"I haven't been allowed to travel to Iran since April," he was quoted as saying. "Since April, I have had no more contact with the Iranian nuclear file."

But a senior diplomat at the Vienna-based IAEA said Charlier was still the chief of the agency's Iran section.

The IAEA has been inspecting Iran's nuclear program since 2003. Although it has found no hard evidence that Iran is working on atomic weapons, it has uncovered many previously concealed activities linked to uranium enrichment, a process of purifying fuel for nuclear power plants or weapons.

Tehran denies pursuing atomic weapons but refuses to temporarily halt its enrichment program as demanded by Germany and the five permanent members of the U.N. Security Council.

Charlier was also quoted as saying he believed Iran was probably still hiding things from the IAEA.

"It is very probable that Tehran is doing things in the nuclear field that to this day we have no clue about," he said.

It was not immediately clear why Charlier was banned from Iran. But last year he was interviewed for a BBC documentary on Iran's nuclear program and complained about the lack of freedom U.N. inspectors face in the country.

"Whatever we say, whatever we do, they're always behind us with a video camera, with a microphone trying to record all our movement and all things that we're saying," Charlier said, according to a transcript of the program published on the Internet.

But together they have tightened a noose around Kim Jong-il's bankrupt, hungry nation.

"Diplomacy alone has not worked, military action is not on the table and so you'll see a persistent increase in this kind of pressure," said a senior western official.

In a telling example of the programme's success, two Bush administration officials indicated last year that it had blocked North Korea from obtaining equipment used to make missile propellant.

The Americans also persuaded China to stop the sale of chemicals for North Korea's nuclear weapons scientists. And a shipload of "precursor chemicals" for weapons was seized in Taiwan before it could reach a North Korean port.

According to John Bolton, the US ambassador to the United Nations and the man who originally devised the programme, it has made a serious dent in North Korea's revenues from ballistic missile sales.

But the success of Bolton's brainchild, the Proliferation Security Initiative (PSI), whose stated aim is to stop the traffic in weapons of mass destruction, might also push North Korea into extreme reactions.

Britain is a core member of the initiative, which was announced by President George W Bush in Krakow, Poland, on May 31, 2003. British officials have since joined meetings of "operational experts" in Australia, Europe and the US, while the Royal Navy has contributed ships to PSI exercises. The participants include Australia, New Zealand, Japan, Italy, Spain and Singapore, among others.

There has been almost no public debate in the countries committed to military involvement. A report for the US Congress said it had "no international secretariat, no offices in federal agencies established to support it, no database or reports of successes and failures and no established funding".

To Bolton and senior British officials, those vague qualities make it politically attractive.

In the past 10 months, since the collapse of six-nation talks in Beijing on North Korea's nuclear weapons, the US and its allies have also tightened the screws on Kim's clandestine fundraising, which generated some $500m a year for the regime.

Robert Joseph, the US undersecretary for arms control, has disclosed that 11 North Korean "entities" - trading companies or banks - plus six from Iran and one from Syria were singled out for action under an executive order numbered 13382 and signed by Bush.

For the first time, the US Secret Service and the FBI released details of North Korean involvement in forging $100 notes and in selling counterfeit Viagra, cigarettes and amphetamines in collaboration with Chinese gangsters.

The investigators homed in on a North Korean trading company and two banks in Macau. The firm, which had offices next to a casino and a "sauna", was run by North Koreans with diplomatic passports, who promptly vanished.

The two banks, Seng Heng bank and Banco Delta Asia, denied any wrongdoing. But the Macau authorities stepped in after a run on Banco Delta Asia and froze some $20m in North Korean accounts.

Last week the North Koreans demanded the money as a precondition for talks but the Americans brushed off their protest.

Kim told Hu Jintao, the Chinese president in January that his government was being strangled, diplomats in the Chinese capital said. "He has warned the Chinese leaders his regime could collapse and he knows that is the last thing we want," said a Chinese source close to the foreign ministry.

The risk being assessed between Washington and Tokyo this weekend is how far Kim can be pushed against the wall before he undertakes something more lethal than last week's display of force.

The "Dear Leader" has turned North Korea into a military-dominated state to preserve his own inherited role at the apex of a Stalinist personality cult. Although he appears erratic, and North Korea's rhetoric is extreme, most diplomats who have met him think Kim is highly calculating.

"He is a very tough Korean nationalist and he knows exactly how to play the power game - very hard," said Professor Shi Yinhong, an expert in Beijing.

But the costly failure of Kim's intercontinental missile, the Taepodong 2, after just 42 seconds of flight last Wednesday, was a blow to his prestige and to the force of his deterrent. Six other short and medium-range missiles splashed into the Sea of Japan without making any serious military point.

