Senior U.S. officials are ambivalent about initiating more punishing sanctions against Tehran at the United Nations, even though this week's report by the International Atomic Energy Agency is seen by the Americans as a vindication of their long-held assertion that Iran is aiming to develop nuclear weapons, sources in New York said on Wednesday.

These officials are concerned about the effect such sanctions might have on the economy, particularly on the energy market, the sources said.

This is in addition to the fact that China and Russia - both of whom have veto power in the UN Security Council - have unequivocally declared that they will not support new sanctions.

Many administration officials also fear that harsh new sanctions would be interpreted by Tehran as a declaration of war, which would increase the influence of extremist elements in Iran and could encourage a wave of terror attacks against American and Western targets.

Tehran might also respond to "paralyzing sanctions" by threatening the free movement of oil tankers through the Strait of Hormuz. Forty percent of the world's oil passes through this narrow waterway.

But even without American misgivings, the overwhelming opinion among diplomats and veteran pundits in New York is that despite the tough talk by Western governments that claim the IAEA report leaves them no choice but to impose unprecedented sanctions, chances of the Security Council actually doing so are practically nil.

"Talk of a fifth round of sanctions against Iran that would be 'suffocating' or 'paralyzing' are more expressions of wishful thinking and feelings of frustration by the Western powers ... than a realistic appraisal of what can be expected in the Security Council," said one observer.

While the issue of sanctions will likely turn the Security Council in the next few weeks into a battleground between the United States, Britain and France on one side, and China and Russia on the other, "a victory for the Western powers is not at all certain," a senior Western diplomat said.

Both China and Russia, which have extensive economic ties with Tehran, struggled to keep the accusatory findings against Iran out of the IAEA report altogether, diplomatic sources said. Having failed to do so, they are seen as even more likely to harden their positions against any new sanctions, the sources said.