The European Union was preparing Wednesday to debate a British request to pull ambassadors of all 27 EU nations from Iran in protest over the detention of Iranian staff at the British Embassy in Tehran, AP reported.
The detentions last week cranked up Iran's standoff with the West over its bloody crackdown on opposition protesters who disputed the results of last month's presidential election.
In a further sign of deteriorating ties, Iran said Wednesday the EU had disqualified itself from talks over Tehran's nuclear program because of its "interference" in the post-election unrest. Iran accuses the EU of supporting the anti-government rallies.
The EU "has totally lost the competence and qualifications needed for holding any kind of talks with Iran," Iran's chief of staff, Gen. Hasan Firouzabadi, was quoted as saying by the semi-official Fars News Agency.
Iranian state television on Wednesday said Tehran released all but one of the British Embassy employees. Neither Britain nor the EU immediately responded to word of the releases - and it was not clear how they would affect discussions over withdrawing envoys.
Britain said nine of its local employees initially were arrested last week, and five were released on Monday. Both Britain and the European Union had condemned the detentions as "harassment and intimidation."
The EU struggled Wednesday for a measured response to the repression that has followed Iran's disputed elections, concerned Tehran could react by cracking down even harder on reformers, demonstrators and journalists.
Senior European Union officials were to debate Britain's pullout request on Thursday.
But there has been little enthusiasm for the proposal in some capitals, for fear it would only isolate Iran even more, said an EU diplomat who asked not to be named because he could not discuss the issue publicly.
On the day his government assumed the EU's rotating presidency, Swedish Prime Minister Fredrik Reinfeldt said he hoped Iran's leaders "will make the right choice" in avoiding confrontation with the international community.
He announced no sanctions of any kind against Iran after talks with the European Commission, the Brussels-based EU executive on Wednesday.
Speaking to reporters, Reinfeldt said Europe and others must take care not to become "an excuse for use of violence or use of repression inside Iran."
The dilemma is how to back reforms in Iran and "at the same time not (become) an excuse for use of violence or use of repression inside Iran," said Reinfeldt. "That is the balance we need to strike in Europe and also other parts of the world."
Reinfeldt also urged Iran to "introduce reforms rather than create some conflicts" with the 27-nation European Union, the United States and others.
EU nations have increased criticism of Iran's crackdown on protesters who allege the June 12 presidential vote was rigged in favor of President Mahmoud Ahmadinejad.
Reinfeldt said the EU was closing ranks with Britain denouncing the detention by Iran of nine local British Embassy employees in Tehran.
Sweden assumed the EU's presidency on Wednesday, and will hold it for six months.