Iran and world powers have given themselves seven more months to clinch a landmark nuclear agreement after missing a deadline for a deal.
The failure came despite a five-day diplomatic push in the Austrian capital, Vienna, involving the foreign ministers of Iran, the US, Russia, China, Britain, France and Germany.
But US Secretary of State John Kerry, speaking in Vienna, and Iranian President Hassan Rouhani, speaking in Tehran, said real progress had been made and raised hopes a deal could eventually be sealed.
"This path of negotiation will reach a final agreement," Rouhani said on state television. "Most of the gaps have been removed."
In their second extension this year, Iran and the five permanent members of the UN Security Council plus Germany, known as the P5+1, would seek to strike an outline deal by March and to nail down a full technical accord by July 1, officials said.
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"These talks aren't going to suddenly get easier just because we extend them," Kerry said on Monday as he and other officials conceded the midnight deadline would be missed.
"They are tough. They have been tough and they are going to stay tough," he said.
"But in these last days in Vienna we have made real and substantial progress and we have seen new ideas surface."
Kerry's Iranian counterpart, Foreign Minister Mohammad Javad Zarif, gave a similar upbeat assessment to reporters.
"All of us are insisting that we don't need seven months" to strike a deal because the negotiators were going to get to work immediately, Zarif said.
In the best chance to resolve the standoff over Iran's nuclear program, the P5+1 world powers have been for months seeking to turn an interim deal into a lasting accord.
Such an agreement is aimed at easing fears that Tehran will develop nuclear weapons under the guise of its civilian activities, an ambition Iran denies.
It could result in painful sanctions on Iran being lifted and usher in a new era of co-operation between Washington and Tehran.
But a last-ditch diplomatic blitz in Vienna in recent days failed to bridge the remaining gaps.
Diplomats said that, despite some progress, both sides remain far apart on two crucial points: uranium enrichment and sanctions relief.
Enriching uranium renders it suitable for peaceful purposes such as nuclear power. But at high purities it is also used as the fissile core of a nuclear weapon.
Tehran wants to massively ramp up the number of enrichment centrifuges in order, it says, to make fuel for a fleet of power reactors it is yet to build.
The West wants the enrichment dramatically reduced, a move that together with more stringent UN inspections and an export of Iran's uranium stocks would make any attempt to make the bomb all but impossible.
Iran wants painful UN and Western sanctions that have strangled its vital oil exports lifted, but the powers want to stagger any relief to ensure Tehran complies with any deal.
