but Ms Rice was able to say today that there had been a substantial agreement and that Iran now faced a very clear choice between a package of incentives or punishment.

"If Iran agrees to cooperate there might be help from the EU on re-processing nuclear fuels, there might also be help with economic issues. If there is no agreement, America is still not taking military action off the table.

"Our understanding is that a decision on whether a military strike is necessary will be taken by President Bush by the end of the year.

"Today's speech is America saying to Iran, and to the world, that they are prepared to do everything in their power to obtain a diplomatic settlement. It is quite difficult to say they have exhausted the diplomatic process without engaging in diplomatic talks.

"The US is also reminding Iran that there are other ways of resolving this issue. The ball is now back in Iran's court - and it has to make its mind up."

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