The UAE, angered by the Iranian president's visit to a Gulf island both countries claim, warned on Monday that the dispute could not "go on forever" and urged Tehran to agree to talks or international arbitration.
Tensions rose last week following Iranian President Mahmoud Ahmadinejad's visit to Abu Musa, one of three Gulf islands also claimed by the UAE and located near important oil shipping channels at the mouth of the strategic Strait of Hormuz.
"We cannot have this matter going on forever," UAE Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan told a news conference in Abu Dhabi.
"We have to have a clear agenda, a deadline for negotiations and if there is no outcome ... then we can either go to the International Court of Justice or to international arbitration."
The UAE has recalled its ambassador from Tehran for consultations, and also cancelled a friendly soccer match with Iran's national team set for Tuesday, in response to what its officials called a "flagrant violation" of its sovereignty.
The visit also drew criticism from regional heavyweight Saudi Arabia, whose cabinet said on Monday Ahmadinejad's trip had violated UAE sovereignty and was a "transgression of efforts towards a peaceful solution of the issue of the UAE islands", the Saudi Press Agency reported.
Ahmadinejad visited Abu Musa, some 60km off the UAE, on Wednesday during a tour of Iran's Gulf coast.
The Islamic Republic says its sovereignty over the three islands is not negotiable but has called for talks with the UAE to clear up "misunderstandings".
Iran urged the Gulf states not to "complicate" matters, on the eve of a meeting in Qatar on Tuesday of the six-member Gulf Cooperation Council (GCC) to discuss the issue.
"We hope the other sides will act with wisdom and patience towards occasional misunderstandings, otherwise matters may become too complicated for a solution," Iranian Foreign Minister Ali Akbar Salehi said, quoted by the student news agency ISNA.
"We want to have the best possible relations with the UAE, as our trade and economic relations are significant. Misunderstandings occur at times that can be resolved through bilateral talks," Salehi said.
Abu Musa and the Greater and Lesser Tunbs islands have been held by Iran since 1971, shortly before the seven Gulf emirates gained full independence from Britain and formed the UAE.
Sheikh Abdullah said failure to resolve the dispute would leave "serious ramifications on the stability and security of the international community especially as 40 percent of the world's energy goes through the channels of these islands".For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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