"Although the report does not meet our expectations, it shows the U.S. propaganda against the Islamic Republic's peaceful nuclear program is completely baseless," Mohammad Saeedi told the news agency shortly after International Atomic Energy Agency (IAEA) chief Mohammed ElBaradei released a report on Iran's nuclear program.

"The report of the IAEA is not negative, and it is very factual and adds that the Iranian nuclear program is under the supervision of the IAEA and that there has been no deviation," Saeedi said. He stressed that on the whole, the report presented that Iran had opened gates of its nuclear establishment to investigators and IAEA easily.

"The investigators have been able, during this time, to watch Iran's nuclear activities and install extra cameras in enriching establishments for more and better surveillance," he said.

Earlier in the day, ElBaradei presented the report to the UN Security Council, saying "Iran has continued enriching uranium despite a UN nuclear deadline for it to suspend or face possible sanctions."

However, a senior official in Vienna close to IAEA said Thursday that UN nuclear inspectors have found no "concrete proof" that Iran's nuclear program is of military nature.

"The Islamic Republic of Iran believes the only possible way to achieve fair and acceptable results for all parties is through negotiations and by respecting Iran's legitimate rights," Foreign Ministry spokesman Hamid Reza Asefi said.

"Iran's activities are transparent, public and have peaceful aims far away from any ambiguities and it (the issue) can be easily solved through negotiations," he was quoted as saying by the official IRNA news agency.

The U.N. watchdog, the
International Atomic Energy Agency (IAEA), said on Thursday that Tehran had failed to meet an August 31 deadline to halt uranium enrichment.

The West accuses Iran of seeking to build atomic bombs, a charge Iran denies, saying its aim is to produce electricity.

The IAEA report also said Iran had recently resumed enriching small amounts of uranium and said Iran's lack of cooperation had blocked the U.N. atomic watchdog's probes.

Asefi said the report showed Iran had met its commitments under international regulations, including the nuclear Non-Proliferation Treaty, and also showed Iran's "extensive cooperation" with the IAEA.

IRAN DEFIANT

President Mahmoud Ahmadinejad repeated his defiant line on Friday, vowing never to give up Iran's nuclear ambitions.

The European Union expressed continued concern.

"Unfortunately Iran has show that ... for the moment at least it doesn't plan to cooperate on the nuclear issue and it's clear that on a matter of such importance the international community cannot stand idly by," EU External Relations Commissioner Benita Ferrero-Waldner said.

"But at the same time we also said we want a diplomatic solution, so therefore I hope that the channels of communication can be still kept open," she told a news conference.

French Prime Minister Dominique de Villepin echoed this position. "I regret very strongly the insufficient response of Iran," Villepin said at a news conference in Rome.

"We think it is possible to go forward with dialogue but it is important that the international community show Iran the necessity to change position."

EU foreign policy chief Javier Solana told Reuters he hoped to meet Iran's chief nuclear negotiator, Ali Larijani, in the coming days to seek a clear answer to major power proposals for broad cooperation if Tehran halts uranium enrichment.

An EU diplomat said they were tentatively due to meet in Berlin next Tuesday, one day before six big powers meet in the German capital to chart next steps in the standoff with Iran.

An EU official said Finland, which holds the 25-nation bloc's rotating presidency, did not want any substantial discussion of sanctions at their meeting.

Iran sent a confidential 21-page reply last week to explain its position but Western officials said it evaded the world community's key demand to halt making nuclear fuel.

FACE TO FACE MEETING

"We have to see if we can get some understanding of the elements of the document which are not clear enough for us and I think a meeting face to face could clarify that," Solana said.

Finnish Foreign Minister Erkki Tuomioja, who will chair the meeting, said the EU should try to convince the Islamic Republic to give a straightforward answer and suspend enrichment.

Diplomats said Iran's tactic was to fudge the deadline, and try to divide Russia and China from the West and the Europeans from the United States by dangling the possibility of a negotiated freeze on enrichment at a later date.

Russia's foreign minister cast doubt on whether the
U.N. Security Council can reach quick consensus on punitive measures.

"We take into account the experience of the past and we cannot ally ourselves with ultimatums, which all lead to a dead end," Interfax news agency quoted Sergei Lavrov as saying.

"Yes, there are countries whose policies raise doubts, and cause discontent, but we all live in the same world and we need to ... draw them into dialogue, and not isolation and sanctions."

President Bush said "there must be consequences" for Iran, adding that the war between Tehran-backed Hezbollah militants and Israel demonstrated that "the world now faces a grave threat from the radical regime in Iran."

