President Mahmoud Ahmadinejad said yesterday threats would not work in talks to settle the dispute over Iran's nuclear programme but Tehran was ready to clear up misunderstandings with the rest of the world.

He said Iran was not willing to abandon its nuclear rights - usually shorthand in Iran for uranium enrichment - but some analysts said his speech reflected a greater readiness in Tehran for talks on the country's atomic ambitions.

According to a report by the UN nuclear watchdog, obtained by Reuters yesterday, Iran began a fresh phase of uranium enrichment this week just as world powers presented it with incentives to halt nuclear fuel work.

Ahmadinejad's speech to a rally was his first public comment since Iran was presented with the proposals backed by six world powers with the aim of defusing the nuclear standoff.

A US official in Washington said the United States did not consider Ahmadinejad's comments a formal response to the package of incentives aimed at encouraging Iran to give up enrichment, a process the West says Iran is using to make atomic bombs.

The package also contains penalties if Iran, which insists its aims are peaceful, rejects the offer.

"Negotiations should take place in a fair atmosphere," Ahmadinejad said in the televised speech in Qazvin, a city west of Tehran.

"If they (the international community) think they can threaten and hang a stick over the head of the Iranian nation and negotiate at the same time, they should know the Iranian nation will reject such an atmosphere," he said.

After Iran was handed the proposals by European Union foreign policy head Javier Solana on Tuesday, its chief nuclear negotiator Ali Larijani said it contained some positive points but also what he described as ambiguities that should be removed. He said these issues needed negotiation.

"They have a couple of times now talked about an interest in negotiations but still have not made a commitment to the conditions for negotiations," the US official said.

The report by the UN's International Atomic Energy Agency (IAEA) also said Iran was pressing ahead with installing more cascades of centrifuge enrichment machines.

Drafted by IAEA chief Mohammed ElBaradei, it said Iran resumed feeding "UF6" uranium gas into its pilot 164-centrifuge cascade in Natanz on Tuesday after a pause of several weeks to do test runs of the machines without UF6.

Earlier, officials from the United States and Germany had said if Iran suspended enrichment the major powers would discuss other terms in the offer. The plan's other supporters are Britain, France, China and Russia.

In Washington, State Department spokesman Sean McCormack said the United States still hoped for a positive Iranian response to the offer.

At a news briefing, he would not be drawn on the IAEA report that Iran had begun a fresh phase of uranium enrichment and also declined to respond to Ahmedinejad's comments.

Iran has said it will not reply "hastily" to the package. Iran has a labyrinthine command structure and under its system of clerical rule Supreme Leader Ayatollah Ali Khamenei, not the president, has the final say in matters of state.

"The Iranian nation will never negotiate about its certain rights with anybody," Ahmadinejad said, adding Iran would not retreat from "the path of achieving advanced technology".

Iran, the world's fourth largest oil exporter, has been hauled before the UN Security Council for failing to convince the world that its atomic aims do not have military purposes.

"We will talk about mutual concerns and solving misunderstandings in the international arena," Ahmadinejad said, without specifically mentioning the West's nuclear concerns.

Although Iran has said it will not give up enrichment, Iranian officials have hinted Tehran might be willing to negotiate over its plans for industrial-scale enrichment.

The United States says all enrichment must stop, but Western diplomats said the package would allow Iran to eventually resume such work after strict conditions were met.

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