Iran should be allowed to enrich uranium for power generation provided there is close monitoring by UN inspectors to ensure it is not trying to develop atomic weapons, Germany's defence minister said yesterday.

The minister's comments may suggest that after years of failed negotiations with Iran, Germany and some other Western powers are willing to compromise with Iran over enrichment in order to resolve peacefully the nuclear stand-off with Tehran.

But it is unclear if this view would be acceptable to hardline camps in Washington and London, Western diplomats say.

In an interview with Reuters this week, Defence Minister Franz Josef Jung was asked if Iran should be allowed to enrich uranium under the scrutiny of the Vienna-based International Atomic Energy Agency (IAEA).

"I think so. The offer includes everything. That means the civilian use of nuclear energy is possible but not atomic weapons. And monitoring mechanisms must be applied. I think it would be wise for Iran to accept this offer," he said.

Mr Jung was referring to a June 6 offer of incentives made to Iran by Germany and the five permanent UN Security Council members - the US, Britain, France, China and Russia.

The issue of Iran's nuclear ambitions will dominate a meeting of foreign ministers from the Group of Eight (G8) industrialised nations in Moscow today. The ministers aim to decide how best to nudge Iran to respond to the offer.

Mr Jung said close IAEA oversight could show the world whether Tehran's nuclear porogramme was as peaceful as it says.

"IAEA inspections can provide those assurances through monitoring. That is not a problem," he said.

An IAEA diplomat, speaking on condition of anonymity, said Mr Jung's comments were a welcome surprise.

"If this position is not retracted or undermined by accusations of going-it-alone, then it's real news. This view is actually acceptable to at least some parties in all of the six countries involved," the diplomat said.

"If we all want a negotiated solution, this is the only realistic, sensible and reasonable way forward."

Western countries worry that Iran is trying to develop nuclear weapons under cover of an atomic power programme. Iran says it only wants peaceful nuclear energy.

The package of incentives is conditioned on Iran forgoing large-scale uranium enrichment for the time being and answering outstanding questions about its programme.

In order to begin negotiations on the offer, the six powers have demanded that Iran temporarily halt all uranium enrichment - including small-scale work - but Iran has so far refused.

Tehran has yet to respond to the offer and the US and Germany have called for an answer by the G8 summit in July.

A meeting between EU foreign policy chief Javier Solana and Iran's top nuclear negotiator Ali Larijani was pushed back until after the G8 ministers meet, an EU diplomat in Brussels said.Several EU diplomats have told Reuters that Germany would be willing to let Iran continue enriching uranium on a small scale if it responds positively to the incentives offer.

But they say Germany's official position had not changed andthat Berlin would not break ranks with Washington and London if those capitals could not be persuaded to soften their positions. A British foreign office spokesman offered a terse reaction. "The EU3 position is clear and unchanged," he said, referring to the trio of France, Britain and Germany.

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