In a day of high drama, Iran defied its European negotiating partners by informing the UN nuclear watchdog it intended to resume nuclear-related activities starting yesterday. That is expected to lead to the collapse of talks with Britain, France and Germany and the possible referral of Iran before the UN Security Council for sanctions.

The Iranian letter provoked a personal appeal from the head of the International Atomic Energy Agency, Mohammed ElBaradei, who urged the Iranian leadership not to jeopardise its hard-fought deal with the Europeans.

But it also offered an opportunity for more time, which would enable the Europeans to complete their proposals by the end of the week, by which time Mahmoud Ahmadinejad will have taken over as President.

Mr ElBaradei asked Tehran for a "maximum of two days" to send its experts to the Isfahan facility where they would watch the breaking of the UN seals to enable Iran to resume uranium processing. Last night, Iran agreed to the two-day delay.

Its decision had been expected since the weekend, when it suddenly announced a deadline for Europe to deliver its package of incentives aimed at persuading Iran to permanently freeze its uranium enrichment programme. The Europeans are insisting on a freeze as a guarantee that Iran is not developing a nuclear weapon. They made it clear resumption of uranium conversion would signify a breach of their agreement with Iran.

British officials said the three European countries - which had rejected the Iranian deadline - still intended to submit their proposals to Iran. They are expected to specify no military action would be taken to compromise Iran's political integrity, as well as confirm support for Iranian membership of the World Trade Organisation.

The crisis with the Europeans is the worst since Iran agreed to suspend uranium-related activities in November last year. Such activities are a crucial stage in the development of a nuclear weapon. Iran insists its nuclear programme is purely for civil purposes.

But the unfolding crisis comes against a backdrop of domestic Iranian politics, after the surprise election of Mr Ahmadinejad, which triggered widespread dismay in the West. His inauguration is tomorrow.

Ali Agha Mohammadi, the spokesman for Iran's Supreme National Security Council, accused the European Union of delaying its proposals to "take a stance" against Mr Ahmadinejad, who is replacing the pro-reform President Mohamed Khatami.

Britain has ruled out a military option, which has been evoked by the Israelis. A military attack on Iran could produce retaliation by the Iranians elsewhere in the region, and would strengthen the hand of the advocates of nuclear weapons in Tehran. The programme could go underground, making it even harder for the West to detect than under the present United Nations-supervised regime.

Experts believe it would take Iran, which has dabbled in all aspects of nuclear fuel, at least four years to be able to build a bomb.

Countries want the bomb to protect themselves from US attack

Which country poses the biggest nuclear threat?

North Korea. It says it has a nuclear arsenal, and the head of the International Atomic Energy Agency says it may have enough plutonium for six bombs. The CIA believes Pyongyang could produce "one or two bombs" a year. But nobody knows for sure because the UN weapons inspectors were thrown out before North Korea withdrew from the Nuclear Non-Proliferation Treaty in 2003. Six-party talks in Beijing, involving the US, are trying to negotiate North Korean disarmament.

Why do countries want the bomb?

National prestige and deterrence against regional rivals. India and Pakistan entered the exclusive nuclear "club" of five - the US, Britain, France, Russia, China - after tit-for-tat nuclear explosions in 1998. Also, with the war on Iraq (which did not have the bomb), countries believe it is in their strategic interests to obtain the bomb as a guarantee against attack by the US.

It saved North Korea. North Korea and Iran have discovered the threat of nuclear weaponry can be turned into a powerful tool to obtain security and economic compensation from the West.

What will happen if the NPT negotiations fail?

A very grave situation. The system of international safeguards aimed at preventing a repeat of the horrors of Hiroshima in disarray. The North Koreans have pulled out and others may follow, leaving the Middle East and Asia with a big security deficit. The NPT members Egypt and South Korea have admitted secret experiments, and there are questions about Brazil and Argentina's intentions. Iran was forced to admit that it had cheated for 18 years, and Iraq and Libya violated the treaty.