The United States and its allies are now preoccupied by what Kim might do with the trump card in his arsenal - his stockpile of plutonium for nuclear bombs.

"The real danger is that the North Koreans could sell their plutonium to another rogue state - read Iran - or to terrorists," said a western diplomat who has served in Pyongyang. American officials fear Iran is negotiating to buy plutonium from North Korea in a move that would confound the international effort to stop Tehran's nuclear weapons programme.

The prospect of such a sale is "the next big thing", said a western diplomat involved with the issue. The White House commissioned an intelligence study on the risk last December but drew no firm conclusions.

Plutonium was the element used in the atomic bomb that destroyed Nagasaki in 1945. It would give Iran a rapid route to the bomb as an alternative to the conspicuous process of enriching uranium which is the focus of international concern.

American nuclear scientists estimate North Korea is "highly likely" to have about 43kg and perhaps as much as 53kg of the material. Between 7kg and 9kg are needed for a weapon.

Siegfried Hecker, former head of the US Los Alamos nuclear weapons laboratory, has warned that North Korea's plutonium would fit into a few suitcases and would be impossible to detect if it were sold.

For the first time since the crisis over its nuclear ambitions began in 1994, North Korea has made enough plutonium to sell a quantity to its ally while keeping sufficient for its own use.

North Korea is known to have sold 1.7 tons of uranium to Libya. It has sold ballistic missiles to Iran since the 1980s. American officials have said Iran is already exchanging missile test data for nuclear technology from Pyongyang. The exchanges probably involve flight monitoring for Scud-type rockets and techniques of uranium centrifuge operation.

Relations deepened between the two surviving regimes in Bush's "axis of evil" after the fall of Saddam Hussein. Under President Mahmoud Ahmadinejad, Iran's military and scientific links with North Korea have grown rapidly.

Last November western intelligence sources told the German magazine Der Spiegel that a high-ranking Iranian official had travelled to Pyongyang to offer oil and natural gas in exchange for more co-operation on nuclear technology and ballistic missiles. Iran's foreign ministry denied the report but diplomats in Beijing and Pyongyang believe it was accurate. At the same time evidence emerged through Iranian dissidents in exile that North Korean experts were helping Iran build nuclear-capable missiles in a vast tunnel complex under the Khojir and Bar Jamali mountains near Tehran.

So while one nation, North Korea, boasts of its nuclear weapons and the other, Iran, denies wanting them at all, the world is on edge. If the stakes are high in the nuclear terror game, they are equally high for the balance of power in Asia and thus for global prosperity.

North Korea's aggressive behaviour and a record of kidnapping Japanese citizens have created new willpower among politicians in Tokyo to strengthen their military forces. To China, Japan's wartime adversary, that signals a worrying change in the strategic equation. Nationalism in both countries is on the rise. Relations between the two are at their worst for decades.

One scenario is that Japan abandons its pacifist doctrine and becomes a nuclear weapons power. "The Japanese people are very angry and very worried and, right now, they will accept any government plan for the military," said Tetsuo Maeda, professor of defence studies at Tokyo International University.

The mood favours the ascent of Shinzo Abe, Japan's hawkish chief cabinet secretary, the man most likely to take over from Junichiro Koizumi, the prime minister, who steps down in September. "He will be far more hardline on Pyongyang and I'm firmly of the opinion that he intends to make Japan into a nuclear power," Maeda said.

The government is already committed to installing defensive Pac-3 Patriot missiles in co-operation with the Americans. But radical opinion in Japan has been fortified by Kim's adventures.

"The vast majority of Japanese agree that we need to be able to carry out first strikes," said Yoichi Shimada, a professor of international relations at Fukui Prefectural University.

"I spoke to Mr Abe earlier this week and he shares my opinion that for Japan, the most important step would be for Japan to have an offensive missile capability."

Such talk causes severe concern to Washington, which has sheltered Japan under the umbrella of its nuclear arsenal since forging a security alliance after the second world war.

Divisions within the Bush administration - which even sympathisers concede have paralysed its nuclear diplomacy towards the North - also served to undermine Japanese confidence in America, as have the well-documented failings of American intelligence.

Dan Goure of the Lexington Institute, a think tank with ties to the Pentagon, says: "There's no human intelligence in North Korea. Zero. Zippo. It's like looking at your neighbour's house with a pair of binoculars - and they've got their blinds shut."

Last week Bush was working the phones to the leaders of China and Russia. But British officials think it unlikely that either will support a Japanese proposal for UN sanctions on the North Koreans.

