Watchdog to report Iran atom slowdown ahead of talks

VIENNA (Reuters) - U.N. inspectors are set to report that Iran has slowed the expansion of its disputed nuclear programme and is cooperating more with them just as major powers prepare to discuss harsh sanctions against Tehran.

Whatever they ultimately decide will hinge on how the report is interpreted: is Iran really shifting policy away from nuclear defiance to open doors to negotiations, or making only temporary gestures timed to keep Russia and China opposed to truly biting sanctions and buy Tehran time to fine-tune uranium enrichment?

Sceptical Western power diplomats leaned towards the second scenario as they awaited the International Atomic Energy Agency (IAEA) report, due for release on Thursday or Friday in Vienna.

"It's hard to see this as anything but a cynical ploy to appear cooperative in the court of public opinion. Sadly, it will probably work," a Western diplomat told Reuters.

"People misinterpret what is probably a technical move by Iran as a political signal. If Iran wants to give us a signal, they'll suspend enrichment, or at least accept the P5+1 (group) offer to meet," the diplomat added, referring to the United States, Britain, France, Germany, Russia and China.

The 4 Western states are expected to urge Russia and China next week to join in crafting a fourth round of U.N. sanctions possibly targeting Iran's vital oil sector if it does not stop dodging calls for nuclear talks by the end of September.

Western leaders suspect the Islamic Republic is stealthily pursuing nuclear weapons capability via enrichment of uranium.

Iran denies this, saying it is refining uranium only for electricity so it can export more oil. But it has no nuclear power plants to use the low-enriched material it is stockpiling.

To help win over Russia and China, Western powers want the IAEA to release with the report a classified summary of its inquiry into Western intelligence reports alleging Iran illicitly studied how to design a nuclear bomb, diplomats said.

A diplomat close to the IAEA said this was being considered, after a year of Iranian stonewalling that has stalled the inquiry, with Tehran dismissing the intelligence material as forgeries.

But the IAEA has no evidence showing undeniably that Iran has a bomb agenda, he said, and IAEA head Mohamed ElBaradei was loath to publish the summary for fear it could be used for political ends and make the agency look biased against Iran.

Diplomats said the IAEA was expected to report that Iran had not expanded the number of centrifuges enriching uranium at its underground Natanz plant since the end of May -- after boosting capacity steadily over the previous three years.

But they said that on top of some 5,000 centrifuges that were refining uranium as of May 31, Iran had installed well over 2,000 more which could be added to the production line within a few weeks after routine test runs under vacuum.

This mean Iran could resume expansion quickly, if it wanted.

TECHNICAL, NOT POLITICAL, RESTRAINT

A senior Vienna diplomat said Iran's hesitation to launch more enriching centrifuges looked technical in nature because some active machines had been taken down for maintenance and repairs. The rest were enriching normally, he said.

Some analysts say Iran now has enough low-enriched uranium to convert into the high-enriched version needed for an atomic bomb. But the U.S. intelligence chief has said Iran is unlikely to be technically able to "weaponise" enrichment before 2013.

Diplomats said Iran had also granted IAEA demands for better camera surveillance and data collection at Natanz.

Inspectors had complained that Iran's vast expansion of centrifuge work since last year had outstripped their ability to verify that nothing was being diverted for military purposes.

Further, Iran has restored access to a heavy-water reactor under construction, which Western officials fear could be put to making weapon-grade plutonium, after blocking visits for a year.

The report will indicate whether these moves were one-off or part of a firm, longer-term transparency deal with the IAEA.

Iran's foreign ministry spokesman said on Monday its nuclear activity would remain under IAEA monitoring in keeping with the Non-Proliferation Treaty, but did not mention the new steps.

Washington said the Iranian gestures fell far short of comprehensive, binding transparency needed to ease mistrust.

Going further, British Prime Minister Gordon Brown said on Monday that Iran faced intensified sanctions unless it cooperated "immediately" to curb its nuclear power campaign.

Western hopes for negotiations with Iran rose after unrest shook the nation over alleged fraud in the June presidential election, splitting the conservative power structure, with a relative moderate taking over Iran's nuclear agency in July.

But hardline President Mahmoud Ahmadinejad prevailed over protesters and officials again ruled out a nuclear halt called for by big powers, with trade benefits offered in exchange.

(additional reporting by Sylvia Westall, editing by Ralph Boulton)