But the diplomatic path is looking less hopeful as the new Iranian government of President Mahmoud Ahmadinejad is being seen each week as more hard-line and less rational, after his threat to "wipe Israel off the map."
Even the Old Guard of Iran's Islamic revolution is openly appalled by the new regime's ultra-conservative policies, with former President Akbar Hashemi Rafsanjani in an unprecedented public warning that the new government and its purges are damaging Iran at home and abroad.
"Today some are calling into question the actions of the past, and are enacting a policy of purges, a policy of general banishment and the sidelining of competent people," said Rafsanjani, who was defeated in this summer's election for the presidency, but remains head of the powerful Expediency Council, the body that is supposed to arbitrate between the government and the clerical leadership.
"These people are muddying others, and if we let them do so, they will call into question the achievements of the regime and the revolution," Rafsanjani told a gathering of clerics, according to the official IRNA news agency. "Such attitudes will allow the enemies to reach their objectives."
Western diplomats have now also been startled by reports of President Ahmadinejad's cabinet being required to sign a formal pact of loyalty to the 12th Imam Mehdi, who disappeared into the Jamkaran well 1,300 years ago. To ratify the pact, the signed cabinet document was then solemnly entrusted to the well, posted on top of many thousand petitions and letters dropped there by worshippers over the centuries.
President Ahmadinejad is a member of the Hojatieh sect, seen by many Shiite Muslims as verging on the lunatic fringe of Islam, and thought to be so extreme by Ayatollah Khomeini whose 1979 revolution overthrew the shah that it was driven underground in 1983. The Hojatieh sect is now very much back in favor with the new Iranian government, and the new president is a fervent admirer of its spiritual leader, Ayatollah Mesbah Yazdi, known in secular circles in Tehran as "the crazed one."
The new president has purged senior figures from the Iranian Foreign Ministry and Oil Ministry, to replace them with his own loyalists, many of them from the Pasdaran (Revolutionary Guard). In recent speeches, some of these newly powerful supporters of President Ahmadinejad have denounced any talk of compromise with the United States and the West in speeches that have been reported in the Iranian press and media.
General Mohammad Kossari, who runs the Revolutionary Guard's Security Department, has announced that "Iran intends to become a superpower and will drive all foreign forces out of our region."
"We have a strategy drawn up for the destruction of Anglo-Saxon civilization," declared Hassan Abbasi, formerly director of the Revolutionary Guard's Center for Security Doctrines Research, and now chief foreign policy adviser to the new President. In Tehran, he is spoken of as "the Kissinger of Islam."
In a recent lecture at a Teachers Training College in Karaj, west of Tehran, and reported by the veteran Middle East journalist Amir Taheri, Tehran's top foreign policy adviser claimed that the U.S. was playing "a game of chicken" with Iran, and Iran would not back down.
"The Western man today has no stomach for a fight. This phenomenon is not new: All empires produce this type of man, the self-centered, materialist, and risk-averse man," Abbasi is quoted as saying.
European Union officials, whose diplomats in Tehran are sending alarming cables about the militancy and religious fervor of the new government, now say privately that they are losing hope that even the most skilful diplomacy could succeed with the hard-line zealots who now run Iran, even less so now that have launched a bitter power struggle with the old guard of the revolution.
U.S. under-secretary of State Nicholas Burns has arranged meetings with the group of British, French and German diplomats known as the EU3, who have taken the lead in the diplomatic effort to persuade Iran back into compliance with the inspection regime of the IAEA.
A new report from the International Atomic Energy Agency said that Iran had received technical data on how to enrich uranium from the black market operation of Pakistani scientist A. Q. Khan as early as 1987. The documents were provided to the IAEA by Iran, which claims it had not sought the data nor had the technical advice been used.
Uranium enrichment is a critical process in the building of a nuclear weapon, but is also required in significantly less concentrated form to provide fuel for nuclear power stations.
The IAEA, the world's nuclear watchdog, says Iran's cooperation has improved, but says more openness and transparency from Iran is "indispensable and overdue," particularly on dual-use equipment, and on visits to sites whose existence Iran had long kept secret.
"These documents open new concern about weaponization that Iran has failed to address," U.S. Ambassador to the IAEA Gregory Schulte told reporters in Vienna. "Iran owes the board an explanation of why it had these documents, what it has done with them and why it didn't disclose them in the past."
The IAEA governors are scheduled to meet again next week in what promises to be a contentious session that could see a battle over proposals to refer Iran to the United Nations Security Council for possible sanctions. China, with its own important energy deals with Iran, and Russia, which supplied Iran's Busheir nuclear reactor, have discreetly resisted the idea of sanctions in the past, but the growing alarm about the rationality of the new Iranian regime is helping push the case for a rethink.
Or as Britain's Prime Minister Tony Blair put it to this month's European summit at Hampton Court: "Can you really imagine a regime such as this getting hold of nuclear weapons?"