That leaves the Bush administration with the same unpalatable choices that existed a week, a month or a year ago. The military option, to all practical purposes, does not exist. "An attack is highly unlikely to destroy any existing North Korean nuclear weapons capability," wrote Phillip Saunders of the Center for Nonproliferation Studies, in a paper analysing its risks.

"The biggest problem with military options is preventing North Korean retaliation," Saunders said. He believes half a million artillery shells an hour would be rained on Seoul in the first day of any conflict from North Korean artillery hidden in caves. The North Koreans could fire 200 mobile rocket launchers and launch up to 600 Scud missiles. American and South Korean casualties, excluding civilians, are projected at between 300,000 and 500,000 in the first 90 days of war.

Like former president Bill Clinton's team, the Bush administration has therefore realised that a diplomatic answer is the only one available.

But years of inattention, division and mixed messages robbed the US of diplomatic influence. One observer tells of watching the US envoy Christopher Hill sit mutely in an important negotiation because policy arguments in Washington had tied his hands.

Yesterday Hill compromised by offering the North Koreans a private meeting if they came back to nuclear talks hosted by China. But American faith in China's powers of persuasion may have been misplaced.

"China is the source of the problem, not the source of the solution," argued Edward Timperlake, a defence official in the Reagan administration and author of Showdown, a new book on the prospect of war with China.

Kim ignored Chinese demands to call off the missile tests and some American officials now think Beijing is simply playing off its client against its superpower rival.

The clearest statement of all came from the "Democratic People's Republic of Korea" (DPRK) itself. The state news agency said America had used "threats and blackmail" to destroy an agreement to end the dispute. "But for the DPRK's tremendous deterrent for self-defence, the US would have attacked the DPRK more than once as it had listed it as part of an 'axis of evil'."

The lesson of Iraq, the North Koreans said, was now known to everyone.

Additional reporting: Sarah Baxter, Washington; Julian Ryall, Tokyo

Thoughts of Kim

I know I'm an object of criticism in the world, but if I am being talked about, I must be doing the right thing.

The leader's greatness is in reality the greatness of our nation.

We oppose the reactionary policies of the US government but we do not oppose the American people. We want to have many good friends in the United States.

The issue is expected to be front and center in negotiations between President George W. Bush and his Russian counterpart, Vladimir Putin, at a Group of Eight summit in St. Petersburg next weekend.

Although details of the proposed deal have not been released, it is seen as an attempt by the Bush administration to soften Russia's recalcitrance ahead of the Bush-Putin talks and bring Moscow firmly into the US camp.

"We are initiating negotiations on a peaceful nuclear cooperation agreement with Russia," White House spokesman Peter Watkins told AFP on Saturday. "Such an agreement would benefit both the United States and Russia and indeed the world by enabling advances in greater use of nuclear energy."

He did not say when the talks would formally begin, but another official speaking on condition of anonymity said a formal announcement could be expected at the G8 summit.

The White House official, however, was adamant in linking the deal to Russia's approach to Iran and its readiness to cooperate with the Bush administration in halting what it sees as Iran's secret nuclear weapons program.

"We have made clear to Russia that for an agreement on peaceful nuclear cooperation with the United States to go forward, we will need Russia's active cooperation in blocking Iran's attempts to obtain nuclear weapons," Watkins said.

"Our policy on assistance to Iran's nuclear program has not changed," he added.

Under the proposed deal, Russia could become a key international repository of spent nuclear fuel, including from countries that use US-supplied nuclear reactors, a lucrative arrangement that may also pave the way for it becoming a leading supplier of nuclear technology and fuel around the world, US media reports said.

The US government had opposed such cooperation up to now in part because of Russia's assistance to Iran in building a nuclear power plant in Bushehr, a project opposed by the United States.

A change in procedures for handling nuclear waste coming from US-built reactors operating overseas will require congressional approval, and there were indications Saturday it may not come easy.

Democratic Representative Edward Markey, who co-chairs the Bipartisan Task Force on Nonproliferation, was quoted by The New York Times as saying turning Russia into a nuclear waste dump would create "one-stop shopping for nuclear terrorists and would-be proliferators."

Nevertheless, Watkins indicated the deal would be in line with Bush vision for expanded reliance on peaceful nuclear power around the world, provided all the safeguards required by the Nuclear Nonproliferation Treaty were strictly observed.

"The president has said that states that comply with their obligations under the NPT have a right to peacefully use their nuclear energy," he said.

The proposed deal, experts said, was also aimed at allaying concerns in Russia that economic sanctions against Iran, a major trading partner, would boomerang against it.

