"There was another inspection Tuesday at Natanz and apparently all went well," said a diplomat, who asked not to be named.

In Tehran, the semi-official Fars news agency quoted an unnamed source saying that inspectors from the UN watchdog International Atomic Energy Agency (IAEA) had arrived for "a routine visit."

Tehran has so far defied demands and sanctions from the UN Security Council for it to suspend enrichment, which the West fears could be used to develop nuclear weapons.

Iran says it needs to enrich to produce fuel for nuclear reactors in order to eventually produce electricity.

IAEA chief Mohamed ElBaradei is to report Wednesday on Tehran's nuclear work, as required by a Security Council resolution of March 24 that had imposed a second round of sanctions after a first round levied last December, an IAEA official said.

The diplomat said the report should have "no surprises and everything in it will be negative for Iran."

Non-proliferation expert Gary Samore said "obviously the bottom line is that they haven't accepted a suspension of enrichment. That's all the Security Council needs to take further sanctions."

Samore, from the Council on Foreign Relations think tank in New York, said there was little hope that an Iran-US meeting next week in Baghdad and a meeting May 31 between European Union and Iranian negotiators Javier Solana and Ali Larijani would produce a breakthrough.

"But everybody is going through the motions to show that a good faith effort is being made for a diplomatic solution," Samore said.

A European diplomat in Vienna said however that a new round of what are limited sanctions would be "incremental and not strong enough to impress the Iranians."

But another diplomat said the sanctions, as well as financial measures by the United States and some allies to reduce international banking in Iran, were beginning to bite and that Tehran wanted to avoid them tightening.

Meanwhile, the other main issue for the IAEA report is whether it will reveal "how well performing Natanz is," Samore said.

IAEA inspectors said two weeks ago that the Islamic republic has made progress in enriching uranium despite the UN sanctions, diplomats said.

IAEA chief Mohmaed ElBaradei told the New York Times that "the fact of the matter is that one of the purposes of suspension (of uranium enrichment) -- keeping them from getting the knowledge -- has been overtaken by events."

A diplomat said the Iranians "still have problems, a main one being to run the centrifuges for a long, long period." Centrifuges spin rotors at supersonic speeds to enrich uranium.

Iran insists allowing it large-scale enrichment work must be part of any eventual deal and it is not clear if there are grounds for Solana and Larijani to strike a compromise.

A diplomat said two weeks ago that the Iranians had 1,600 centrifuges running, although not all at full speed, and were installing "cascades" of 164 centrifuges at the rate of one cascade about every 10 days.

Iran wants to get 3,000 centrifuges functioning, which could produce enough enriched uranium in a year for an atom bomb.

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