The report by the UN watchdog International Atomic Energy Agencygives the United States and Europe ammunition to take Iran to the Security Council for possible sanctions, non-proliferation expert David Albright, a former UN weapons inspector, told AFP.

"It again shows that Iran is not willing to cooperate to clear up what are violations of the nuclear Non-Proliferation Treaty (NPT)," Albright said.

The confidential report which IAEA chief Mohammed ElBaradei sent to the agency's 35-nation board of governors late Friday showed Iran failing to meet an IAEA demand for cessation of all nuclear fuel activities, a condition for resuming talks with the European Union on guaranteeing that the Islamic Republic is not developing atomic weapons.

A European diplomat told AFP "the next two weeks" ahead of an IAEA board of governors meeting on September 19 would be focused on getting Iran to halt the uranium conversion work that is a first step in making enriched uranium that is fuel for atomic power reactors but can also be used to make bombs.

A senior US diplomat said that "unless Iran stops its conversion, cooperates with the IAEA and returns to the negotiating table, the board should report this matter to the UN Security Council."

The US diplomat said the IAEA report "recounts Iran's numerous safeguards violations... notes that many troubling issues remain unresolved (and) confirms our concern that Iran is proceeding with the nuclear weapons program despite its international commitments and the concern of the international community."

The report said the Islamic Republic had failed to resolve, two and a half years into an IAEA investigation into Iran's nuclear program, critical questions about work with both uranium and plutonium, the two raw materials for making atom bombs.

Iran says its nuclear program is a peaceful effort to generate electricity but the United States charges that this a cover for secretly developing nuclear weapons.

The European diplomat said there is room for another round of diplomacy at a UN summit in New York September 14-16, which the new hardline Iranian President Mahmoud Ahmadinejad will attend.

Diplomats and analysts warned that taking Tehran to the Security Council for possible sanctions is not a magic solution.

They say oil giant Iran is in a stronger position than when the crisis started two years ago as the United States is bogged down militarily in Iraq and oil prices are skyrocketing.

Iran meanwhile is trying to split the international community by calling for other nations beyond the three EU negotiators Britain, Germany and France to take part in talks.

But a senior diplomat from one of the EU3 states said the Iranian tactic will not work.

"First they tried to play the EU and the United States against each other, which didn't work. Then they tried to play the EU3 countries off against each other but we maintained a solid front.

"Now they are cynically trying to play the members of the IAEA board against each other. I think the IAEA board members recognize that."

A Western diplomat said: "Iran is welcome to talk to any countries it wants, but the United States, EU, Russia, Japan, Canada and others would not accept the efficacy of any agreement reached between Iran and other negotiating partners" than the EU3.

And as for fears that Russia and China, two countries with extensive economic dealings with Iran, would block Security Council sanctions or even taking the matter to the Council, the European diplomat said the Council would adopt a "very measured, gradual and, above all, constructive approach.

"It is not going to punish Iran (immediately with sanctions) but to reinforce the efforts of the IAEA," with what at first would be a statement by the Council president urging Iran to comply with the IAEA demands about stopping fuel work.

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