Reacting to the vote at the end of a three-day meeting in Vienna, President Mahmoud Ahmadinejad raised the stakes by ordering an end to snap inspections by UN weapons inspectors, and the immediate resumption of uranium enrichment, which can eventually lead to the production of a bomb.
A senior Iranian official, Javad Vaeidi, made it clear that the only compromise proposal on the table to end the stand-off - a Russian offer to enrich uranium for Iran outside the country - was dead. "There is no adequate reason to pursue the Russian plan," he said.
The response of US hawks yesterday was to warn that military action might be necessary to stop Tehran from developing a nuclear weapon, despite the grudging acceptance by many US policymakers that, like it or not, they may have to stomach a nuclear-armed Iran.
Every option had to remain on the table, Republican senator John McCain said in Germany yesterday, in case diplomatic efforts to resolve the stand-off failed. "There's only one thing worse than military action, and that is a nuclear-armed Iran," he told the international Wehrkunde security conference in Munich.
Mr McCain claimed that the Iranian nuclear programme was likely to provoke a nuclear arms race in the Middle East. He appealed to Russia and China to back tough action against Iran at the Security Council, which is now scheduled to take up the issue next month.
Mr McCain's urgency reflects the public stance of the US government that it is "simply unacceptable" that Iran, a member of President Bush's "axis of evil" and regarded by Washington as the world's prime sponsor of terrorism, should ever acquire nuclear weapons capability.
Last week, moreover, a senior official said Tehran was pursuing not one but two routes to produce fissile material for nuclear weapons. In addition to its uranium enrichment programme, said Stephen Rademaker, acting assistant secretary of state for security and non-proliferation affairs, Iran had a plutonium programme, involving construction of a heavy water research reactor and plant.
The Bush administration is painfully aware that, unlike Saddam Hussein's Iraq, Iran has the capacity to give at least as good as it gets in any escalation of the crisis. It has the ability to stir up even greater trouble in Iraq, and has threatened to close a key oil artery.
The governing board of the International Atomic Energy Agency (IAEA), which resisted reporting Iran to the Security Council four months ago, sent a strong message to the Iranian leadership yesterday by adopting a resolution by 27 votes to three in favour of referral. But Jack Straw, the Foreign Secretary, said that following the decision by the board, Iran still had a "crucial opportunity" to comply with IAEA demands. "Otherwise, decisions by the Security Council are almost inevitable," he said.
The resolution means that Britain, France and Germany have won international support for their policy of gradually raising the diplomatic pressure on Iran to curb its nuclear programme. Crucially, Iran's economic partners Russia and China, which both hold vetoes on the Security Council, voted in favour of the resolution - on condition that sanctions are not applied.
Britain and its allies hope that rather than pursuing a confrontational route, the Iranians will now resume a freeze on uranium enrichment in line with a demand in the IAEA resolution.