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Iran's decision to answer key questions about its nuclear programme is "a significant step forward," the UN nuclear agency said Thursday, in a development expected to help Tehran avoid new sanctions.

The IAEA also said Iran's nuclear work was far below the industrial level vaunted by Tehran in April, according to a confidential IAEA report obtained by AFP.

Iran is continuing to defy two UN Security Council resolutions to cease enriching uranium, which can be used as nuclear reactor fuel or atom bomb material, but growth in enrichment work has slowed even though capacity has expanded, the report said.

It said Iran was still short of its planned 3,000 centrifuges for producing enriched uranium.

But the United States reiterated Thursday its insistence on Iran suspending uranium enrichment to win international confidence, and downplayed the IAEA claim of progress.

Washington is seeking a third round of sanctions at the Security Council but Russia wants to see how the new Iranian-IAEA cooperation plays out, diplomats said.

US ambassador Gregory Schulte told AFP the IAEA "would welcome resolution of troubling questions about Iran's nuclear activities but thus far for the most part Iran has only made promises."

The IAEA report included a timetable agreed on with Iran last week to clear up outstanding issues in the IAEA's over four-year-old investigation of US charges that Tehran is using a civilian programme to hide the development of nuclear weapons.

Iran on Thursday welcomed the report, which is to be presented at a meeting of the IAEA's 35-nation board of governors in September.

Mohammad Saeedi, deputy head of Iran's Atomic energy organisation, told the official IRNA news agency: "We thank the IAEA for its professional approach to this issue and we hope this path can continue to be pursued."

"What we have is what we think is an important step," IAEA deputy director general Ollie Heinonen, who negotiated the timetable, told reporters.

He said the goal was to get sufficient answers to the agency's questions about Iran's past hidden activities to close the matter by the end of the year.

The United States has accused Iran of only pretending to cooperate with the IAEA in order to avoid further UN sanctions.

Schulte said that since the IAEA's last report in May on Iran, the Islamic Republic "has increased by 50 percent the number of (centrifuge) cascades running with uranium hexafluoride (feedstock gas) in the once secret underground bunkers in Natanz" to enrich uranium.

But a senior UN official said Iran was producing only small amounts of enriched uranium and that the feeding rate into the centrifuge machines at the Natanz enrichment facility "has been smaller than what you expect when you look at the design of the facility."

The official also said that construction of the Arak heavy-water reactor which would make plutonium was "slower than what was in the original declarations, what they had stated in their design information statements and even before."

When asked whether political reasons or technical problems were behind the slow Iranian speed, the official said: "We don't have enough information to find out what is the reason."

The report said that "as of 19 August 2007, twelve 164-machine (centrifuge) cascades were operating simultaneously" in Natanz to enrich uranium, a total of 1,968 centrifuges.

A total of 656 more centrifuges were in development.

Iran has cleared up questions about its experiments with plutonium which is, like enriched uranium, potential atom bomb material, said the IAEA report.

And, for the "first time" Iran has agreed to review documents that the United States says show Iran carrying out secret military work on uranium processing, high-explosives testing and putting a nuclear warhead on a missile re-entry vehicle, Heinonen said.

A senior UN official, who asked not to be named, said: "If something pops up next Christmas, then that's a new issue" that the IAEA can ask about, parrying concern from diplomats that the IAEA has agreed to put a limit on the questions it can ask.

The IAEA also said "Iran would need to continue to build confidence about ... its present and future nuclear programme," including adopting an additional protocol on wider inspections.
msa/stu

AFP 301946 GMT 08 07