The IAEA report

Iran has given no indication that it intends to stop its nuclear programme, a report by the International Atomic Energy Agency (IAEA) has said, leaving the Islamic Republic facing the prospect of possible sanctions.

Reporting to the United Nations Security Council, the IAEA said Iran had failed to meet today's deadline to show any signs of freezing uranium enrichment, according to a copy of the report obtained by the Associated Press, and President Mahmoud Ahmadinejad now runs the risk of sanctions when the UN Security Council meets next month to discuss the issue.

Addressing a rally to a reported audience of thousands in Orumiyeh, Mr Ahmadinejad caused further alarm in the West by saying that the Islamic Republic would never back down. "Iran will not back down an inch... and will not accept being deprived of its rights," he said.

Mr Ahmadinejad accused the United States of trying to stir up divisions in Iran by sponsoring opponents of the regime, but vowed to press ahead with its nuclear programme.

"I tell them: you are wrong. The Iranian nation is united," he said.

But, in a grave warning to Iran this afternoon, George W. Bush said it was "time for Iran to make a choice", indicating that "there must be consequences" for Iran's continuing refusal to adhere to UN demands.

"So far, the Iranian regime has responded with further defiance and delay. It is time for Iran to make a choice. We have made our choice. We will continue to work with our allies to find a diplomatic solution, but there must be consequences for Iran's defiance, and we must not allow Iran to develop a nuclear weapon," the United States President told a speech on terrorism at Salt Lake City.

In a reference to the war against Islamist terrorism worldwide, he added: "We will fight the terrorists overseas, so we do not have to face them here at home. We have made it clear to all nations: 'If you harbour terrorists, you are just as guilty as the terrorists themselves. You are an enemy of the US, and you will be held to account.'"

Elsewhere, German Chancellor Angela Merkel said an Iranian refusal to freeze uranium enrichment was "very regrettable" and the international community would be unable to ignore the move.

"We have made Iran a very, very good offer," she said, alluding to a package of incentives aimed at persuading the country to curb its nuclear activities. If Iran does not accept, "we will not slam the door shut, but we cannot act as if nothing had happened," Merkel said.

The alarm was caused by a report published by the IAEA in Vienna, Austria, detailing that the Iranian regime had not progressed in adhering to UN resolutions on its nuclear weapons. It indicated that its programme of uranium enrichment was still ongoing and progressing, AP reported, after obtaining a copy of the report.

The Security Council had set today as a deadline for Iran to freeze such activities and asked for the IAEA to report on compliance. It is now likely to meet in the middle of next month in New York to discuss the IAEA's report and whether it will back sanctions, a spokesman at the IAEA said. A UN spokeswoman said a precise date had not been set yet for the Security Council meeting but confirmed it would probably be next month.

The developments came as Mohamed Khatami, the former Iranian President, arrived in America at the start of a two-week visit that could open a diplomatic channel between Washington and Tehran.

The softly-spoken reformist will become the most senior Iranian to visit America in nearly three decades. He is expected to attend the United Nations Dialogue of Civilisations conference in New York next Tuesday, address an inter-faith meeting at the National Cathedral in Washington on Thursday and give a speech to an Islamic group in Chicago.

The highlight could be a meeting with Jimmy Carter, the former American President who heads the Carter Centre in Atlanta, a conflict-resolution organisation.

Iranian and American officials insist that the visit by Mr Khatami and his entourage of aides and family members is purely private. No meetings are planned with members of the Bush Administration and he will not be representing President Ahmadinejad, his hardline successor.

But experts on the region hope that the visit could open a channel between America and Iran, who have no diplomatic ties and whose dialogue is usually confined to public threats and insults.

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