At the same time, Mohamed ElBaradei warned that a nuclear programme by North Korea -- which US President George W. Bush grouped with Iran and Iraq in an axis of evil -- was the world's most dangerous non-proliferation issue.
The director general of the International Atomic Energy Agency told reporters at the World Economic Forum in Daovs that Tehran had been working with the IAEA as it pledged to do late last year.
But he added: "It is very important for the agency to come to a conclusion. It will have serious implications if they do not cooperate fully with us in the investigations. I hope and I am confident that they will cooperate."
ElBaradei did not elaborate on what he meant by "serious implications" if the Iranians did not come clean on their nuclear program.
Iranian President Mohammad Khatami gave new assurances in this Swiss ski resort on Wednesday that his country had no nuclear ambitions and opposed the production of nuclear arms.
"Iran has never had weapons of mass destruction," he said.
Tehran agreed last year to suspend uranium enrichment as a confidence-building measure, and ElBaradei said Thursday the IAEA had no indications Tehran was still trying to procure materials to make a bomb.
"They are working hard to verify the suspension of all procurement activities and I think we are making good progress and I hope we will continue to make progress," he said.
Asked about reports that nuclear materials were being smuggled into Iran, ElBaradei said, "We have individuals involved, I do not want to jump to the conclusion that the government is involved.
"We are in the process of investigating this network first of all to stop it and then avoid a reccurence of that very dangerous phenomenon."
On the question of North Korea, which has boldly advertised its nuclear ambitions, ElBarabei said: "The North Korea issue is the most dangerous non-proliferation issue we are facing today.
"The good news is that North Korea would like to sit and have a diplomatic settlement to solve that problem. But whether we would have a breakthrough soon depends on the outcome of these six-party talks."
The Stalinist state is due to join a second round of talks this year with China, the United States, South Korea, Russia and Japan aimed at resolving its nuclear crisis.
But a first round of discussions held last August ended inconclusively, and ElBaradei was pessimistic about an imminent settlement.
"There is no other way to resolve this issue other than through a dialogue and we must encourage all the parties to find a solution," he said.
Earlier this month, North Korea offered to freeze its nuclear weapons programme in return for concessions, including an end to US sanctions and a resumption of energy aid. Washington, however, is holding out for a commitment from Pyongyang to scrap its nuclear ambitions.
"What is important is to make them understand that nuclear blackmail does not pay," said ElBaradei. "That would be a very bad message."
North Korea kicked out IAEA inspectors and withdrew from the non-proliferation treaty last January after the United States suspended fuel shipments to the energy-starved country.
The dispute flared in October 2002 when US officials said North Korea had admitted to operating a clandestine nuclear weapons programme in violation of its international commitments.
Asked when he thought the IAEA inspectors would return to the country, ElBaradei said: "As soon as we are allowed to go, which means as soon as North Korea agrees to accept the non-proliferation treaty and accept their non-proliferation obligations."