VIENNA (Reuters) - Iran has slowed its expansion of uranium enrichment and met some demands for transparency but allegations it researched how to build atom bombs look credible and Tehran must address them, the U.N atomic watchdog said.
The International Atomic Energy Agency report will form the basis for six-power talks on September 2 to look into harsher U.N. sanctions against the Islamic Republic over a uranium enrichment campaign the West fears is a stealthy quest for nuclear weapons.
Russia and China, close trade partners of Tehran, may resist expected calls from Western powers to squeeze Iran's lifeblood oil sector by pointing to new Iranian gestures of cooperation with IAEA inspectors, cited in the agency report.
But diplomats said a summary of an IAEA probe into alleged military dimensions to Iran's nuclear activity was unusually blunt, giving credence to intelligence material, and would stiffen Western resolve to seek tougher sanctions.
"This latest IAEA report catalogues a litany of Iranian obfuscation and obstruction. It makes clear that Iran continues wilfully to fail to meet its legally binding international obligations," Philip Parham, Britain's deputy ambassador to the United Nations in New York, told Reuters.
The IAEA said Iran was enriching uranium with about 300 fewer centrifuges than the almost 5,000 operating at the time of the last IAEA report, the first such scaleback in around three years. The report did not venture possible reasons.
But an informed senior diplomat told Reuters earlier a batch of machines had been taken down for maintenance or repairs.
However, the confidential U.N. watchdog report, obtained by Reuters, said Iran had raised the total number of installed, though not all enriching, machines by some 1,000 to 8,308.
This would allow Tehran to resume a major expansion of enrichment capacity swiftly if it chose, barring technical glitches, U.N. officials familiar with the report said.
Consequently, a White House official said the report showed that Iran effectively "continues to expand its nuclear programme and continues to deny the IAEA full cooperation."
U.N. officials said they could not rule in or out the possibility that Iran's apparent nuclear slowdown was connected with unrest over the disputed presidential election that returned Mahmoud Ahmadinejad to power in June.
The West suspects Iran is pursuing the means to produce atomic bombs under cover of a civilian nuclear fuel programme.
Iran says it wants only electricity from nuclear power and has again rejected U.N. demands for a halt despite new fissures in its conservative leadership over the popular turmoil.
Iran's reported stockpile of low-enriched uranium had increased to 1,508 kg, almost 200 more than in May. Nuclear analysts said the production rate, around 50 percent capacity, appeared the same, albeit with fewer centrifuges on stream.
The report said Iran had assented to improved IAEA camera surveillance and data collection in the underground Natanz enrichment hall, and a plan for unannounced inspections.
"This satisfies our requirements for a bigger facility," a senior U.N. official, speaking on condition of anonymity.
The deal came after the IAEA complained that Iran's headlong expansion of centrifuge operations since 2008, without allowing corresponding monitoring upgrades to keep pace, had left non-proliferation inspectors unable to verify that no equipment or materials were being diverted for weapons purposes.
Mark Fitzpatrick, senior non-proliferation fellow at London's International Institute for Strategic Studies, said the report showed Tehran was continuing to stonewall questions about suspicious past activities despite "last-minute" cooperation.
"The number of newly installed centrifuges is also disturbing. Iran has been eager to install as many as possible, so that if it goes into negotiations that require a freeze on the number, it will start off from a much higher position."
Iran's ambassador to the IAEA, Ali Asghar Soltanieh, told Reuters earlier this week: "There are no (technical) obstacles. We are on the right track. Enrichment continues as planned."
Friday's report distilled the IAEA's struggle to verify whether Iran indeed has illicitly combined uranium processing, airborne high-explosive tests and work to remodel a missile cone with the apparent purpose of devising a nuclear payload.
While the IAEA cited no proof of an outright bomb project, it said the intelligence was compelling and Iran must do more to resolve suspicions than merely brand it as a fabrication.
"The information ... appears to have been derived from multiple sources over different periods of time, appears to be generally consistent, and is sufficiently comprehensive and detailed that it needs to be addressed by Iran with a view to removing the doubts which naturally arise, in light of all of the outstanding issues, about the exclusively peaceful nature of Iran's nuclear programme," the report said.
Iran had acknowledged some activities outlined in the intelligence and denied they had nuclear use but was withholding documentation, refusing access to locations and officials for interviews needed by the IAEA to check its assertions, it said.
"Iran is being backed more and more into a corner on these issues and is not doing well at getting out of that corner," said David Albright of Washington's Institute for Science and International Security, which tracks nuclear proliferation.
The IAEA said Iran also allowed inspectors to revisit the Arak heavy-water reactor site this month after barring access for a year. But U.N. officials cautioned this was a one-off and Tehran had not resumed providing design information to the IAEA.
Iran told the IAEA the complex was 63 percent complete and the reactor vessel would be installed in 2011.
Western concerns the Arak site could be put to use making weapons-grade plutonium grew after its roof was installed, foiling monitoring with satellite imagery.
Additional reporting by Sylvia Westall, Louis Charbonneau at the United Nations and Sue Pleming in Washington; editing by Andrew Roche