Iran on Wednesday renewed its promise to refrain from developing nuclear weapons and left the door open for further talks this summer, Britain's foreign minister said as negotiators appeared to be inching toward agreement on Tehran's atomic program.

After three hours of talks, foreign ministers mediating the issue on behalf of the European Union agreed to come up with more proposals and give them to Iran at the end of July or early August, British Foreign Minister Jack Straw (search) said.

"Iran has for its part reaffirmed its commitment not to seek to develop nuclear weapons," Straw told reporters.

Iran's chief nuclear negotiator, Hasan Rowhani (search), was cautious, saying, "We need to consult in Tehran before we make a decision."

In Tehran earlier Wednesday, Iran's President Mohammad Khatami (search) signaled Iran's willingness to reach an agreement with the foreign ministers, saying, "We are ready to compromise, and we hope Europe makes its decision independently and not based on U.S. pressures."

Resuming activity in Iran's uranium conversion facility "does not mean resumption of enrichment," Khatami told reporters.

The talks between Iranian negotiators and foreign ministers from France, Germany and Britain, as well as EU foreign policy chief Javier Solana, were originally scheduled to last as little as an hour.

But in an indication that the two sides were pushing for an agreement, they met for two hours, took a brief break, then resumed negotiations, officials said.

In Tehran, some 200 Iranian students wearing red headbands to symbolize their readiness to fight for Iran's nuclear rights demonstrated in front of Western embassies.

They condemned what they called the West's double standards, chanting "possession of nuclear energy is the obvious right of Iran."

Iranian officials gave no sign Wednesday as to whether they might relent in their declared intention to resume nuclear enrichment.

In the past, however, Tehran has said it won't give up its right to enrich uranium but is prepared to offer strong guarantees that its atomic program won't be diverted toward nuclear weapons.

It is unclear if a tougher European strategy of economic sanctions would work. The only certainty for Western powers in such a scenario would be a big negative: still higher gas prices at the pump.

Following months of fruitless talks, the European Union has begun warning that it is moving toward the U.S. position that Tehran should be hauled before the U.N. Security Council for suspect nuclear activities in violation of the Nuclear Nonproliferation Treaty.

To avert a showdown that could result in U.N. sanctions, Tehran agreed to meet the foreign ministers from France, Germany and Britain and the EU foreign policy chief, Javier Solana, for last-ditch talks in Geneva.

The EU push followed Iran's announcement last week that it was considering restarting its uranium-enrichment program, which Iran insists is only aimed at generating electricity as permitted under the treaty. The EU and the United States fear the program is being used to develop weapons.

However, any strong sanctions against Tehran would likely cause oil prices, already around $50 a barrel, to rise.

"The most severe sanctions that would affect Iran would be sanctions against their oil industry, that is, an international boycott on Iranian oil products," said Gary Sick, a senior research scholar at Columbia University. "That would mean basically taking 3 million barrels a day off the market, which would probably cause the price to spike."

Sick said it was far from certain that the Security Council would impose sanctions, with veto-wielding China and Russia among countries that have expressed opposition.

The United States has been demanding since last year that Iran face sanctions for its nuclear program — but up to now the EU has used enticements instead. If Iran agrees to keep its program within bounds, the EU says it can expect economic and technical cooperation as well as support for joining the World Trade Organization.

The 25-member EU has offered a free trade pact and more economic aid, and European officials have said they would improve the offer. It was the talks with the Europeans that persuaded Iran to suspend its uranium enrichment program in November.

Iran has long had strong trade links with Europe, and there have been calls on the Europeans to use this as leverage.

But Tehran has warned that if the talks fail, it would cost the Europeans more than it would Iran.

"The case will turn into a crisis they cannot manage any longer, and the Islamic Republic will act unilaterally," Iranian Foreign Ministry spokesman Hamid Reza Asefi said without elaborating.

British Foreign Secretary Jack Straw said he hoped the talks would succeed but conceded that "the Iranians are tough to negotiate with."

Joining Straw will be French Foreign Minister Michel Barnier and German Foreign Minister Joschka Fischer. Heading the Iranian delegation is the country's top nuclear negotiator, Hasan Rowhani.

Reflecting a growing pessimism, a leading London think tank said Tuesday that the diplomatic talks appear doomed to failure.

"Prospects that the current negotiations between the EU-3 and Iran will produce a lasting resolution of the Iranian nuclear issue are not encouraging," said John Chipman, director of the International Institute of Strategic Studies. "The EU3-Iran talks seem headed for inevitable failure."

So far, President Bush has gone along with the European efforts for dialogue with Tehran. In March, the Bush administration agreed to drop long-standing opposition to Iranian membership in the WTO.

A WTO meeting coincidentally being held across Geneva later this week could give Iran the go-ahead to start its membership negotiations, trade officials said.

But pressure has been building in the U.S. Congress for independent American action against Iran.

A bill in the House of Representatives would tighten long-standing U.S. sanctions against Iran, bar subsidiaries of U.S. companies from doing business in Iran and cut foreign aid to countries that have businesses investing there. A more limited measure is pending in the Senate.