Iran's atomic energy chief Gholam Reza Aghazadeh said in Tehran Sunday that Iran had resumed work on a first part of the nuclear fuel cycle, doing uranium conversion at a processing plant in Isfahan.

The Isfahan installation is a Uranium Conversion Facility (UCF), where uranium is transformed into a yellow cake that can then be used to produce enriched uranium.

The International Atomic Energy Agency said Monday that Iran had already told the IAEA in February that it would be resuming work on uranium conversion.

"The Iranians reported to us in Febuary that they were going to begin this activity in March, and IAEA inspectors will be visiting the Isfahan facility this week," IAEA spokeswoman Melissa Fleming told AFP.

A Western diplomat close to the IAEA said that while the Iranians may "technically" have the right under a deal worked out in October with Britain, France and Germany to do uranium conversion, the Iranians had also pledged to stop all enrichment-related activities.

"It depends on what they're doing exactly. It's not black and white. There's a big political context," to the suspension of uranium enrichment since the IAEA has portrayed this as a measure to build confidence that Iran is cooperating with international inspections, the diplomat said.

One diplomat said the uranium conversion was "not something that was part of the suspension. It was just not part of the suspension deal."

The suspension has "only to do with the production of uranium hexafluoride," the diplomat said.

He added that the Iranians do "not have the capability to produce uranium hexafluoride" at Isfahan.

Highly enriched uranium can be fuel for a civilian power reactor but also the raw material for an atom bomb.

The IAEA has been investigating since February 2003 whether Iran's nuclear programme is peaceful, or devoted to secretly developing atomic weapons, as the United States alleges.

It is to report its findings at a meeting in Vienna in June that the agency's chief Mohamed ElBaradei has said will be "key in the ... consideration of Iran's implementation" of the nuclear Non-Proliferation Treaty (NPT).

An IAEA ruling that Iran is in non-compliance with the NPT would send the issue to the UN Security Council, which could then impose sanctions on the Islamic republic.

Iran, under massive international pressure to maintain the suspension of uranium enrichment, has consistently emphasised its right under the NPT to produce nuclear fuel for what it insists are strictly peaceful purposes.

Iran also appears to be working to a more narrow definition of the suspension -- which diplomats say the Europeans had hoped would entirely halt Tehran's work on the highly sensitive nuclear fuel cycle.

WAR.WIRE