Iran defiant ahead of report

VIENNA (Reuters) - Iran vowed defiantly on Thursday not to bow to Western pressure, hours before a U.N. watchdog was expected to report Tehran had failed to meet a deadline to halt work which the West fears could help it build a nuclear bomb.

"They (the West) should know that Iranian nation will not yield to pressure and will not accept any violation of its rights," President Mahmoud Ahmadinejad said in a televised speech in Iran.

Iran has repeatedly said uranium enrichment, which the United Nations has demanded it stop, is its right and will not be abandoned. Western countries fear Iran's nuclear program is aimed at secretly building nuclear weapons.

"Arrogant powers want to stop our nation's progress ... I am telling them that they are wrong," Ahmadinejad said.

Washington says world powers are poised to begin discussing punitive measures next week against Iran if, as expected, the International Atomic Energy Agency finds Tehran ignored a U.N. Security Council demand to stop enriching uranium by August 31.

As time was running out, Iran vowed never to drop the project and launched one of its key elements, a heavy-water plant. Tehran is also pressing ahead with enriching uranium in small amounts at its pilot centrifuge site, diplomats said.

But Iran's August 22 reply to the powers' offer of incentives not to enrich, saying it could negotiate the scope of its plans, has spurred some U.S. allies in Europe to ask for exploratory talks with Tehran, two Western diplomats said.

"This is to gain more time and postpone the expected sanctions," one said, reflecting underlying European Union preference to find a compromise with Iran rather than isolate one of Europe's biggest oil suppliers.

In a possible nod to EU concerns, U.S. State Department spokesman Sean McCormack said that even if sanctions discussions began, Iran could still opt to halt enrichment work and spur broader negotiations to implement the trade sweeteners package.

EU foreign policy chief Javier Solana's spokeswoman said he might speak by telephone with Iranian chief negotiator Ali Larijani before the deadline passed, and they could meet afterward, to try to clarify Tehran's response.

The Security Council asked Mohamed ElBaradei, head of the nuclear watchdog IAEA, to spell out on August 31 if Iran had complied with the deadline set in a July 31 resolution.

Washington, Iran's arch-foe, felt the 30-day grace period given to Iran was a fair chance for it to change its mind and if it did not, veto-holding Russia and China could be won over to backing Council sanctions once the deadline expired.

RUSSIA, CHINA STILL OPPOSE SANCTIONS

But Moscow and Beijing, keen to protect heavy energy contracts with Tehran and seeing no imminent threat from its nuclear program, urged a return to diplomacy after Iran's careful response to the incentives package.

Even Washington's staunchest ally Britain has played down U.S. predictions of a swift resort to sanctions in September.

Although Iran must obey the legally-binding Council resolution, "we don't close the door to further talks" after the deadline, a British Foreign Office spokesman said on Wednesday.

Joe Cirincione, global security analyst at the Center for American Progress, said the powers needed to proceed cautiously since no hard proof of atom bombmaking has been found by IAEA investigators in Iran, although many questions persist.

"Most of the evidence points to a program to slowly develop the capability for producing nuclear weapons some time in the future should Iran decide to do so," Cirincione said.

Iran says it is pursuing a peaceful program permitted by the nuclear Non-Proliferation Treaty to generate energy and has denounced pressure for an unconditional suspension as illegal.

"Enrichment is clearly the prize of negotiations and Iran clearly does not want to give it up before talks happen," said Trita Parsi, a U.S.-based Iranian author and specialist.

But concerns about Iran's intentions have been fanned by its record of hiding sensitive nuclear work from the IAEA for 18 years, failure to cooperate fully with agency probes and calls for Israel's destruction, Western officials say.

Probe targets since 2003 include plutonium experiments, alleged administrative links between processing of uranium ore, explosives tests and a missile warhead design, and black-market acquisitions of parts for centrifuge enrichment machines.

ElBaradei's report may state that Iran has stonewalled the myriad inquiries to a standstill, one senior diplomat said.

Iran is withholding answers to IAEA questions as bargaining chips for crunch talks with the big powers, diplomats say.

Analysts believe Iran remains 3-10 years away from producing highly-enriched uranium needed for a bomb, assuming it wants to.