The US has said it is prepared to join in direct talks with Iran on its nuclear programme if Tehran suspends disputed nuclear activities such as enriching uranium.
In a major policy shift, US President George W Bush said the US was taking a 'leadership position' to resolve the Iran nuclear dispute diplomatically.
But US Secretary of State Condoleezza Rice has stressed that the military option was still on the table.
She said that the resumption of diplomatic ties with Iran was not under consideration and Iran would incur 'great costs' if it continued to pursue nuclear weapons.
Ms Rice said Iran had to choose between two paths, one which could bring peace and economic benefits to its people and another which would bring isolation and political and economic sanctions.
The US has not had formal diplomatic relations with Iran since after the 1979 Islamic revolution when fundamentalists held 52 US citizens hostage for 444 days.
The US and the so-called EU3, France, Germany and Britain, have been working with Russia and China to persuade Iran to abandon activities that Tehran insists are only intended for peaceful energy purposes.
