UPDATE 4-US report contradicts Bush on Iran nuclear program

(Adds Hadley, Reid comments)

By Matt Spetalnick

WASHINGTON, Dec 3 (Reuters) - A new U.S. intelligence report says Iran halted its nuclear weapons program in 2003 and it remains on hold, contradicting the Bush administration's earlier assertion that Tehran was intent on developing a bomb.

The National Intelligence Estimate (NIE) released on Monday could undermine U.S. efforts to convince other world powers to agree on a third package of U.N. sanctions against Iran for defying demands to halt uranium enrichment activities.

Tensions have escalated in recent months as Washington has ratcheted up the rhetoric against Tehran, with U.S. President George W. Bush insisting in October that a nuclear-armed Iran could lead to World War Three.

But in a finding likely to surprise U.S. friends and foes alike, the latest NIE concluded: "We do not know whether (Iran) currently intends to develop nuclear weapons."

That marked a sharp contrast to an intelligence report two years ago that stated Iran was "determined to develop nuclear weapons."

But the new assessment found Iran was continuing to develop technical means that could be used to build a bomb and it would likely be capable of producing enough enriched uranium for a nuclear weapon "sometime during the 2010-2015 time-frame."

The shift in the intelligence community's thinking on Iran comes five years after a flawed NIE concluded neighboring Iraq was developing weapons of mass destruction -- a report that helped pave the way for the U.S.-led invasion in March 2003.