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Iran failed to suspend uranium enrichment activity by February 21, ignoring a UN Security Council deadline to halt work the West fears could give Tehran an atomic weapon, the UN's nuclear watchdog said on Thursday.

The International Atomic Energy Agency also said in a report that Iran had installed two cascades, or networks, of 164 centrifuges in its underground Natanz enrichment plant with another two cascades close to completion.

This represented efforts to expand research-level enrichment of nuclear fuel into "industrial scale" production.

According to the report, Iranian workers lowered into the plant an 8.7-tonne container of uranium hexafluoride gas (UF-6) to prepare to start feeding centrifuges, which can enrich the material into fuel for power plants or, if refined to high levels, for bombs.

The deputy head of Iran's Atomic Energy Organization, Mohammad Saeed said Iran cannot accept suspending uranium enrichment, as demanded by the UN Security Council, because it had no legal basis.

"Regarding the suspension mentioned in the report, because such a demand has no legal basis and is against international treaties, naturally, it could not be accepted by Iran," he said.

Saeed, added the IAEA's report showed that renewing negotiations was the best route to end the nuclear row.

"This report shows that the best way to resolve this international issue is to return to the negotiating table and reach a broad agreement," he said.

He also said the report showed Iran had informed the IAEA about installing new centrifuges and that they would be operating by May 2007.

Iran's defiance could lead to further sanctionsIran's defiance of a 60-day deadline set by the Council when it banned nuclear technology transfers to Iran on December 23 will expose Iran to wider sanctions over its atomic energy program, which the West fears is a front for assembling atom bombs.

British Foreign Secretary Margaret Beckett said following the release of the report that because "Iran has so far failed to take this positive path and comply with Security Council requirements," Britain would "work for the adoption of further Security Council measures, which will lead to the further isolation of Iran internationally."

U.S. Undersecretary of State Nicholas Burns said Thursday that On Monday, Germany and the officials from the five permanent United Nations Security Council members with veto rights - the United States, Russia, China, Britain and France - plan to meet in London to begin drafting a new sanctions resolution.

Tehran says it is seeking nuclear-generated electricity. "Iran has not suspended its enrichment-related activities," said the confidential IAEA report.

"Iran has continued with the operation of the (small ground-level pilot fuel-enrichment) plant. It has also continued with the construction of the (underground) Fuel Enrichment Plant, including installation of cascades, and has transferred UF-6 to the plant," the report said.

"As of (Feb. 17), no UF6 had been fed into the process at the (underground plant)," it added.

Iran intends to install 3,000 centrifuge machines in its Natanz enrichment hall over coming months to lay the basis for "industrial-scale" fuel production involving some 54,000.

The six-page report said Iran had agreed to interim IAEA verification procedures at the underground plant but not to remote monitoring.

The IAEA had told Iran this restriction would violate non-proliferation safeguard rules once more than 500 centrifuges were installed, according to the report.

Rice to meet with EU, Russian officials on IranU.S. Secretary of State Condoleezza Rice planned to confer Thursday with European diplomats ahead of a likely push for new sanctions on Iran over its disputed nuclear program.

Rice scheduled a strategy meeting Thursday with European Union and Russian diplomats as a UN deadline loomed for Iran to stop enriching uranium.

"The best course would be for Iran to suspend its enrichment and reprocessing activities so that we can return to negotiations," Rice told reporters Tuesday.

"That is the entire purpose of having the pressure on the Iranian regime, so that the Iranian regime can make better choices about how to engage the international community," she said.

Meanwhile, British Prime Minister Tony Blair said on Thursday he did not know of any plans for an attack on Iran over its nuclear program but refused to rule it out completely.

A diplomatic solution to the standoff was the only one "anyone can think of" that was viable and sensible, Blair said in a BBC radio interview.

Brazil implements UN sanctions against IranBrazilian President Luiz Inacio Lula da Silva signed a decree Thursday enacting a recent United Nations resolution banning the sale and transfer of nuclear equipment and technology to Iran, the foreign ministry said.

The UN Security Council voted unanimously on December 23 to impose sanctions on Iran for refusing to suspend uranium enrichment, increasing international pressure on the Iranian government to prove that it is not trying to make nuclear weapons.

The resolution orders all countries to stop supplying Iran with materials and technology that could contribute to its nuclear and missile programs. It also freezes Iranian assets of 10 key companies and 12 individuals related to those programs.

A spokesman for the foreign ministry said he did not know if Brazil had ever sold or transferred nuclear equipment and/or technology to Iran in the past.

In 2004, Brazil raised international concern when it announced it would begin enriching uranium for peaceful purposes but then denied inspectors of the International Atomic Energy Agency complete access to its centrifuges. Eventually, a deal for limited inspections was reached.

Brazil has the world's sixth largest uranium reserves.

Brazil currently has two operating nuclear plants near Rio de Janeiro, Angra 1 and Angra 2, with an installed capacity of about 2,000 megawatts. A third uncompleted plant, Angra 3 would raise nuclear capacity to 3,300 megawatts.

Late last year, Brazil announced plans to build four new nuclear plants in the northeast and southeast of the country starting in 2015. Each is projected to have generating capacity of 1,000 megawatts.