The 15-member council was handed a report on Iranian non-compliance from the head of the Vienna-based International Atomic Energy Agency (IAEA), Mohamed ElBaradei, as a council deadline expired.

The report concluded that "Iran has not suspended its enrichment-related activities" but also said IAEA inspectors had found no "concrete proof" that Iran's nuclear program was of a military nature.

US Ambassador to the United Nations John Bolton said the report "provides ample evidence of (Iranian) defiance."

He described the report's conclusion that the IAEA was still unable to confirm the peaceful nature of the Iranian program as "a red flag" underlining "our concern that Iran is pursuing a (nuclear) weapons capability."

Bolton, however, said the council was not planning any immediate response to Tehran's defiance and would await a meeting between European Union foreign policy chief Javier Solana and Iran's top nuclear negotiator Ali Larijani in Berlin next Wednesday.

"We intend to let this meeting between Solana and Larijani take place next week, and then we will be consulting here and in capitals about where to go from there," he noted.

Solana is also to meet with European foreign ministers on Friday in Finland to try to hammer out a response to Iran's refusal to suspend nuclear activities -- an impasse which threatens to torpedo long months of EU diplomatic efforts.

Diplomats said senior officials of Britain, China, France, Germany, Russia and the United States, the six powers trying to strike a deal with Iran over its disputed nuclear program, would also meet in Berlin next Thursday.

The council had demanded that Iran suspend all uranium enrichment and reprocessing activities by August 31 or face possible sanctions, with Western countries suspecting that Tehran's nuclear program hides a bid to develop an atomic bomb.

The five permanent members of the council -- Britain, China, France, Russia and the United States -- plus Germany have sought to coax Tehran into suspending enrichment by offering a package of security, trade and technology incentives.

But Iran has made clear that it intends to pursue uranium enrichment, which it began earlier this year. Enrichment makes fuel for nuclear power reactors but can also produce the raw material for atom bombs.

The deputy chief of Iran's nuclear agency said the IAEA report was "not negative" and vowed to continue uranium enrichment for research purposes.

"The report is very factual and adds that the Iranian nuclear programme is under the supervision of the IAEA and that there has been no deviation" towards any military purpose, Mohammad Saeedi, deputy head of Iran's atomic energy agency, said.

"Even if the report does not satisfy us completely it shows that the propaganda of the United States on the Iranian nuclear programme is completely without foundation and the result of the hallucinations of US officials," he said.

Bolton, however, said the "continuing pattern of lack of cooperation by Iran" was inexplicable if Tehran's real purpose was a peaceful nuclear program, as it claims.

On indications that Russia and China, two veto-wielding members of the Security Council, were reluctant to resort to sanctions, Bolton recalled that foreign ministers of the two countries "committed to seeking sanctions" if Tehran rejects the package of incentives at the six-power meeting two months ago.

In Salt Lake City, Utah, US President George W. Bush warned that "there must be consequences for Iran's defiance, and we must not allow Iran to develop a nuclear weapon."

And US officials prepared to push for gradual sanctions against Iran, beginning with relatively symbolic steps like bans on travel by Iranian nuclear officials but then building to more substantial measures such as financial restrictions and trade embargoes.

One of Iran's main exiled opposition groups called for immediate UN sanctions on Tehran.

Speaking at a rally of Iranian exiles a block away from the UN headquarters in New York, National Council of Resistance of Iran leader Maryam Rajavi said: "The Security Council should impose diplomatic, arms and oil sanctions on the regime."

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