Incentives in the package, proposed by the UK, France and Germany, also include a European light-water reactor to produce nuclear energy and fuel supply guarantees in a joint project with Russia if Iran halts uranium enrichment.

 

The draft also offers Iran a form of security guarantee, saying the EU would work towards "recognition of territorial integrity" of Middle Eastern countries, sources said.

 

In exchange, Iran would have to suspend all aspects of its uranium enrichment programme - including research and development work - and cease construction of a heavy-water  reactor.

 

If Tehran does not comply, sanctions could follow, including visa bans for high-ranking Iranian officials and their families, freezing assets of Iranian individuals and companies and trade sanctions, diplomatic sources said.

 

'Candy for gold'

 

Nicholas Burns, the US undersecretary of state, said the US would give its response on Wednesday after a meeting between the three European nations, China, Russia and the US.

 

Ahmadinejad dismissed an
earlier EU offer

Iran
has several commercial airlines but its fleet is old.

 

The country has suffered several fatal air crashes in the past few years, often blamed on technical failures.

 

The EU and US believe that Iran is secretly developing atomic weapons under cover of a civilian nuclear energy programme, but Iran says its atomic programme is for peaceful purposes.

 

On Wednesday Mahmoud Ahmadinejad, the Iranian president, said that Europe was treating Iran like a child and said an EU offer for a single nuclear reactor was like offering "candy for gold".