By Mark Heinrich
VIENNA (Reuters) - The U.N.'s nuclear watchdog said on Thursday Iran had failed to meet a Feb. 21 deadline to suspend enrichment of uranium, exposing Tehran to possible new sanctions over concerns it hopes to produce an atomic bomb.
The International Atomic Energy Agency said in a report Iran had installed two cascades, or networks, of 164 centrifuges in its underground Natanz enrichment plant with another two cascades close to completion.
This amounted to an effort to escalate research-level enrichment of nuclear fuel into "industrial scale" production.
"Iran has not suspended its enrichment-related activities," said the confidential IAEA report, obtained by Reuters.
By ignoring the deadline, Tehran reaffirmed its rejection of a mid-2006 offer by six world powers of talks on trade benefits provided it halted enrichment, a process that can yield nuclear power plant fuel or bombs.
The U.N. Security Council imposed sanctions on Iran in a Dec. 23 resolution that banned transfers of atomic technology and know-how to Iran. The resolution authorises the council to take further measures if Iran flouted the deadline.
Additional penalties might include a travel ban on senior Iranian officials and restrictions on non-nuclear business.
The Islamic Republic, which says its nuclear fuel programme is designed only to produce electricity, remained defiant.
"Regarding the suspension mentioned in the report, because such a demand has no legal basis and is against international treaties, naturally, it could not be accepted by Iran," Mohammad Saeedi, deputy head of Iran's Atomic Energy Organisation, told Reuters in Tehran.
He said the report showed the best way to resolve the dispute was to return to talks.
U.N. Secretary General Ban Ki-moon said he was "deeply concerned. I urge again that the Iranian government should fully comply with the demands as soon as possible and engage in negotiations with the international community so that we can resolve this issue peacefully."
URANIUM FUEL
The report said Iranian workers lowered into the Natanz plant an 8.7-tonne container of uranium hexafluoride gas (UF-6) to prepare to feed centrifuges, which purify the material into power plant fuel or, if refined to high levels, for bombs.
Iran had told the IAEA it intended to have 3,000 centrifuges, divided into 18 cascades, installed and brought "gradually into operation" by May.
The 3,000 centrifuge machines would lay the basis for "industrial-scale" fuel production involving some 54,000.
The report said Iran had agreed to interim IAEA verification procedures at the underground plant but not to remote camera monitoring. The IAEA had warned Iran this restriction would violate non-proliferation safeguard rules once more than 500 centrifuges were installed, according to the report.
It said Iran remained far away from enriching uranium in quantities suitable for use in nuclear energy plants.
A senior U.N. official familiar with IAEA operations in Iran said Tehran had produced a minute amount of the feed material.
Analysts say Iran has struggled to operate its two cascades in the pilot plant for longer periods of time without breakdown.
Given quality-control problems and inexperience, Iran probably remains three to 10 years away from accumulating enough high-enriched uranium for the core of atom bombs -- assuming it wants them, intelligence estimates and independent analysts say.
"Most worrisome is that Iran is proceeding at a fast pace to install centrifuge cascades at Natanz, defying the Security Council's mandate to stop. This is a political move by Iran," Mark Fitzpatrick of the International Institute for Strategic Studies in London told Reuters.
The report provided no significant answers to long outstanding IAEA questions about the nature of Iran's programme, such as mysterious traces of bomb-grade uranium and alleged military involvement in enrichment research.
Iran has repeatedly promised to clear up such issues. But diplomats say it is withholding answers as bargaining chips for any future settlement with world powers on the Security Council, whom it accuses of illegal bullying over its nuclear project.
(Additional reporting by Francois Murphy in Paris and Boris Groendahl in Vienna)
