Iran and world powers Tuesday failed to narrow differences over the Iranian nuclear drive after bruising talks in Moscow held amid threats of a crippling oil embargo or even military action against Tehran.

However the Iranian negotiating team and the world powers led by EU foreign policy chief Catherine Ashton succeeded in keeping talks alive by agreeing a process for future meetings.

The United States and Israel have repeatedly refused to rule out air strikes on Iran against its nuclear programme, which the West suspects is a cover for a bid for nuclear weapons, and the Moscow meeting was seen as a crucial last test for the viability of talks.

"It remains clear that there are significant gaps between the substance of the two positions," Ashton told reporters in a late night news conference after nine hours of talks on the second and final day.

There had been "tough and frank" exchanges with the delegation led by chief Iranian nuclear negotiator Saeed Jalili, said Ashton, who represented the world powers known as "P5+1" -- permanent UN Security Council members Britain, China, France, Russia and the United States, plus Germany.

Ashton said the world powers reaffirmed their demands for Iran to stop enriching uranium to 20-percent purity, ship out the existing stock of such material, and shut down its heavily-fortified Fordo enrichment facility.

"The choice is Iran's," she said.

"We expect Iran to decide whether it is willing to make diplomacy work, to focus on reaching agreement on concrete confidence-building steps, and to address the concerns of the international community."

Uranium enrichment is at the centre of the decade-long Iranian nuclear crisis as the process can be used both to make nuclear fuel but also to make highly-enriched uranium for the explosive core of an atomic bomb.

Iran insists its nuclear drive is peaceful and aimed at producing energy for a growing population, as well as for much-needed medical isotopes that help fight cancer.

"The fact is that they (Iran) did begin to address the substance for the first time but there is a very long way to go."

Jalili called the talks "more serious and more realistic" than the rounds held earlier this year in Istanbul and last month in Baghdad.

He also floated the possibility that the supply of nuclear fuel from abroad could form part of a deal in the future.

But in an indication that Iran still wanted to enrich uranium to 20 percent, he said: "We insisted on the fact that the enrichment of uranium for peaceful purposes to all levels is the right of the Islamic Republic."

Jalili also warned that the widescale oil export sanctions that the European Union and the United States were now both set to impose against Iran risked derailing the negotiating process.

"If a path against this approach is started and certain actions disturb this approach, it will definitely affect the result of these talks," he said.

"Any wrong move, and any move not on this approach will definitely not be constructive, and will have an appropriate response."

But a senior US administration official, speaking on condition of anonymity after the talks, said that there would be no softening of the sanctions against Tehran.

"I don't think the differences have narrowed," said the official.

"I think what is correct to interpret is that Iran has a choice to make. They have provided a lot of information -- as have we -- and they need to reflect on the choice they make."

France said after the talks that sanctions on Iran will be tightened unless Tehran negotiates seriously.

"Pressure should now increase on Iran with the European Union fully applying from July 1 the oil embargo decided on in January," French Foreign Minister Laurent Fabius said in a statement released in Paris. "The sanctions will continue to be tightened as long as Iran refuses to negotiate seriously."

The stamina-busting final day negotiations were also marked by bilateral talks involving Iran and Russia which apparently stepped in during the afternoon to ensure the negotiating process stayed on track.

Ashton said an expert-level meeting would take place on July 3 in Istanbul, followed by another meeting between the deputies of herself and Jalili.

A higher-level meeting involving herself and Jalili would follow at an unspecified later date and location, she added.

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