Western leaders have questioned Iran's intentions after it made a claim that a deal to swap enriched uranium for nuclear fuel could now be close.
Germany's Vice Chancellor and Foreign Minister Guido Westerwelle said if Iran is actually serious it "must take action."
He said a nuclear-armed Iran is "unacceptable" and that Tehran needs to prove to the world that its nuclear program is for peaceful purposes only.
Herr Westerwelle told a gathering of the world's top defence officials in Munich today that "a nuclear-armed Iran is unacceptable for us" and would "lead to a destabilisation of the entire region."
Last night, Iran's Foreign Minister, Mr Manouchehr Mottaki, said he believed that Tehran was "approaching a final agreement" on its nuclear program and that the prospects are good for clinching a deal with world powers on exchanging LEU for higher-grade fuel it can use in a reactor producing medical isotopes.
However, this morning, US Defence Secretary Robert Gates said he saw no sign a deal was close, suggesting it was time to move forward with sanctions.
"I don't have the sense that we're close to an agreement," Mr Gates told reporters in Ankara where he met Turkish leaders.
"If they are prepared to take up the original proposal of the P-5 plus one of delivering 12,000 kilograms of their low enriched uranium, all at once to an agreed party, I think there would be a response to that," he added, referring to the five permanent UN Security Council members plus Germany.
Mr Gates said President Obama had taken unprecedented steps to engage with Iran, describing the response so far as "disappointing".
"But the reality is they have done nothing to reassure the international community that they are prepared to comply with the NPT (Non-Proliferation Treaty) or stop their progress towards a nuclear weapon, and therefore I think various nations need to think about whether the time has come for a different tack," Gates added, in an apparent reference to sanctions.
"The P5 plus one has always had a dual track approach - that engagement would be tried first, and if that didn't work, then pressure would be applied. The purpose of the pressure would be to bring Iran back to the negotiating table to negotiate seriously about constraining this program," he added.
Agencies