Foreign Secretary Jack Straw has told BBC Radio Four that "bit by bit", progress is being made in Britain's relationship with Iran.
Mr Straw says progress has been made in the relationships with Iran
He said the fact that a diplomatic incident had arisen was "unfortunate".
But he firmly defended the joint diplomatic efforts by France, Germany and the UK on the Iran nuclear dossier.
Iranian authorities recently detained eight Britons who had entered Iranian territorial waters in the Shatt al-Arab waterway for three days.
The men were training the Iraqi river patrol service in the waterway, which forms the border between Iran and Iraq.
Mr Straw said he hoped the squabble could be solved satisfactorily, and praised the overall progress in relations with Iran.
"On the whole, the co-operation we have received from Iran both in respect of Afghanistan and Iraq had been good and productive," he said.
"We got the men back, which was the prime matter, but there are other matters still outstanding and then we can move on."
With regard to the concerns of the International Atomic Energy Agency (IAEA) over Iran's possible plans to develop nuclear weapons, Mr Straw said there had not been "full co-operation" by Iran, but insisted the current approach by France, Germany and the UK was correct.
"What I say to you critics is: What's your alternative?
"What we are seeking to do is to get the Iranians to accept that they have been under long-standing obligations to meet their commitments under the non-proliferation treaty.
"We are certainly a long way further forward in terms of getting to meet those commitments."
Asked whether he believed Iran's claims that it has no intention of developing nuclear weapons, he replied:
"I'm not sure."
With regard to Israel's nuclear capability, Mr Straw argued that the territorial integrity of Iran was not being questioned, whereas that of Israel was.
"I don't happen to approve of a lot of the actions that the government of Israel takes, and I make that very clear.
"But I also say that if you want a nuclear-free Middle East, you have to ensure that first of all it is the Arab and Islamic countries that remove their threat to Israel, and then we can put a great deal more pressure on Israel to abandon its undoubted nuclear weapons programme, which has been there... for defensive purposes."
Mr Straw was adamant that the current diplomatic effort was the only meaningful approach to solving the problem.
"Iran is a very important country. It's the dominant player in the region, so you can't ignore it.
"And I think the approach we have adopted and have been working on very closely with France and Germany, particularly on the nuclear dossier, is the right approach."