According to the BBC...
His spokesman said he was referring to a "different way" of handling talks, which could involve making public reasons why the UK was certain the group was in Iraqi waters.

It is understood this could include producing evidence such as boat co-ordinates and details of the searched vessel apparently still anchored in Iraqi waters.

The spokesman told reporters: "We are utterly confident that we were in Iraqi waters, and not just marginally in Iraqi waters but in Iraqi waters. It's a case of tactics and if and when we have to prove that."

However, one high-ranking Iraqi official has expressed surprise that British forces were operating in the area.

Brigadier-General Hakim Jassim, commander of Iraq's territorial waters, said: "Usually there is no presence of British forces in that area, so we were surprised and we wondered whether the British forces were inside Iraqi waters or inside Iranian regional waters."

NOTE that it does NOT say they WERE in Iranian waters, just that the Iraqi official did not know.

http://news.bbc.co.uk/2/hi/uk_news/6500583.stm?lsf