The "bold" package would include economic, nuclear, and possibly security guarantees, Mr Solana said.

The incentives would be difficult for Tehran to refuse if what it really wanted was nuclear energy, he said.

EU foreign ministers are meeting in Brussels, partly for discussions on Iran's nuclear programme.

The EU and the United States fear that Iran - despite its denials - is actually trying to develop nuclear weapons.

Iran says its nuclear programme is aimed at meeting its energy needs only. It insists on its right to enrich uranium.

Mr Solana dismissed comments on Sunday by Iranian President Mahmoud Ahmadinejad, who said Iran will reject any offer to resolve the dispute over its nuclear programme that forces it to halt its "peaceful activities".

The US and some European governments are seeking a tough resolution on Iran at the UN Security Council.

Both China and Russia - both veto-holding members of the Security Council - do not want to support any resolution that might eventually lead to further resolutions threatening sanctions or military action.

Annan hopes

In a separate development, UN Secretary General Kofi Annan has called for urgent action to end the stand-off over nuclear issues with both Iran and North Korea.

"The international community has to take very urgent steps to deal with these issues before we have a cascade of a proliferation of nuclear weapons," he told a news conference in Seoul.

Mr Annan is in South Korea at the start of a two-week East Asian tour.

He said that that the meeting of foreign ministers from the five permanent members of the UN Security Council and Germany in New York last week was cause for renewed confidence in a diplomatic solution on Iran.

"I am encouraged by the intensified diplomatic efforts to resolve this issue peacefully and seek a negotiated settlement," he said.