Iran is facing mounting calls to halt uranium conversion, a day after it resumed operations at its nuclear facility at Isfahan.
Iran rejected EU-backed proposals to halt its nuclear programme
The US, the EU and the UN's nuclear watchdog have urged Iran to return to talks on its nuclear programme.
Iran's President Mahmoud Ahmadinejad said he was ready to return to talks, but with a fresh set of proposals.
The UN's nuclear watchdog is debating whether Iran should be referred to the UN Security Council for sanctions.
Negotiations, which have been adjourned until Wednesday, are expected to take several days.
The EU and the US want Iran to abandon its nuclear programme, which they suspect is a cover for a nuclear weapons programme, in exchange for political and economic concessions.
Iran suspended its nuclear programme in 2004 to allow for talks, but began work at Isfahan on Monday after Iran rejected the latest EU offer.
Russia - Iran's main partner in its effort to develop nuclear power - has called on Tehran to stop work on uranium conversion immediately and continue co-operating with the IAEA.
In the US, President George Bush said Iran's willingness to return to talks was a "positive sign", but added that he was still "deeply suspicious" that Iran was intent on developing a nuclear weapon.
NUCLEAR FUEL CYCLE
Mined uranium ore is purified and reconstituted into solid form known as yellowcake
Yellowcake is converted into a gas by heating it to about 64C (147F)
Gas is fed through centrifuges, where its isotopes separate and process is repeated until uranium is enriched
Low-level enriched uranium is used for nuclear fuel
Highly enriched uranium can be used in nuclear weapons
Speaking before the IAEA meeting, IAEA chief Mohamed ElBaradei, said he hoped Iran's decision to resume its nuclear activities was simply a hiccup and not a permanent rupture.
France's Foreign Minister Philippe Douste-Blazy said he believed it was still possible to resolve the standoff through diplomacy.
"Our hand is still outstretched," he said.
Correspondents say Washington, backed by Japan, Canada and Australia, believe the diplomatic route is now exhausted and the only next step is to refer Iran to the UN Security Council.
However, a diplomat told Reuters news agency the board of governors was not likely to call for a UN referral just yet, giving both Iran and the EU time for more talks.
Iran says it has the legal right under the Nuclear Non-proliferation Treaty to carry out the nuclear fuel cycle.
President Ahmadinejad, who took office last week, said Iran had done nothing unlawful by resuming uranium conversion.
"We are ready for talks, and negotiations have never been interrupted by us," the official Irna news agency reported him as saying.
The newly installed president said he would put forward new proposals for negotiation after forming a cabinet.
An Iranian official involved in the negotiations, Sirus Naseri, told the Reuters news agency that an Iranian proposal to settle the standoff was "still on the table".
Iranian Defence Minister Ali Shamkhani said that Tehran would "resist" mounting international pressure and was unworried about threats of UN Security Council intervention.
The Isfahan plant is Iran's main uranium conversion facility. Conversion is an early stage in the nuclear fuel cycle, turning raw uranium - known as yellowcake - into the feedstock for enriched uranium.
Uranium enriched to a low level is used to produce nuclear fuel, while further enrichment makes it suitable for use in atomic weapons.
Mohammad Saeedi, deputy head of Iran's Atomic Energy Organisation, said on Monday that work at Isfahan had resumed under the supervision of the IAEA.
He later said that work would begin on Wednesday in previously sealed-off areas of the plant, taking the conversion process further.