The International Atomic Energy Agency (IAEA), the UN’s nuclear watchdog, reported that Iran had continued its controversial enrichment work beyond yesterday’s deadline.

In a confidential report obtained by The Times, it also listed numerous cases of non-co-operation by the Iranian authorities with atomic inspectors. It also reported finding samples of highly enriched uranium at a technical university suspected of conducting military research work.

The findings, set out by Dr Mohamed ElBaradei, the director-general of the IAEA, were seized on by the Bush Administration as evidence that Iran is trying secretly to build a nuclear weapon and should now be punished.

“The report, short and to the point, concludes that, after all these years of trying, the IAEA is still unable to confirm the peaceful nature of Iran’s nuclear programme,” said John Bolton, the US Ambassador to the UN.

“Iran is defying the international community. Iran is not suspending its uranium enrichment activities,” he said.

Washington is reported to have drawn up a three-tier sanctions menu that would begin with limited measures to ban the sale of nuclear equipment to Iran, block travel by Iranian officials and seize their foreign assets. If Iran did not comply, the sanctions would be widened and could lead to a ban on commercial flights and an embargo of financial institutions.

President Bush said that Iran must pay a price for defying the international community.

“It is time for Iran to make a choice,” Mr Bush told American veterans in Salt Lake City. “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.”

Washington wants to open the sanctions debate next week at a meeting in Berlin with the five permanent members of the UN Security Council and Germany. But it faces an uphill battle to persuade other members whose response to yesterday’s report was far less strident.

Philippe Douze-Blazy, the French Foreign Ministry, “deplored” Iran’s “unsatisfactory response” but nevertheless said that negotiations with Tehran should continue.

Russia, which has lucrative trade ties with Iran, including a $1 billion (£520 million) contract to build the main nuclear power station at Bushehr, has repeatedly avoided any move towards sanctions. So, too, has China, which relies heavily on Iran for its energy needs.

Britain made no official response yesterday.

Experts believe that the matter will be resolved probably only later this month at the UN General Assembly meeting in New York.

There was certainly no suggestion yesterday that more talking would have much impact on changing the defiant mood in Tehran, which insists that it has the right to pursue a civilian nuclear programme.

President Ahmadinejad said in a televised speech yesterday: “The Iranian nation will never abandon its obvious right to peaceful nuclear technology. (The West) should know that the Iranian nation will not yield to pressure and not accept any violation of its rights.”

Mark Fitzpatrick, an expert on nuclear proliferation at the International Institute for Strategic Studies, described the findings in the ElBaradei report as “damning”.

He said: “In addition to the no suspension (of uranium enrichment) I counted 11 times when Iran was failing to co-operate with the IAEA.”

But in Tehran the report was greeted very differently. Mohammad Saeedi, the deputy head of Iran’s Atomic Energy Organisation, said it showed that Iran had co-operated fully with the IAEA.

IAEA report

“Iran has not addressed the longstanding verification issues or provided the necessary transparency to remove uncertainties associated with some of its activities”

“Iran has not suspended its enrichment-related activities; nor has Iran acted in accordance with the provisions of the Additional Protocol”

“The agency will continue to pursue its investigation of all remaining outstanding issues relevant to Iran’s nuclear activities”

“However, the agency remains unable to make further progress in its efforts to verify the correctness and completeness of Iran’s declarations with a view to confirming the peaceful nature of Iran’s nuclear programme”

“The depleted uranium targets which had been irradiated in the course of the plutonium experiments are stored in containers located at the Karaj Waste Storage Facility. On 8 August 2005, the agency took environmental samples from one of those containers. The results of their analysis, recently finalized by the agency, indicate the presence of high enriched uranium particles”

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