Iranian President Mahmoud Ahmadinejad, left, greets Brazil's president, Luiz Inacio Lula da Silva, during a signing ceremony at the Itamaraty Palace in Brasília on Monday. (Roberto Jayme/Reuters)

The world must engage, not isolate, Iran in the push for Middle East peace, and Iran should negotiate with Western nations for a "just and balanced" solution to its polemical nuclear program, Brazil's president said Monday.

Luiz Inacio Lula da Silva's comments followed a three-hour private meeting with his increasingly alienated Iranian counterpart, Mahmoud Ahmadinejad — the first Iranian leader to visit Brazil since pro-U.S. Shah Mohammad Reza Pahlavi toured Brazil in 1965.

But Ahmadinejad made no promises and defiantly said Iran would try to improve its uranium-enrichment technology if it can't buy enriched uranium abroad.

"If the people ask us to produce ourselves, we should do it and the opportunity we tried to create for the other side will be lost," Ahmadinejad told reporters.

The two leaders didn't say whether they discussed Iranian war games that started a day earlier, driving oil prices higher.

Ahmadinejad's comments on uranium enrichment came less than a week after Iran indicated it would not export its enriched uranium for further processing, effectively rejecting the latest plan brokered by the International Atomic Energy Agency aimed at delaying Iran's ability to build a nuclear weapon.

Under the IAEA plan, Iran would export its uranium for enrichment in Russia and France where it would be converted into fuel rods, which would be returned to Iran about a year later. The rods can power reactors but cannot be readily turned into weapons-grade material.

While Silva said on his weekly radio show that there's good reason not to isolate Iran, he also suggested but did not insist that Ahmadinejad could work harder to negotiate the stalemate over the nation's nuclear program.

"I encourage your excellence to continue engagement with interested nations in order to find a fair and balanced solution to the Iranian nuclear question," the Brazilian leader said.

Political legitimacy

For Ahmadinejad, the visit to Brazil could provide some measure of political legitimacy for his nation as it engages in large-scale war games aimed at protecting its nuclear facilities from attack and refuses to back down from developing a nuclear program. For Brazil, the visit helps boost the nation's growing political clout.

Oil prices rose above $78 US a barrel Monday amid deepening tensions in the Middle East following the start of the war games and boasts by an air force commander that Iran could deter any military strike by Israel.

Silva, who again defended Iran's right for a peaceful nuclear program, gave Ahmadinejad a bear hug and called for diplomacy to push for peace in the Middle East and ease tensions between Iran, the United States and other nations.

"There's no point in leaving Iran isolated," the Brazilian leader said on his radio program hours before the two met. "It's important that someone sits down with Iran, talks with Iran and tries to establish some balance so that the Middle East can return to a certain sense of normalcy."

Ahmadinejad didn't utter the word Israel during his comments, but said that Iran wants a Middle East with "prosperity, progress and security for all nations."

Ahmadinejad is the third high-ranking Middle Eastern leader to visit Brazil in recent weeks. Israeli President Shimon Peres and Palestine Authority chief Mahmoud Abbas were there shortly before him.

Several dozen Ahmadinejad supporters and opponents held demonstrations in Brasilia on Monday, a day after about 500 people gathered at Rio de Janeiro's Ipanema Beach to protest his visit.

The Iranian leader has called for the destruction of Israel.

Israel voiced concern about Iran's push in Latin America.

The Iranian leader will next visit allies in Bolivia and Venezuela to shore up more South American support.