US Middle East envoy George Mitchell met with Israeli President Shimon Peres on Sunday and sounded optimistic that a deal on settlements could boost peace talks before the end of the month.
President Obama had hoped to pressure Iran by building international consensus on tougher sanctions.
Officials from Germany and the five permanent members of the UN Security Council met in Frankfurt Wednesday.
The US, France, Germany, Britain, China, and Russia meet this week to discuss potential further punishment.
Yukio Hatoyama comes from four generations of politicians from the ruling LDP, which his DPJ party just ousted from power.
He's set a September deadline after which sanctions might be toughened. But China and Russia might not join in if Tehran is showing progress.
A lead Palestinian peace negotiator says the demand for a full settlement freeze – not a partial one – is a precondition to resuming peace talks. But a meeting between Prime Minister Netanyahu and Palestinian Authority President Abbas is still possible in September.
All sides have promised to meet again. Israeli settlements and a belligerent Iran remain the biggest stumbling blocks.
The Libyan leader's plan to attend the UN Assembly next month could be overshadowed by anger over his role in welcoming home the Lockerbie bomber last week.