Iran's uranium enrichment program is operating well below capacity and is far from producing nuclear fuel in significant amounts, according to a confidential United Nations nuclear watchdog report.

A senior Iranian nuclear official said the International Atomic Energy Agency's (IAEA) report showed U.S. suspicions about Tehran's nuclear intentions were baseless.

Officials familiar with the report said the IAEA could open future inquiries into Iran's atomic activity if new suspicions arose, even after Tehran answers questions about the program under a transparency deal reached this month.

Western leaders suspect Iran wants to build atom bombs, not generate electricity, and were alarmed when Tehran said in April it had reached "industrial capacity" to enrich uranium.

But the IAEA report said Tehran remained far short of that threshold. Iran had just under 2,000 centrifuges divided into 12 cascades, or interlinked units, of 164 machines each refining uranium at its underground Natanz plant as of August 19, it said.

A 13th cascade was being test-run empty, another was stationary undergoing tests under vacuum, and two more cascades were being assembled, said the report, sent to the IAEA's 35-nation board of governors and UN Security Council members.

"Iran made a fast start but then there was a leveling off," said a senior UN official versed in the IAEA's findings. "We don't know the reasons, but the slow pace continues."

The report's detail on new Iranian cooperation with inspectors and Tehran's lack of significant enrichment progress are likely to blunt Washington's push for painful sanctions.

Western diplomats fear Iran scored a victory in its deal with the IAEA by allowing it to answer questions one by one, prolonging the process and foiling more punitive UN action.

Russia, a Security Council veto-holder which does not think Iran poses an imminent threat to world peace, opposes more sanctions while Tehran's rapprochement with the IAEA moves on.

The report countered impressions gleaned by Western diplomats from the August 21 pact that Iran had negotiated immunity to further IAEA investigations after existing issues were resolved, which officials hoped would happen by year-end.

The official said it was unclear if Iran's halting enrichment progress was due to technical problems or political restraint to blunt U.S. sanctions moves.

The report also recapped the phased plan Iran agreed with the IAEA 10 days ago to resolve questions about the scope of its nuclear activity. It detailed how the IAEA had settled one issue already - past small-scale experiments with plutonium.

But the report made clear that the cooperation pact by itself was not enough to give Tehran a clean bill of health.

As long as Iran refused to resume allowing wider-ranging, inspections of sites not declared to be nuclear, under the IAEA's Additional Protocol, the agency would be unable to verify Iran had no secret military nuclear facility somewhere.

"Iran would need to continue to build confidence about the scope and nature of its present and future nuclear program. Confidence in the exclusively peaceful nature of [this]?, the absence of undeclared nuclear material and activities, [requires] implementation of the Additional Protocol."

UN officials also said Iran did not seek in talks on the plan to condition its implementation on no tough UN sanctions but Iranian leaders have raised such a linkage in public.

That raised Western concerns Iran has no intent to answer thornier questions and may drag matters out indefinitely. The UN has already imposed two sets of sanctions on Iran.

IAEA safeguards director Olli Heinonen, who has led agency negotiations with Iran, also deflected concern of Western diplomats assessing the transparency plan that the IAEA had not ensured Iran would provide proof for its answers.

"Iran is now facing a litmus test to provide answers in a timely manner to our questions. It's important that Iran provides access to documentation, persons, and equipment to help us verify the answers," he told reporters on Thursday.

A senior UN official familiar with IAEA-Iranian contacts said that if Iran reneged or stalled, "it will come back and hit them in the face" politically.

"But if [tougher] sanctions come, our process will face a setback at a minimum, if not a halt," he said, reflecting IAEA concerns that U.S.-led efforts to escalate penalties could only corner nationalistic Iran and goad it to freeze out inspectors.