Iran (search) ruled out a total suspension of uranium enrichment (search) Wednesday as a second round of talks with European negotiators failed to produce an agreement aimed at avoiding a showdown and the possible threat of U.N. sanctions.

Britain, France and Germany have offered Iran incentives — a trade deal and peaceful nuclear technology, including a light-water research reactor — in return for assurances that Iran will stop enrichment, which can produce fuel for both nuclear energy and atomic weaponry.

"Total suspension will not be accepted under any circumstances," said Sirus Naseri, a member of the Iranian delegation that met in Vienna with the European envoys.

But Naseri said Iran was still trying to work out a compromise with the Europeans. "We're negotiating," he said. "We're trying to come to an agreement. The next meeting will be soon."

The British Foreign Office said a third round of talks would be held "shortly."

"Some progress was made towards identifying the elements of a common approach towards the issues," a Foreign Office spokesman in London said.

The deal aims at easing fears in the United States and Europe that Iran is seeking to develop nuclear weapons. Diplomats called the EU package a "last chance" offer to Iran ahead of a key Nov. 25 meeting of the International Atomic Energy Agency (search), which could result in Tehran's defiance being reported to the U.N. Security Council, which has the authority to impose punishing sanctions.

The Vienna-based IAEA was not directly involved in the offer, but agency chief Mohamed ElBaradei (search) has said he welcomes any attempt to negotiate an end to the standoff. Envoys from the three European nations met privately with the Iranian delegation.

Iran insists its nuclear activities are peaceful and geared solely toward generating electricity. The United States, pointing to Iran's vast oil reserves, contends it is running a covert nuclear weapons program.

Heightening the U.S. concerns, Iran has resumed testing, assembling and making centrifuges used to enrich uranium.

Iran repeatedly has refused to abandon uranium enrichment, a key demand of the international community. Although the European envoys who presented their offer to the Iranians last week made it clear that they would not budge on the enrichment issue, Iran's top nuclear negotiator, Hasan Rowhani, suggested there was some flexibility in the talks.

Rowhani, told state television earlier this week his government might be willing to consider a temporary suspension of enrichment, but he cautioned: "No other country can stop us exploring technology which is the legal right of Iran."

Rowhani said Iran has run its program "under the influence of agreements and safeguards of the IAEA" and has signed a so-called additional protocol to the Nuclear Nonproliferation Treaty (search), which allows unfettered IAEA inspections of Iranian facilities.

Earlier Wednesday, 50 Iranians staged a small demonstration in Vienna to object to phrasing in the European offer that the EU would continue to view a key Iranian resistance group, the Mujahedeen Khalq, as a terrorist organization.

The Mujahedeen Khalq (search), which seeks to topple Iran's ruling Islamic establishment by force, also is on the U.S. State Department's list of terrorist organizations. Protesters carried banners that read, "EU: Mujahedeen Khalq off the list" and "The real terrorist is the mullah regime in Iran."

The Paris-based National Council of Resistance of Iran said the demonstration was intended to "warn against the continuation of appeasing the mullahs, which has only emboldened them in their drive to acquire nuclear weapons."

"We're against this horse trading that's taking place at the cost of the Iranian opposition and Iranian refugees, most of whom support" the Mujahedeen Khalq, said Javad Dabiran, a resistance council member.