Diplomats say Iran has replied to a European offer to avoid possible U.N. Security Council sanctions over its nuclear program. But they say the Europeans may reject Iran's response.

Officials close to the talks between Iran and European Union members Britain, France and Germany say there is still a problem with the question of uranium conversion to gas, which can be used to make weapons grade uranium.

Diplomats say the Europeans would find uranium conversion not acceptable, but Iran has argued it is within its rights.

The negotiations are holding up an important report by the International Atomic Energy Agency on Iran's nuclear program. That report was supposed to be distributed Friday to diplomats in Vienna, ahead of the U.N. agency's November 25 meeting.

If found not in compliance, the IAEA could refer Iran to the Security Council for sanctions.

Some information for this report provided by AP and AFP.