"An Iranian acquisition of nuclear weapons would dramatically alter the regional balance of power and would inspire all sorts of potential diplomatic shifts," said John Chipman, head of the International Institute for Strategic Studies (IISS).

"Changing the cost-benefit analysis in Tehran, preventing a nuclear outcome, and controlling its consequences if it takes place will present the most difficult and classic strategic challenge in the months and years ahead."

Chipman, director of the London-based centre, was speaking as he launched the IISS's "The Military Balance 2006" report as world powers met nearby to agree on a strategy aimed at forcing Iran to stop enriching uranium.

In his summary of the study, he said there was an emerging consensus that an Iranian nuclear capacity is "both almost inevitable, and certainly bad".

In the absence of an effective strategy with regional support, a "hedging strategy of containment" could offer a suitable delay to secure agreement among neighbouring states, particularly about more US involvement in the region.

But Iran was unlikely to be persuaded to abandon its nuclear programme -- which the West fears is a front for acquiring atomic weapons -- by accepting a "repackaged" version of incentives they were previously offered but rejected last August, Chipman said.

Instead, "Iranian rejection of the package will strengthen the hand of the US and the EU3 (Britain, France and Germany) in persuading Russia and China of the need for further measures at the UN", he added.

Britain, France and the United States "could well" secure the United Nations Security Council resolution to force Iran to re-suspend its programme and co-operate with the UN International Atomic Energy Agency (IAEA).

Russia, which currently holds the rotating presidency of the Group of Eight richest nations, "will probably not veto the Chapter VII resolution or the follow-on politically targeted sanctions" to prevent the collapse of the G8 summit in St Petersburg in July.

The IISS report named Iran, with Iraq and Afghanistan, as one of the "dangerous triptych" that continued to dominate the defence and security agenda along with terrorism and the proliferation of weapons of mass destruction.

It noted that despite belligerent rhetoric from Iranian President Mahmoud Ahmadinejad and a refusal by his US counterpart George W. Bush to rule out military action, there were still some within both countries who favoured dialogue.

The IISS said Iran's announcement earlier this month that it had "joined the nuclear club" was "surely exaggerated".

But it said the "key timeline" now was how soon Iran could produce 20 to 25 kilogrammes (44-55 pounds) of highly enriched uranium for a nuclear weapon.

"The IISS estimate of 2010 remains valid," Chipman said. "Other estimates of 2009 and even 2008 are within the margin of error, given the number of unknowns...

"The IAEA's limited access -- it now can no longer monitor the centrifuge component facilties -- inevitably requires policymakers to rely on worst-case assumptions about Iran's progress toward the bomb."

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