"The basis of our work is that the Islamic republic of Iran's rights must be recognised in any plan," foreign ministry spokesman Hamid Reza Asefi said on Sunday.
"We cannot retreat. The proposal should provide ways to secure our rights."
Britain, France and Germany are preparing a package of trade, technology and security benefits if Tehran stops enriching uranium to defuse an escalating international showdown.
The proposal says world powers should support Iran's building several light water reactors, set up a nuclear fuel bank and even have the US drop restrictions on Iran's ability to purchase US commercial airplanes, if Iran suspends its uranium enrichment and co-operate with the International Atomic Energy Agency.
But Asefi added that it would "hasty to comment on a raw proposal that has been brought up in the media, and still neither officially nor unofficially given to us".
Earlier reports said quoting diplomats that Iran may be offered an end to the Security Council pressure if it agrees to suspend uranium enrichment, but could face sanctions backed by the threat of force if it refuses, under a proposal being considered by major world powers.
Citing from a draft under consideration by the five Security Council nations plus Germany, one of the diplomats said on Saturday it could still undergo revision before the six nations sit down on Wednesday to approve a final version. He spoke on condition of anonymity because he was not authorised to reveal elements of the draft.
Still - even before the package of incentives and penalties was formally put on the table - Tehran appeared ready to opt for the stick instead of the carrot.
Manouchehr Mottaki, the Iranian foreign minister, said in Kuwait City on Saturday that - while Iran wants the council to end its involvement - "suspending nuclear activities goes against our legitimate rights and is not part of the NPT [nuclear Non-proliferation Treaty]".
Tehran has defied pressure to
give up its nuclear programme
The proposal says the international community will "agree to suspend discussion of Iran's file at the Security Council", if Tehran resumes talks on its nuclear programme and suspends enrichment during such talks and lifts a ban on intrusive inspections by experts of the International Atomic Energy Agency.
It also offers help in "the building of new light water reactors in Iran", offers an assured supply of nuclear fuel for up to five years and calls for Tehran to accept a plan that would move its own enrichment programme to Russia to prevent misuse for a possible nuclear weapons programme.
But if Iran remains defiant, the draft calls for bans on travel visas, freezing assets and banning financial transactions of key government figures and those involved in Iran's nuclear programme; an arms embargo, and other measures including an embargo on shipping refined oil products to Iran.
While Iran is a major exporter of crude, it has a shortage of petrol and other oil derivatives.
"Where appropriate, these measures would be adopted under Chapter VII, Article 41 of the UN Charter," says the draft, referring to provisions that add the implicit threat of military force to a Security Council resolution.
Iran says its N-programme is
meant for peaceful purposes
That section - backed by the US, France and Britain - remains controversial, however, and the head of the IAEA plans to urge the Bush administration next week to ease its push for tough UN Security Council action.
Diplomats said that Mohamed ElBaradei, the IAEA chief, would meet with Condoleezza Rice, the US secretary of state, Stephen Hadley, the national security adviser, and other top US officials to press the administration to moderate its stance.
The Washington meetings were scheduled for Tuesday, a day before senior officials of the five permanent Security Council members, the EU, plus Germany convene in London to give their blessings to an Iran package.
The Americans have swung behind new attempts by France, Britain and Germany to persuade the Iranians to give up enrichment - which can be used to generate nuclear fuel or the core of weapons.
But Washington insists that the Iran package include the threat of a Security Council resolution that is militarily enforceable if Tehran refuses.