MUNICH (Reuters/AFP) - Iran must satisfy the demands of the international community over its nuclear programme or face fresh sanctions and increasing isolation, US National Security Adviser James Jones said on Saturday. Hanging in the balance is a nuclear arms race in the Middle East and greater proliferation worldwide. I can think of no greater concern at the moment to our collective security, Jones said at the annual Munich Security Conference. The unprecedented degree of international consensus ... demonstrates that Tehran must meet its responsibilities or face wider sanctions and increasing international isolation, he said. Jones said that the door for diplomacy with Iran remains open, but he underlined that Tehrans puzzling defiance... now compels all of us to work together as allies and partners on a second track of increased pressure. He was speaking after Irans foreign minister said on Friday he was confident of a deal soon with world powers on exchanging some of Tehrans low-enriched uranium for higher-grade fuel it could use in a reactor producing medical isotopes. Meanwhile, US Defence Secretary Robert Gates said on Saturday he saw no sign a deal was close between Iran and Western powers on exchanging some of its low-enriched uranium (LEU) for higher-grade fuel, suggesting it was time to move forward with sanctions. I dont have the sense that were close to an agreement, Gates told reporters in Ankara where he met Turkish leaders. His comments stood in contrast to those by Irans foreign minister, Manouchehr Mottaki, who said on Friday he saw good prospects for clinching a deal with world powers on exchanging LEU for higher-grade fuel it can use in a reactor producing medical isotopes. 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 didnt 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 programme, he added. However, EU Foreign Affairs Chief Catherine Ashton said Saturday Iran must formally respond to UN atomic agency proposals to send uranium abroad for enrichment in order to build badly needed confidence. Iran must now respond to the director general of the IAEA (International Atomic Energy Agency)... There is a proposal on the table, a creative attempt to build confidence with Iran, on a practical cooperation in the nuclear area. Years of talks by my predecessor Javier Solana and his colleagues took place against a backdrop of work that was continuing contrary to the rules of the safeguard system by which we are all bound, Ashton said. The proposals are an attempt to build badly needed confidence, Ashton said. The proposals involved Iran shipping low-enriched uranium (LEU) to Russia and France to be further purified into reactor fuel, which would then be used in a research reactor in Tehran.