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A report from the United Nations nuclear watchdog agency on Thursday found Iran to be generally truthful about key aspects of its nuclear history, but warned that its knowledge of Tehran's present atomic work was shrinking.

The International Atomic Energy Agency report also confirmed that Tehran continued to defy the UN Security Council by ignoring its repeated demands to freeze uranium enrichment - a potential pathway to nuclear weapons.

A UN diplomat who spoke on condition of anonymity described the report as a glass half-full or half-empty.

The report's findings, and Iran's continued lack of full disclosure, may open Tehran to a third round of sanctions imposed by the West in efforts to prevent the Islamic republic from gaining nuclear capabilities.

Tehran says it seeks only nuclear-generated electricity.

Iran has further expanded uranium enrichment despite UN demands to stop, raising the number of centrifuge machines to 3,000, the IAEA report said. This number is enough to start industrial production of nuclear fuel.

"[Iran's] cooperation has been reactive rather than proactive," the report said. "Iran's active cooperation and full transparency are indispensable for full and prompt implementation of the work plan."

Iran's president Mahmoud Ahmadinejad said Thursday that the report showed Iran had been telling the truth about its nuclear plans and was right to resist Western pressure, the official IRNA news agency reported.

"We welcome this, that the International Atomic Energy Agency has found its role and with the publication of [IAEA chief Mohammed] ElBaradei's report the world will see that the Iranian nation has been right and the resistance of our nation has been correct," Ahmadinejad said.

He also said that with publication of the International Atomic Energy Agency's report "the world will see that what the Iranian nation has said [about its nuclear program] from the start has been right".

Iran's top nuclear negotiator Saeed Jalili said that the UN report proves accusations that Iran is pursuing nuclear weapons are baseless and that new sanctions against the country would be wrong.

Jalili said Tehran has answered all the IAEA's questions and made good progress in cooperating with it.

In light of the IAEA report, many accusations are now baseless, Jalili said, referring to U.S. claims that Tehran was seeking to build nuclear weapons. Those powers who base their accusations on this I hope will reconsider what they say.

He warned that if the UN Security Council imposes a third set of sanctions on Iran, it would affect Iran's future cooperation with the IAEA.

Six world powers agreed in September they would have the UN Security Council vote on wider sanctions unless reports by the IAEA and the EU's top diplomat, Javier Solana, showed Iran had come clean on its program and was moving to suspend it.

A spokesman for Britain's Foreign Office said: "... as the Prime Minister [Gordon Brown] has indicated, if Javier Solana's talks with the Iranians do not show a positive outcome, and as the IAEA report now shows that Iran has still not addressed several issues about its nuclear program, we will pursue further Security Council and EU sanctions."

The report said that after years of stonewalling, Iran had provided much documentation and allowed interviews with nuclear officials related to its secret development of centrifuges, which refine uranium for power plant fuel or the core of bombs, in the 1980s and 1990s.

"The agency has been able to conclude that answers provided on the declared past P-1 and P-2 centrifuge programs are consistent with its findings.

"We will however continue to seek corroboration and to verify the completeness of Iran's declarations," the report said.

"Iran has provided sufficient access to individuals and has responded in a timely manner to questions and provided clarification and amplifications on issues raised in the context of the work [transparency] plan," it said.

The UN watchdog remained unable to ascertain that Iran did not have a secret, parallel military enrichment program because Tehran was still denying inspector visits to anything but its few declared nuclear facilities.

On Wednesday, Gregory Schulte, the U.S. envoy to the IAEA, said the agency's 35-nation Board of Governors and Security Council members would not be content to see a little bit more information here, a little more there" from Iran in the report.

"Selective cooperation is not good enough," he told reporters.

An IAEA board meeting next week will debate the report.

Solana is widely expected to confirm in his report on recent talks with Iran that it remains unwilling to consider a suspension.