Tehran has defied the threat of sanctions by vowing never to abandon a programme the West fears could give it atom bombs.
VIENNA: The UN nuclear agency declared Iran had failed to halt nuclear work by a Thursday deadline, and Tehran defied the threat of sanctions by vowing never to abandon a programme the West fears could give it atom bombs.
A confidential report of the Vienna-based International Atomic Energy Agency (IAEA), leaked to Reuters, said Iran resumed enriching small amounts of uranium in recent days. The agency said its probes had been blocked by lack of Iranian cooperation.
"The Iranian nation will never abandon its obvious right to peaceful nuclear technology," Iranian state radio quoted President Mahmoud Ahmadinejad as saying, hours before time ran out for Iran to stop enriching uranium.
The UN Security Council had asked Mohamed ElBaradei, head of the IAEA, to spell out on August 31 whether Iran had complied with the deadline set in a July 31 resolution.
Iran's disregard of the Council's order to stop enriching uranium exposes it to possible sanctions and was widely expected after it opened a heavy water production plant on August 26 and vowed not to mothball its nuclear programme.
Washington said before the IAEA verdict became known that world powers were poised to begin discussing punitive measures against Iran next week.
"(The West) should know the Iranian nation will not yield to pressure and not accept any violation of its rights," Ahmadinejad said in his televised speech.
Iran says it wants atomic energy only for electricity, although it hid sensitive research from UN inspectors for almost 20 years and has hindered UN investigations since.
Western leaders suspect a disguised weapons project and the UN Security Council has ordered it to suspend the work.
Also read: Sanctions scenarios over Iran's nuclear quest
"Arrogant powers are against Iran's peaceful nuclear progress. Their pretext and claim is that Iran's peaceful nuclear knowledge might be diverted (into weapons-making) one day. It is a big lie," Ahmadinejad said.
The IAEA report said its inspectors in mid-August found traces of highly-enriched uranium, of potential use for atom bombs, in a container at Iran's Karaj Waste Storage Facility. The IAEA asked Iran to explain the source of the contamination.
In the days before the deadline, Iran launched a heavy-water production plant and pressed ahead with enriching uranium -- albeit in small, insignificant amounts -- at its pilot centrifuge site in Natanz, diplomats said.
But Iran, in an August 22 reply to an offer from six world powers of trade incentives not to enrich, suggested it was open to negotiations on the scope of its programme.
European foreign policy chief Javier Solana and Iran's chief nuclear negotiator Ali Larijani agreed by telephone on Thursday to meet soon in hopes of clarifying Iran's response, Solana's spokeswoman said. The exact date and venue were undecided.
Some US allies in the European Union had asked for talks with Tehran to explore its reply instead of resorting quickly to sanctions at the Council, Western diplomats said.
In a possible nod to EU concerns, US State Department spokesman Sean McCormack said that even if sanctions discussions began, Iran could still opt to halt enrichment work and spur broader negotiations to implement the package of inducements.
Concerns about Iran's intentions have been fanned by its record of hiding sensitive nuclear work from the IAEA for 18 years, failure to cooperate fully with agency probes and calls for Israel's destruction, Western officials say.
Iran is withholding answers to IAEA questions as bargaining chips for crunch talks with the big powers, diplomats say.
Moscow and Beijing, keen to protect energy contracts with Tehran and seeing no imminent threat from its nuclear programme, have urged diplomacy.
EU nations, for their part, prefer to find a compromise with Iran rather than isolate one of their biggest oil suppliers.
Iran enriched uranium to the low level needed for power plant fuel for the first time in April, alarming the West.
But diplomats say production has been limited by possible malfunctions in pilot cascades (networks) of centrifuges, prompting Tehran to do extended "dry testing" of centrifuges without uranium inside.
"Iran would rather have long-term comprehensive cooperation which secures stability and peace. Instead of being so sensitive on dates and deadlines we must focus on content," Iranian deputy national security council secretary Mohammad Nahavandian said after talks with the Greek foreign minister in Athens.
One EU diplomat said Iran had a clear interest in seeking a meeting with the EU after August 31 to blur the UN deadline, suck the Europeans into talks about talks and push back any consideration of punitive action.
Oil prices were steady at $70 at 1430 GMT as immediate sanctions against the world's fourth-biggest crude exporter looked unlikely.
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