Brussels: Iran must stick by a deal that would limit its uranium enrichment if it wants to improve relations with the European Union, EU leaders said on Friday.

Western diplomats said this week Tehran had rejected a plan proposed by International Atomic Energy Agency chief Mohammad Al Baradei at talks last week involving Iran, the US, Russia and France.

The plan calls for Iran to export most of its enriched uranium, offering instead to enrich it to a higher level inside the country under UN supervision.

EU leaders expressed "grave concern over the development of Iran's nuclear programme, and Iran's persistent failure to meet its international obligations," according to a draft statement circulating on the second day of a two-day EU summit in Brussels.

The statement also urged Iran to agree to the UN atomic watchdog's scheme for supplying nuclear fuel to Tehran's research reactor, saying such an agreement "would contribute to building confidence." A copy of the statement was obtained by The Associated Press.

Progress on the nuclear issue, it said, "would pave the way for enhanced relations between the EU and Iran ... in the political, economic, security and technical fields."

EU leaders also said they deplored continued violations of human rights in Iran, and urged the authorities to release EU citizens and employees of European missions there.

British Foreign Secretary David Milliband said at the summit Thursday that he was "deeply concerned" about news of the Iranian sentencing of a British Embassy employee, Hossein Rassam.

"I've received very strong support from all my European Union colleagues, who see in this not just an attack on one diplomatic mission but on all the diplomatic missions in Tehran," he said.

A French researcher and French Embassy employee were both charged in a mass trial of those accused of fomenting unrest in postelection protests in Iran in June. Both are freed on bail, though neither can leave Iran pending a verdict.