"European Union diplomacy remains the number one way forward," Finnish Foreign Minister Erkki Tuomioja told reporters ahead of informal talks between EU foreign ministers in Finland, which holds the EU's rotating presidency.

"I think we are all of us wanting to engage Iran seriously and if their response is truly what they say, that they are ready to engage in negotiations, then we have to see what the conditions are, if these can be met," he said.

A UN Security Council deadline for Iran to suspend uranium enrichment -- a process used to run a nuclear power plant or potentially fuel an atomic bomb -- passed Thursday without compliance from the Islamic republic.

Iran's defiance has forced the EU to tread a diplomatic tight-rope; working toward sanctions with the United States without compromising the promised new dialogue, however unsatisfactory in the past, with Iran.

Tuomioja suggested that the issue of sanctions, which the United States wants to move on as soon as next week, would be discussed by the ministers during two days of informal talks in Lappeenranta, southern Finland.

"I am sure that all aspects will be covered," he said, without specifically using the word "sanctions", and added that "this is not the time or the place to take new decisions."

As Thursday's UN deadline passed, EU foreign policy chief Javier Solana, who will brief the ministers on Saturday, sought to keep up diplomatic efforts, and agreed to meet Iran's top nuclear negotiator Ali Larijani early next week.

The pair will discuss Iran's 21-page response to an international package of political and economic incentives in exchange for Tehran suspending enrichment.

In a sign of the delicate state of affairs, Solana said on arriving for the talks: "I don't want to talk about anything before that meeting that is not of a positive nature."

According to a Western diplomat, the head-to-head talks will be followed on September 7 by a meeting in Berlin of permanent UN Security Council members Britain, China, France, Russia and the United States plus Germany

Iran maintains that it is exercising its right to develop civilian atomic energy but many fear that it is really trying to build a nuclear bomb, and with the UN deadline now past, Washington believes it is time to act.

Security Council members China and Russia, however, are wavering on sanctions, and could veto any such moves.

"Russia and China had accepted to accept them (sanctions) only if things didn't evolve," an EU official underlined, on condition of anonymity.

The official said sanctions would not be a major part of the ministers' discussions, but Dutch Foreign Minister Ben Bot suggested they would be an integral element in the days ahead.

"If Iran shows willingness to be reasonable on the issue of enrichment then of course we will be reasonable as far as sanctions are concerned," he said as he arrived for the ministers' working lunch, to focus on the Middle East.

If sanctions were to arise, the EU official said, it could be "a question of progressive sanctions, centred first on Iran's nuclear programme, then slowly widened."