"The clock has begun to tick," said John Bolton, the US ambassador to the United Nations, after Resolution 1696 was passed on Monday, giving Iran until August 31 to halt sensitive nuclear work.

If International Atomic Energy Agency director Mohammed ElBaradei then says that Iran has flouted the order, the council can start debating economic and political sanctions.

"The ball is now clearly in Iran's court. The choice is up to them," added Bolton.

While Iran's UN representative angrily rebuffed the resolution as "destructive and totally unwarranted", not all Security Council members took this as an immediate rejection.

But the unity shown by the Security Council in setting the August 31 deadline has given the United States hope that the unofficial coalition will remain strong if a sanctions threat has to be carried out.

Russia and China fought strongly to make sure there was no mention of sanctions but after two weeks of talks gave their backing to Resolution 1696 -- which says that punitive measures could be taken under Article 41, Chapter 7 of the UN Charter.

"I am quite confident that if this continues and if August 31 there is not a positive answer, then we'll be able to come to agreement on a next resolution under Article 41," said US Secretary of State Condoleezza Rice as she welcomed the Security Council move.

"I'm also confident that we have very good cooperation with Russia and China on this issue," she added.

"I think this is a record of moving steadily ahead and I'm quite confident that when the time comes to the next step, we'll move ahead again."

The Russian and Chinese envoys at the UN have acknowledged that the next stage would be discussion of sanctions. But Vitaly Churkin, Russia's ambassador, said "It is essential that any future measures that could be required to implement the resolution rule out the use of force."

China has pressed the case that the IAEA must be left to take the lead role in handling the Iran nuclear dispute.

While there is growing anticipation that some kind of action is now likely, diplomats said, Rice and the European trio -- Britain, France and Germany -- which has led negotiations with Iran insist that a negotiated settlement is still possible.

"I want to be very clear that (the resolution) does not close the door to diplomacy," said Rice.

"We remain committed to a negotiated solution," declared British Foreign Secretary Margaret Beckett.

Europe has highlighted that an offer of international economic and political incentives in return for an end to Iran's uranium enrichment and other work seen hiding efforts to make a nuclear bomb remains.

"We are deeply disappointed that Iran has given no indication that it is ready to engage seriously on these proposals," added Beckett.

"The proposals remain on the table, and I urge Iran to take the positive path on offer."

But Iran has indicated that Resolution 1696 could increase its determination to reject the package. It has previously said it could not reply until August 22. Frustrated by the wait, the IAEA referred the case to the Security Council last month.

Iran's UN ambassador, Javad Zarif, said: "The people and government of the Islamic Republic are not seeking a confrontation and have always been ready for sincere and constructive talks on the basis of mutual respect and equality.

"But they have also been firm in the face of pressure, threats and injustice," he said.

Zarif accused the United States and its European allies of "imposing a destructive and totally unwarranted Security Council resolution".

"I would suggest to you that this approach will not lead to any productive outcome. It can only exacerbate the situation," he told the council.

While disappointed, the Russian ambassador said Zarif's long speech did not amount to a rejection.

But there was also a tough tone from Tehran. A prominent Iranian MP, Alaeddin Borujerdi, head of the parliamentary national security commission, warned that Iran could halt cooperation with IAEA inspectors and even quit the nuclear Non-Proliferation Treaty because of the resolution.

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