They see it as a matter of who will blink first: Iran, under the specter of economic sanctions and pariah status, or the West, if it is unable to muster a unified front.

"They have to believe that there is a real cost to what they are doing. We need to convince them that the international community is serious," a European diplomat said Tuesday.

"At the moment the hardliners are saying that the Iranian regime can get tough with the West, and the West will back down. We've got to prove that wrong," he said.

The first opportunity to do that will come Feb. 2, when the International Atomic Energy Agency Board of Governors convenes an emergency meeting to discuss Iran. The IAEA is expected to refer the matter to the United Nations Security Council, although the vote is unlikely to be unanimous.

On Jan. 9 Iran removed United Nations seals from its uranium enrichment equipment, in place for the last two years, and announced its intention to restart its enrichment program. Enriched uranium is used to fuel civilian nuclear power plants. Further refined, however, it can be used in a nuclear warhead.

Tehran insists it only intends to enrich uranium for reactor fuel, which it argues is its right as a sovereign country and as a signatory to the nuclear Non-Proliferation Treaty. The NPT allows parties to pursue peaceful nuclear technology in exchange for forswearing the development of nuclear weapons.

Beginning in 2003, however, a series of revelations about Tehran's unreported weapons activities -- combined with its hard line government, support for terrorism, and stated hostility toward Israel's existence - made Iran a proliferation threat.

"There is a long list of inconsistencies, lies and covert activity that together makes a powerful case that the Iranian regime's intentions are not to develop a civilian nuclear program," the European diplomat said.

Iran's breaking of the seals drew threats of economic sanctions from the United States and Europe, and suggestions from Israel that it was prepared to take military action against Iran's nuclear infrastructure.

Iran has thus far been unmoved by economic threats or the offer of a Russian program to fuel its nuclear reactors, and it appears to be taking steps to protect its funds from being frozen in foreign banks if U.N. sanctions are put in place.

But the diplomat believes that the more pragmatic elements in the ruling regime would be discomfited by a referral.

"For the last two years, they bent over backwards to avoid referral," he said. "They don't want to be pariahs, they care about international respectability, and they don't like the thought of sanctions."

Iranian President Mahmoud Ahmadinejad has shrugged off the threats, but the diplomat said on the matter of Iran's nuclear program he does not have the final say.

"It would be a mistake to see the new president in charge of this. He's not," the European diplomat said. "The Supreme Leader (Ayatollah Sayyid Ali Khamenei) made it abundantly clear nuclear policy isn't up to (Ahmadinejad)."

Ideally, the IAEA referral would be followed by a Security Council resolution that clearly lays out what Iran would have to do to comply, and a series of measures that would be taken by the West if it does not.

The program should be an incremental program of demands and required responses rather than a headlong dive into economic sanctions, he said.

"Doing anything else, you wouldn't take the Security Council with you," the diplomat said, since Russia and China are opposed to sanctions.

He believes there is a reasonable chance of success for this policy of escalating responses.

"There is no certainty that they'll back down. This would be a big loss of face for the hardliners. But the bulk of the regime doesn't want to pay a big cost and if they do, I think they will be deeply unhappy."

In the meantime, U.S. senators said over the weekend said military strikes remain an option if Iran insists on pursuing a nuclear weapons program. But a U.S. State Department official said Tuesday he hopes to avert armed conflict.

Deputy Secretary of State Robert Zoellick told reporters in Beijing Tuesday the United States "is trying to avoid any confrontation."

On Sunday, Sen. Joseph Lieberman, D-Conn., and John McCain, R-Ariz., warned that a military option had not been ruled out.

"We cannot take the military option off the table," McCain said on Fox News. "But we have to make it very clear (that)] it is the last option. There is only one thing worse than the United States exercising a military option, and that is Iran having nuclear weapons."

American ground forces are heavily committed in Iraq and Afghanistan, causing some to doubt the United States would take on another military commitment. However, a strike on Iran's uranium enrichment facilities and reactors would likely be conducted by aircraft or cruise missiles, two capabilities not strained by the twin wars, according to non-proliferation experts.

Few believe a military strike is either likely or ultimately productive. They argue it could drive Iran's nuclear weapons program further underground and would stoke the fear that compels Iran toward a nuclear future. But a pre-emptive strike can't be dismissed, given the Bush administration's embrace of that doctrine.

"In effect it could be a self-fulfilling prophecy and stimulate them into a full-fledged hidden weapons program," said Charles Ferguson, a science and technology fellow at the Council on Foreign Relations. "At best it could buy us time, at worst it would be a self-fulfilling prophecy, where they would go full-steam ahead, revive the program and keep it hidden."

However, warned Joseph Cirincione, director for non-proliferation at the Carnegie Endowment for International Peace, an air strike on Iran's nuclear infrastructure could negatively affect U.S. forces in Iraq.

Iran is a Shi'ite Muslim country, and Iraq's relatively peaceful majority are Shi'ite. While a bloody, decade-long war between Iran and Iraq drew a deep cleft between the citizens of both countries, Iran is a key supporter of the Supreme Council for Islamic Revolution in Iraq, the major Shi'ite party. It also supports Muqtada Sadr and his Mahdi Army, which staged two armed uprisings in 2004.

Sadr said Sunday the Mahdi Army would defend Iran, pesumably through attacks on U.S. forces in Iraq, if Iran were bombed, the official Islamic Republic News Agency reported.

"The problem is an attack on Iran could further jeopardize the American position in Iraq -- promoting uprising among the Shi'ites or the (mostly Shi'ite) military," said Cirincione.

"The concern is that Iran has retaliatory options involving troops in Iraq and Afghanistan," agreed Paul Kerr, of the Arms Control Association in Washington.

Raising the specter of a military strike could be a gambit to induce Iran toward a more cooperative stance and convince it to foreswear weapons.

Iran's stated intent to enrich uranium "is a problem, but not a crisis yet," said Kerr, who counsels an incremental approach of pressure and inducements rather than a flat attempt to sanction Tehran.

"I'd advise not to rush to sanctions because if you can't get them, then what?" he said. "I don't think sanctions are achievable in short term. You don't want to rule out sanctions, but gradually escalate to give them a chance to comply. You don't want to use the blunt instrument right off."

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