Iran is expanding its uranium enrichment program even as the United Nations Security Council focuses on possible sanctions for the country's defiance of international demands that it give up nuclear activity and ease fears it seeks nuclear weapons, diplomatic sources said Monday.

Iran has launched a second batch of centrifuges at its pilot nuclear fuel plant despite possible UN Security Council sanctions, the diplomats said.

Tehran fired up the new cascade of 164 interconnected centrifuges, which can enrich uranium for either power plant or nuclear bomb fuel, earlier this month to go with an initial network of 164, they said.

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While the 164 centrifuges of the new facility were not producing enriched uranium, even the decision to "dry test" them showed Iran's defiance of the Security Council.

In Washington, U.S. State Department spokesman Sean McCormack said he was unable to confirm the action, but said Washington feared Iran was moving towards large-scale production.

"That would be something that would be quite alarming for the rest of the world because that means that you are able to start to produce - or at least have the capability to produce - large amounts of highly-enriched uranium which lead you to the building blocks for a nuclear weapon," he told reporters.

A senior diplomat familiar with UN nuclear inspections in Iran said Tehran remained a long way from "industrial scale" capacity that would signal its emergence as a nuclear power, as North Korea showed on October 9 by detonating an atomic device.

"The second cascade was brought on line earlier this month but they appear to be just running it empty. That is, vacuum-testing to assess durability," said the diplomat, close to the Vienna-based International Atomic Energy Agency.

"What they are not doing is building a stockpile of enriched uranium that would give them a bomb breakout ability, something like 100-200 kilograms (240-480 pounds). It is just a few grams here, a few grams there," he said

In order to produce the fissionable material necessary to construct a nuclear weapon, experts say Iran must enrich between 100 to 200 kilograms of uranium to the enrichment level of 90%.

The council had set an August 31 deadline for Iran to cease all experiments linked to enrichment, which can produce the fissile material for nuclear warheads.

The UN security council is continuing debates on whether or not to impose sanctions on Iran, after their continued refusals to adhere to international demands that they abandon their uranium enrichment programs.

Iran has vowed to continue their uranium enrichment measures, arguing that it is their right to do so and that no UN initiative will prevent these measures.

Iran has threatened that if sanctions are imposed on them, they will take retaliatory actions.

Olmert: The world must not 'bury its head in the sand' on Iran
Prime Minister Ehud Olmert appealed to the international community on Monday to ostracize Iranian President Mahmoud Ahmadinejad, saying the world must not "bury its head in the sand" while he calls for Israel's destruction.

"It is inconceivable that ... a member of the United Nations continues to be received throughout the world as a legitimate leader while he stands up and says that another UN member state should be wiped off the map," Olmert told a business conference.

"We shall never repeat the mistakes of 60 years ago of burying our heads in the sand, ignoring what was being heard then when it was still possible to save lives," he added, in an allusion to the Nazis who killed 6 million Jews in Europe.

Israel considers Iran to be the greatest threat to its survival, and rejects Tehran's claim that its nuclear program is peaceful. Ahmadinejad has repeatedly called for the Jewish state's destruction, and Iran already has ballistic missiles capable of carrying payloads to Israel.

In Israel's sharpest warning yet, Olmert warned last week that Tehran would have "a price to pay" if it does not back down from its atomic ambitions.

Olmert did not specifically threaten to cripple Iran's nuclear program in a military strike, as it did 25 years ago in Iraq when it bombed an unfinished nuclear reactor there. But he has been saying the Iranians "have to be afraid" of the consequences of their intransigence.

Military experts have questioned Israel's ability to destroy Iran's nuclear facilities, which unlike Iraq's in 1981 are scattered among installations, some hidden underground. But they have said Israel could set the program back years by striking several of the sites.

Support for UN sanctions against Iran has grown among members of the Security Council after weeks of talks between the EU and Iran failed to persuade Tehran to suspend uranium enrichment, a key process in bomb-building.

Speaking about the Iranian threat, the prime minister said that Israel is facing a situation unprecedented in international politics since its establishment.

"Since World War II, since the Holocaust, it has not happened that a leader of a United Nations member state would rise and declare openly that he calls for the destruction of another UN member state," he said.