A meeting Monday between ElBaradei and a senior Iranian negotiator was cancelled since "the Iranians didn't want to talk substance at this point" on questions about possible weapons work, in an over four-year-old investigation by the watchdog International Atomic Energy Agency, a diplomat said.

ElBaradei meanwhile told an IAEA meeting: "I am increasingly disturbed by the current stalemate and the brewing confrontation -- a stalemate that urgently needs to be broken, and a confrontation that must be defused."

The IAEA's 35-nation board of governors began Monday in Vienna a week-long meeting that could bring Tehran one step closer to a third round of UN sanctions against its nuclear programme.

Iran says it is peacefully trying to generate electricity but the United States claims this is a cover to hide the development of atomic weapons.

Washington says it wants a diplomatic solution but has not ruled out a military intervention and has placed sizeable naval forces in the Gulf.

ElBaradei said "dialogue and diplomacy are ultimately the only way to achieve the negotiated solution forseen in the relevant Security Council resolutions," according to a copy of his speech made available to the press.

The UN Security Council has imposed two rounds of sanctions to get Iran to suspend uranium enrichment, which makes fuel for civilian reactors but can also produce atom bomb material, and to provide information about suspect nuclear activities.

But, said ElBaradei: "The facts on the ground indicate that Iran continues steadily to perfect its knowledge relevant to enrichment, and to expand the capacity of its enrichment facility" in Natanz.

Iran is also continuing "with the construction of its heavy water reactor at Arak," which can produce plutonium, like enriched uranium a potential bomb material, and blocking "our right to re-verify design information at Arak," ElBaradei said.

This leaves the IAEA unable "to make any progress in its efforts to resolve outstanding issues relevant to the nature and scope of Iran's nuclear programme," ElBaradei said.

US ambassador to the IAEA Gregory Schulte told reporters there were "two disturbing trends" -- Iran continuing to enrich uranium and "to withdraw cooperation from the IAEA, causing a troubling deterioration in the agency's knowledge of Iran's nuclear activities."

Iran, which is still allowing safeguards inspections at Natanz, strove Monday to soften the diplomacy against it.

Senior Iranian nuclear negotiator Javad Vaidi met at the Austrian foreign ministry in Vienna with Robert Cooper, a top aide to European Union foreign policy chief Javier Solana, Iranian ambassador Ali Asghar Soltanieh said.

Top Iranian nuclear negotiator Ali Larijani had told Solana in Madrid on May 31 that Iran would talk with the IAEA about information access and cooperation.

But a diplomat said the IAEA had cancelled meetings for Vaidi with ElBaradei and his chief safeguards inspector Olli Heinonen as the Iranians were not ready to "talk substance."

Cooper and Vaidi told reporters their main focus was to prepare another meeting of Larijani and Solana.

Vaidi described his meeting with Cooper as "constructive . . . but you cannot expect a huge miracle."

ElBaradei is to report this week that Iran is in fact expanding uranium enrichment work and failing to come forth with information required to settle outstanding questions about such issues as documents Iran has for making uranium metal hemispheres used in atom bombs, according to a copy of the report seen by AFP.

Iran had as of May 13 over 1,300 centrifuges enriching uranium at an underground facility in Natanz, ElBaradei said.

Iran could reach its goal of industrial scale production with 3,000 centrifuges running by the end of June, a senior official close to the IAEA said.

This number of centrifuges if running at full capacity could make enough enriched uranium for a bomb in a little less than a year, according to experts.

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