July 20 (Bloomberg) -- Iran's top security panel said the country will pursue the production of nuclear fuel, warning against ``confrontation'' as the United Nations Security Council drafts a binding resolution requiring suspension of the work.

The council began discussing the resolution this week after Iran didn't respond to a European Union-led offer of incentives for the Islamic Republic to give up uranium enrichment. Iran is still studying the June 6 proposal, the country's National Security Council said today in a statement read on state television, adding that a reply will be given on Aug. 22. The UN draft foresees economic sanctions should the enrichment continue.

``Iran is not looking for frictions, but if others create a hostile and difficult atmosphere, everyone will have problems,'' the security body said. ``If the path of confrontation is chosen instead of the path of dialogue, and if there is any action to limit the absolute rights of the Iranian people, the Islamic Republic will have no choice but to revise its policy.''

Iran, holder of the world's second-largest reserves of oil and natural gas, says the enriched uranium is needed for a power plant, as allowed under the Non-Proliferation Treaty. In response to international pressure over its nuclear program, Iran has threatened to withdraw from the accord. The U.S. and the U.K. are among countries that suspect Iran is enriching uranium for use in a nuclear weapon, in breach of the treaty.

Russian Supply

The National Security Council suggested Iran may be open to a proposal for some enriched uranium to be imported into the country from Russia for use in generating electricity.

Iran will produce ``part'' of the nuclear fuel it needs, in a project to generate 20,000 megawatts of electricity over the next 20 years, the panel said in the statement.

The International Atomic Energy Agency on March 8 referred Iran to the UN Security Council after three years of agency inspections failed to declare Iran's atomic work peaceful. In November 2003, the UN agency criticized Iran for concealing parts of its nuclear program for 18 years.

The UN Security Council passed a non-binding resolution for Iran to suspend uranium enrichment by an April 28 deadline, which Iran failed to meet. The EU-led nuclear offer delivered to Tehran on June 6 includes the lifting of some U.S. sanctions as well as access to light-water nuclear reactors.

In the absence of an Iranian response to the offer, foreign ministers from the UN council's five permanent members -- the U.S., the U.K., France, Russia and China -- as well as Germany, decided July 12 to return the nuclear dispute to the full council to work on a binding resolution.

Letter to Merkel

Iranian President Mahmoud Ahmadinejad yesterday wrote a letter to German Chancellor Angela Merkel. The contents of the letter haven't been disclosed.

Ahmadinejad said April 24 that he would write letters to world leaders to influence them on ``important topics.'' His 18- page letter to U.S. President George W. Bush in May questioned Israel's right to exist and contained numerous religious references. It didn't address the dispute over Iran's uranium enrichment program.

The UN council was deadlocked early last month on the Iranian nuclear issue, with Russia and China opposing any threat of sanctions or military action against Iran. Each of the five permanent council members holds a veto over resolutions.

Ahmadinejad said his country had joined the ``nuclear club'' on April 9 by enriching uranium to a purity of 3.5 percent, enough to power a nuclear power plant. A purity of 90 percent is required for a nuclear weapon.

Iran doesn't yet have a nuclear power plant in operation. The Islamic Republic has already paid Russia as much as $1 billion to build a nuclear plant capable of generating about 1,000 megawatts of electricity in the southern city of Bushehr. The construction has faced numerous delays and should be completed by the end of this year.

To contact the reporters on this story: Marc Wolfensberger in Tehran at mwolfens@bloomberg.net and

Last Updated: July 20, 2006 10:21 EDT