“Iran has not suspended its enrichment related activities," the UN’s nuclear watchdog, the International Atomic Energy Agency (IAEA) said in a confidential report, filed to the Security Council and obtained by news agency AFP.
The Security Council had given Iran until the end of August to suspend all uranium enrichment related activities, spurred by US led concerns that the country is secretly trying to make nuclear weapons, but Iran says its program is a peaceful effort to generate electricity.
Iran refuses to budge
Later, in the first official reaction to the IAEA report, Iranian President Mahmoud Ahmadinejad sent a curt message to global powers, vowing his country "will not give up one iota" of its nuclear rights, state media reported.
"The enemies should know Iranians are standing firm" on the question of Tehran's nuclear research program, president Ahmadinejad told a rally in the northwestern city of Makou.
Iranian foreign ministry spokesman Hamid Reza Asefi said Friday: "An ample part of the (IAEA) report talks about Iran's ample cooperation with the IAEA and its inspectors.
"This report clearly shows that Iran has acted within the framework of the international safeguards and Non-Proliferation Treaty and is ready to answer the remaining issues through talks with the IAEA."
Earlier, US President George W Bush said, "It is time for Iran to make a choice… We will continue to work closely with our allies to plan a diplomatic solution, but there must be consequences for Iran's defiance and we must not allow Iran to develop a nuclear weapon."
Uranium enrichment makes fuel for civilian nuclear reactors but in highly refined form can serve as the raw material for atom bombs.
Earlier last month, Iran had said it was willing to talk to members of the international community about a package of incentives they were offering to get its nuclear program under control, but it did not meet the requirement to stop enriching uranium.
Russia 'regrets' Iran failure
Later, a Russian foreign ministry spokesman said Russia shared the position of the UN nuclear watchdog agency and "expresses regret that Iran did not fulfill the demands of Resolution 1696 by the time designated in that document and did not stop work on uranium enrichment”.
The spokesman said Russia planned to hold intensive consultations in coming days with the four other permanent members of the UN Security Council, along with Germany, over how to proceed.
Possible sanctions
For the United States, it appears that the carrot has not worked and now is the time to move on to the stick. The US State Department says major UN powers will meet in Europe next week to discuss sanctions.
US Undersecretary of State Nicholas Burns, the third-ranking US diplomat who will represent his country at the talks said that he expects the Security Council to adopt a sanctions plan within a month.
But this meeting would be preceded by last ditch talks, between European Union foreign policy chief Javier Solana and Iran’s negotiator Ali Larijani, to find a negotiated settlement.
Even if that meeting fails to deliver, sanctions against Iran are not guaranteed.
Security Council members China and Russia, with their important veto powers, traditionally waive the idea of sanctions and could stop any future moves to implement them.
US Ambassador to the United Nations, John Bolton, said the report "provides ample evidence of (Iranian) defiance."
But he added the Security Council was not planning an immediate response and would wait for the results of the meeting between Mr Solana and Mr Larijani "and then we will be consulting here and in capitals about where to go from there."
Iran's President Mahmoud Ahmadinejad has refused to cede "an inch" to the growing pressure to stop enrichment activities.
In a statement which also made no direct mention of the IAEA report, the president said, "They think that by adopting resolutions they can force the Iranian people to step back, but they are mistaken."
IAEA report
The UN report said that Iran had started a new round of uranium enrichment only a week ago, but, an unnamed official told news agency AFP that the UN inspectors had not found any concrete proof to suggest Iran’s nuclear program is of a military nature.
The official adding that the watchdog was getting little help from Iran in probing additional questions.
The report said that the IAEA was investigating a new case of contamination by highly enriched uranium, which could be a sign of weapons work.
It adds that Iran has not been forthcoming about its work with sophisticated P2 centrifuges to enrich uranium and blueprints Iran possesses to make nuclear weapons parts.
The IAEA has also documented cases of Iran blocking inspections authorised by the nuclear non-proliferation treaty and not giving inspectors the multiple-entry one-year visas required. Iran says it is now complying with these demands.
US officials: “hallucinations”
Iran’s deputy chief of the country’s nuclear agency Mohammad Saeedi said the watchdog’s report was "not negative" and that enrichment would "continue within the framework of research and under the control of the IAEA".
"The report is very factual and adds that the Iranian nuclear programme is under the supervision of the IAEA and that there has been no deviation" towards any military purpose, he said.
"Even if the report does not satisfy us completely it shows that the propaganda of the United States on the Iranian nuclear programme is completely without foundation and the result of the hallucinations of US officials," he added.
The report said Iran had started another round of small- scale uranium enrichment, with plans to have running by September a second 164-centrifuge line able to do this work.
But an unnamed official close to the IAEA stressed that "the inspectors findings indicate that the qualitative and quantitative development of Iran's enrichment program continues to be fairly limited".