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To quit negotiation is a fine tactic when you're in a position with time to spare, and where time will cause your opponent's position to deteriorate.
Stopping the oil trade (tied to the nuclear treaty), continuing the food aid, and not giving the tyrant the time of day seems to be the ideal choice.
The nuclear threat is not a bargaining chip to be dealt when a nation sees fit. Especially since they haven't fired off a test nuke. Normally a country blows up a patch of nothing to show everyone that they aren't lying, that they do have a nuke, and that their words actually do bear a greater level of seriousness.
That's more likely why Powell used the "believe" language, by the way. Until they explode one, even the North Koreans don't know if they really have a nuclear bomb.
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