Iran insists on simultaneously exchanging its low-enriched uranium for nuclear fuel produced overseas, the state news agency said Friday, calling the demand a "red line" that will not be abandoned.

The condition undermines the basis of a U.N.-backed plan demanding Iran ship most of its uranium outside its borders to be further enriched in Russia and turned into fuel rods in France for use in a research reactor. That process could take up to a year.

The U.S. and its allies see the process as buying time to reach a compromise with Iran by depriving it of the amount of uranium needed to make a nuclear bomb. Western powers believe Iran is seeking nuclear arms, or at least the ability to produce them on short notice. Tehran says its uranium activities are aimed only at producing atomic energy.

The news agency IRNA also said, however, that Iran has not yet given its answer to the U.N.-backed proposal to ship most of its enriched uranium overseas and wants to hold further negotiations on the plan.

The agency quoted an unidentified official as saying an Iranian response to the Western offer Thursday "did not contain a reply" to the U.N.-backed plan but simply expressed Iran's "positive attitude" and willingness to hold talks on the proposal.

Iran appeared to be pairing conciliatory language with a hard-edged take on the proposal that Iran send 70 percent of its low-enriched uranium to Russia.

Iran sent a message to the U.N. nuclear watchdog agency about the plan on Thursday, and while details have not been made public, European officials expressed frustration that Tehran was stalling over the proposal.

IRNA said in its report that Iran demands that there be a simultaneous exchange of uranium for the reactor fuel.

"The simultaneous exchange ... is Iran's red line. Iran will in no way neglect this condition," IRNA said.

The report did not specifically reject shipping most of Iran's enriched stockpile in one batch. But it appeared to be suggesting that Tehran was looking to export small batches incrementally -- waiting for one shipment to be turned into fuel rods before shipping out the next small amount. Iranian officials have previously expressed support for this approach, and diplomats in Vienna who were briefed on Iran's message Thursday said it suggested that strategy as well.

Western officials have expressed dismay at such an approach, which would leave Iran with a large amount of enriched uranium.

The unidentified Iranian official told IRNA that Iran will give its "viewpoint" on the plan in further talks.

"Iran only showed its positive attitude toward negotiations and its readiness to continue talks on securing fuel for the Tehran reactor," the official said.

The official gave no further details.

European leaders pressed Iran Friday to stick by the deal that would limit its uranium enrichment, voicing "grave concern" over the country's nuclear program.

EU leaders expressed "grave concern over the development of Iran's nuclear program, and Iran's persistent failure to meet its international obligations," according to a draft statement circulating on the second day of a two-day EU summit in Brussels.

The statement urged Iran to agree to the U.N. atomic watchdog's proposal for supplying nuclear fuel to Tehran's research reactor, saying such an agreement "would contribute to building confidence." A copy of the statement was obtained by The Associated Press.

The Iranians' counteroffer drew criticism in Europe and Israel.

"It's the same old tricks," Swedish Foreign Minister Carl Bildt, whose country holds the European Union's rotating presidency, told the AP. "A back-and-forth for further talks."

Israeli lawmaker Tzahi Hanegbi, chairman of parliament's foreign affairs and defense committee, speaking to Army Radio on Friday, said reports of Iran's resistance to the deal means, "We're back where we started."

Still, Israeli Prime Minister Benjamin Netanyahu praised the uranium proposal, calling it "a positive first step" toward keeping Iran from acquiring nuclear weapons. Speaking ahead of a meeting Friday with White House envoy George Mitchell, Netanyahu said he appreciates Washington's "ongoing efforts to unite the international community to address the challenge of Iran's attempts to become a nuclear military power."

It was unusually strong praise, given Israeli officials' frequently expressed concerns that President Barack Obama's attempts at engagement with Iran will fail to stop its nuclear ambitions.

"We have yet to see and we await the details of their response to the IAEA," White House press secretary Robert Gibbs said. "We're in constant contact with the IAEA to get that."

He wouldn't say whether the Obama administration believes it now is time to pursue tougher sanctions against Tehran, but added: "the president's time is not unlimited."

In Paris, French Foreign Ministry spokesman Bernard Valero urged Iran to "give a formal and positive response to the (IAEA), without delay."

He said the agreement reached in Geneva "would respond to Iran's need for the production of radioisotopes for medical use and would be a useful confidence-building measure. We are in close contact with the agency as well as with our partners on what response to bring to the Iranians."

EU leaders also said they deplored continued violations of human rights in Iran, and urged the authorities to release EU citizens and employees of European missions there.

These include a British embassy employee, Hossein Rassam.

British Prime Minister Gordon Brown said the EU summit of leaders "clearly expressed its continuing concern about staff that have been detained in Iran and called for their prompt and unconditional release."

A French researcher and French Embassy employee were both charged in a mass trial of those accused of fomenting unrest in postelection protests in Iran in June. Both are freed on bail, though neither can leave Iran pending a verdict.