A report by International Atomic Energy Agency (IAEA) director Mohamed ElBaradei, which concludes there is as yet no proof Iran to back up US claims is developing nuclear arms, was greeted here with some relief that the matter is unlikely to go to the United Nations Security Council.

Iran also seized on the fact the report praised what appears to be a recent policy shift in Iran towards showing the all-too crucial active cooperation the Vienna-based agency has long demanded.

"In the report, the important point was that there is no proof Iran is seeking to build the atomic bomb," Iranian President Mohammad Khatami said, adding he was "optimistic" over the outcome of the IAEA's board meeting which will decide the next step when it meets on November 20.

But Iran has certainly not been given a clean bill of health.

ElBaradei's report catalogued a history of deceit and concealment, and revealed Iran was heading towards mastering the entire nuclear fuel cycle in its bid to generate nuclear energy.

Khatami and other top officials have expressed anger that the failures to abide by the nuclear Non-Proliferation Treaty (NPT) were even mentioned, brushing them off as in the past and pointing to Iran's need to dodge unilateral US sanctions.

But their attention is likely to be focused on a report conclusion that "given Iran's past pattern of concealment, it will take some time before the Agency is able to conclude that Iran's nuclear programme is exclusively for peaceful purposes.

"To that end, the Agency must have a particularly robust verification system in place," the report states.

The reaction from Washington will also not go unnoticed in Iran. John Bolton, Washington's top diplomat for arms control, said the IAEA's conclusion that no evidence pointed to illicit activities flew in the face of established facts and was "impossible to believe".

The US alleges oil- and gas-rich Iran -- which it had lumped into an "axis of evil" with North Korea and pre-war Iraq -- is using a programme to generate atomic energy as a convenient cover for a nuclear weapons drive.

The US is lobbying for the matter to be referred to the Security Council, while Britain, France and Germany -- whose foreign ministers negotiated Iran's u-turn in its stand-off with the IAEA when they paid an unprecedented joint visit here last month -- seem determined to keep the matter in Vienna.

Referring the matter to New York, European diplomats here fear, would only strengthen the hand of Iranian hardliners -- many of whom had been advocating following the path of North Korea and pulling out of the NPT altogether.

The IAEA will also have a tough task when it follows through on Iran's pledge to sign the additional protocol to the NPT and allow a tougher inspections regime.

The highly secretive Islamic republic has already signalled inspectors will have to tread carefully, and have secured pledges from the IAEA that it will not be subject to the kind of intrusion endured by neighbouring Iraq.

But the US may find this difficult to accept -- especially if military installations are kept off limits -- as might Israel, which is rumoured to have been considering military strikes against Iranian nuclear installations.

Iran's government has clearly spelled out that if its sensitivities are hurt by US lobbying, a political u-turn -- and therefore a serious confrontation -- could come about at any time.

"We will continue our cooperation with the agency and we are waiting for the board of directors meeting," President Khatami said. "If their attitude is political, we reserve the right to change our attitude."

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