A confidential report Wednesday by the UN watchdog International Atomic Energy Agency (IAEA) failed to provide the United States with the convincing evidence it needs, although Iran is readying to start a crucial part of the nuclear fuel cycle that could eventually be used in the production of atomic bombs, diplomats and analysts said.

"There doesn't seem to be a hook that could drag Iran before the Security Council," non-proliferation expert Joseph Cirincione said Wednesday about the IAEA report, a copy of which was obtained by AFP.

A diplomat to the Vienna-based IAEA, which is to review the Iranian nuclear program on September 13, went further saying: "I don't see how the United States can claim to take the issue to the Security Council (for possible sanctions against Iran)" since the report is "prudently positive for Iran," as it says Iran has answered key questions concerning enrichment by lasers and uranium conversion.

The United States has tried in six meetings of the IAEA board of governor since March 2003 to get the Iran dossier taken to the Security Council but faces oppositions from European states, mainly Britain, France and Germany, which favor a policy of constructive engagement to get Tehran to cooperate with the IAEA.

US Secretary of State Colin Powell said Wednesday however that Washington wants to push the IAEA board hard at its September meeting.

He declined to comment specifically on the new IAEA report, but said the United States was convinced Iran was using its civilian atomic energy program to hide the development of nuclear weapons and that the matter should be sent to the United Nations.

"That will be our position going into the discussions on September 13 when the board meets," Powell told reporters on his plane, en route back from a brief visit to Panama.

"Whether there is a consensus to do that now remains to be seen, but we think we've seen enough, the world should have seen enough over the last year to come to the conclusion that it's time for it to be referred to the Security Council," he said.

Powell said US diplomats would begin lobbying IAEA members to support that position on Thursday, but allowed that some would likely argue in favor of putting off a UN referral until the board's next meeting in November.

The US administration's top arms control official, undersecretary of state John Bolton, said Washington viewed "with great concern the IAEA report" that Iran will resume large-scale production of uranium hexafluoride, the feed material for enriching uranium.

And a state department official who asked not to be named told AFP there were grounds for taking Iran to the Security Council since the Iranians were showing "a clear and compelling pattern of intent to get enrichment capabilities so that they can make fissile material for weapons."

He said the IAEA had in previous reports already shown "compelling proof of 18 years of Iranian violations" of the nuclear Non-Proliferation Treaty (NPT).

A senior diplomat close to the IAEA said Iran's upcoming production of uranium hexafluoride would produce a "significant amount" of the gas, an amount that would apparently be enough to use centrifuges to make enriched uranium that could produce at least one if not several atom bombs.

Iran had pledged to Britain, France and Germany last October to suspend uranium enrichment, despite enrichment being allowed under the NPT, in order to show the world community that its atomic intentions were strictly peaceful.

But in June, Iran said it would resume assembling and testing centrifuges since the so-called Euro-3 had failed to come through on a promise to get the IAEA to stop investigating Iran's nuclear programme.

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