Bush hinted at his willingness to address the issue Friday when he told reporters in Chicago that he was determined to bring doubters to America's side.

"Some nations are more comfortable with sanctions than other nations, and part of the issue we face in some of these countries is that they've got economic interests," he said. "And part of our objective is to make sure that national security interests, security of the world interests trump economic interests."

They said the missile developed problems after a successful take-off.

"The missile after lift-off went vertically to a distance of 12 kilometers when the second booster failed to fire, resulting in non-separation of that stage," one defence official said, asking not to be named.

"The missile crashed into the sea without hitting the target."

The Indian defence ministry, however, refused to comment on whether the missile had failed its first test.

"All I can say is that the take-off was successful. It would take us 48 hours to analyse all the data," defence ministry spokesman Sitanshu Kar told AFP.

In May Defence Minister Pranab Mukherjee had said the Agni-III, India's longest-range ballistic missile, was ready but that the country was observing "self-imposed restraint" before testing.

Opposition parties criticised the announcement, saying testing was being delayed because of pressure from the United States. New Delhi and Washington reached a landmark deal in March that will see sanctions lifted on India's access to civilian nuclear technology.

Sunday's test launch comes just four days after North Korea sparked an international outcry by test-firing seven missiles.

A highly-placed Defence Research and Development Organisation (DRDO) source earlier Sunday said the Indian test was "successful".

He said scientists had detected a snag in the booster rocket system of the Agni-III two weeks ago and had delayed its test. "Now we have papered over the problem and hence the launch window was chosen as Sunday," he said.

The Agni (Fire) is one of five missiles being developed by the DRDO under its Integrated Guided Missile Development Programme launched in 1983. The others are the Prithvi, the surface-to-air Trishul (Trident), multi-purpose Akash (Sky), and the anti-tank Nag (Cobra).

Nuclear-armed rivals India and Pakistan, who have fought three wars since independence in 1947, routinely notify each other of missile tests.

"We were informed about it," said Pakistani foreign ministry spokeswoman Tasnim Aslam in Islamabad.

"It is a ballistic missile test and we have agreement on pre-notification of ballistic missile tests," she said. "We have no other reaction."

The two countries came to the brink of a fourth war in the summer of 2002 following a December 2001 attack on India's parliament by suspected Pakistan-backed militants. Islamabad denied any role in the attack.

But in January 2004 they began a peace process that has led to a ceasefire in the divided Himalayan state of
Kashmir, the cause of two of the wars.

In May 1998 India conducted five nuclear tests, citing China as a security threat. The tests were matched two weeks later by Pakistan which India says has received Chinese assistance for its nuclear programme, a claim denied by Beijing.

But tensions between China and India have lessened in the past two years. There have been direct military talks and the reopening last week of a famed Silk Road pass in the Himalayas, the first direct border trade between the Asian giants since a frontier war 44 years ago.

C. Uday Bhaskar, deputy head of the Institute of Defence Studies and Analyses, said India's nuclear and missile programmes should not be seen as country-specific.

"Countries acquire strategic capabilities that are generic in nature. Our programme is not predicated on a single point threat. It is always in relation to the international strategic environment," Bhaskar said.

As Asia goes nuclear in a big way to feed its appetite for energy, environmentalists are warning that the growing stockpiles could either be stolen by terrorists and used to make a bomb, or end up polluting the environment.

The nuclear industry says a permanent solution will eventually be found and that the waste issue will not slow the growth of nuclear power in Asia. Temporary sites, they said, are safe.

But only the United States and Finland have come up with permanent sites, and the one at Yucca Mountain in Nevada is years behind schedule and mired in legal disputes.

One solution is to recycle spent fuel by extracting its plutonium and combining it with uranium. But the plutonium is weapons-grade and could fall into terrorist hands, warns the U.S.-based Union of Concerned Scientists.

Waste-dumping has rallied anti-nuclear forces in Asian democracies that allow them to function freely.

Taiwan, which has three nuclear plants and is building a fourth, has been thwarted three times in its search for a waste dump. "The failure to find a solution to nuclear waste could slow the development of nuclear power in democratic countries," said Michael Yang, a National Taiwan University professor who follows the storage issue. "You already had so many demonstrations over the issue in South Korea, Japan and Taiwan."

Australia, has no nuclear plants but has struggled for 15 years to find a permanent site for low-level nuclear waste from its medical, industrial and research facilities.

It settled in 2004 on three potential sites in the Northern Territory, which is home to Aborigine communities as well as world-famous Ayers Rock, or Uluru. Authorities expect to choose a final site by 2007 and open it in 2011.

"People are outraged," said Michaela Stubbs of Friends of the Earth Australia.