The United States has said it will not accept any deal which allows Iran to enrich uranium.
Mohamed ElBaradei (standing) says diplomacy must continue
A new move by Russia proposes that Iran be allowed to run a small-scale uranium enrichment research programme.
But the US says only a complete suspension of Iran's nuclear activities would be acceptable in order to avoid UN Security Council action.
However, at talks in Vienna, the head of the UN's nuclear watchdog said he was hopeful a deal was still feasible.
Mohamed ElBaradei was speaking at the start of an International Atomic Energy Agency meeting that could pave the way to UN Security Council action against Iran.
Western powers believe Iran wants to develop nuclear arms, which it denies.
Tehran insists it has the right to develop its nuclear sector to produce energy for civilian purposes.
Under the Russian deal, Iran would be permitted to undertake small-scale uranium enrichment without obtaining the technology to build nuclear weapons.
But the Americans say only a complete suspension of activities will be acceptable.
"You can't be just a little pregnant," said State Department spokesman, Tom Casey.
"You can't have the regime pursuing enrichment on any scale, because pursuing enrichment on any scale allows them to master the technology, complete the fuel cycle - and then that technology can easily be applied to a clandestine programme for making nuclear weapons," he said.
Russia's foreign minister, Sergei Lavrov arrives in Washington on Monday where he will meet US Secretary of State Condoleezza Rice and President George W Bush.
The crisis over Iran's nuclear programmes is likely to be high on the agenda.
In Vienna, Mr ElBaradei said the Iran nuclear issue had serious implications for world peace, and urged both sides to continue negotiations.
He said there was international consensus over the issue's importance.
"It has to do with regional security, the whole Middle East regional security is very much at stake and escalation is not going to help," Mr ElBaradei said.
Iran said on Sunday that once the UN Security Council was involved, Tehran would resume full-scale uranium enrichment - which can lead either to material for civilian nuclear reactors or nuclear bomb components.
Iran says its nuclear programme is purely peaceful
Iranian negotiator Ali Larijani told a news conference in Tehran: "If [the US and its allies] want to use force, we will pursue our own path."
Mr Larijani added: "Going to the Security Council will certainly not make Iran go back on research and development."
The IAEA has demanded Iran suspend nuclear enrichment completely. Iran refuses, emphasising its sovereign right to continue the process under the Non-Proliferation Treaty.
The IAEA meeting in Vienna - expected to last several days - may not discuss Mr ElBaradei's report until Tuesday or Wednesday.
The report, leaked to the media last week, says the Iranians have begun feeding uranium gas into centrifuges.
It also says Tehran has rejected stricter inspections, and has hindered inspectors' work.
Ali Larijani said Iran would go its own way
Three years of negotiations between Iran and the EU, and the latest round of talks between Moscow and Tehran, have brought no significant result. Iran resumed enrichment in January after a two-year hiatus.
However BBC world affairs correspondent Paul Reynolds says sanctions are still a long way off and might never come.
Warnings and demands Iran suspend its nuclear programme will come first in any case, he adds.
Russian and China - permanent members of the Security Council with the power of veto - have so far opposed imposing sanctions on Iran.