The U.N. nuclear watchdog, the International Atomic Energy Agency, said in a report obtained by The Associated Press that Iran shows no signs of freezing enrichment, adding that Tehran started work on a new batch Aug. 24.

The confidential IAEA report will be given to its 35-nation board. That is expected to trigger U.N. Security Council members - by mid- September - to begin considering economic or political sanctions.

Iranian President Mahmoud Ahmadinejad told a crowd of thousands in the northwestern city of Orumiyeh that "the Iranian nation will not accept for one moment any bullying, invasion and violation of its rights."

He also said enemies of the country were trying to stir up differences among the Iranian people, but "I tell them: you are wrong. The Iranian nation is united."

"They claim to be supporting freedom but they support the most tyrannical governments in the world to pursue their own interests," he said, referring to the United States. "They talk about human rights while maintaining the most notorious prisons. Those powers that do not abide by God and follow evil are the main source of all the current problems of mankind."

German Chancellor Angela Merkel said an Iranian refusal to freeze uranium enrichment by the deadline would be "very regrettable," and the international community would be unable to ignore it.

"We have made Iran a very, very good offer," she during a visit to the Baltic Sea port of Warnemuende, alluding to a package of incentives aimed at persuading Tehran to curb its nuclear activities.

If Iran does not accept, "we will not slam the door shut, but we cannot act as if nothing had happened," Merkel said, adding that the next step would have to be discussed, but gave no details.

The State Department has not said publicly what type of punishment it might seek. But U.S. and European officials have indicated they might push for travel restrictions on Iranian officials or a ban on sale of dual-use technology to Iran. The hope is to start with relatively low-level punishments in a bid to attract Russian and Chinese support, the officials have said.

More extreme sanctions could include a freeze on Iranian assets or a broader trade ban - although opposition to that by Russia, China and perhaps others would be strong, particularly since it could cut off badly needed oil exports from Iran.

Russia and China, which have traditional economic and strategic ties with Tehran, seem likely to resist U.S.-led efforts for a quick response, which means sanctions do not loom immediately. That has prompted the Bush administration to consider rallying its allies to impose sanctions or financial restrictions of their own, independent of the Security Council.

Iranian Foreign Ministry spokesman Hamid Reza Asefi shrugged off the possibility of sanctions, telling state-run television that Iran "will find a way to avoid pressure eventually."

The deadline was widely reported on the front pages of major Iranian newspapers. The daily Aftab said the showdown offers "the enemies" a chance to ratchet up pressure on Iran. Another newspaper, Kargozaran, expressed doubt that the U.S. would muster enough support within the Security Council for punitive sanctions.

It's not clear when exactly Thursday's deadline will run out. The U.S. ambassador to the United Nations, John Bolton, said he believed it would end at 12:01 a.m. Friday in Tehran - or 3:31 p.m. Thursday at the Security Council in New York.

But diplomats said the exact timing was not particularly relevant for two reasons: They believe Iran already has given its answer; and they would almost certainly abandon their sanctions threat if Iran decides to suspend enrichment after the deadline.

On Wednesday, Ahmadinejad urged European members of the council against resorting to sanctions, saying punishment would not dissuade his country. Another top Iranian official urged Japan on Thursday to help peacefully resolve the standoff without sanctions.

Abbas Araghchi, deputy minister for legal and international affairs of the Iranian Foreign Ministry, met with Japan's foreign minister in a clear sign of Iran's continued efforts to lobby countries worldwide against support for sanctions.

"We are confident of the peaceful nature of our program. So if there is also goodwill and sincerity in the other side, we are sure that we can reach a good solution, a good conclusion through negotiations," Araghchi said.

Tehran insists it wants to enrich uranium as fuel solely for civilian nuclear power stations. However, the U.S. and other Western countries suspect it wants to use it in nuclear warheads.

"Counter-insurgency and imperial policing operations demand forbearance, personnel continuity, foreign language skills, cultural understanding, historical knowledge, minimal employment of force, and robust interagency involvement and cooperation," he writes. "None of these are virtues of American statecraft and warmaking. Americans view war as a suspension of politics; they want to believe that the politics of war will somehow sort themselves out once military victory is achieved."

Post-war Iraq is an example of those very weaknesses, he said.

"Most (military operations other than war) are ... inherently manpower intensive and rely heavily on special skills ... that are secondary, even marginal to the prosecution of conventional warfare," he writes. "Forces capable of achieving swift conventional military victory thus may be quantitatively and qualitatively unsuited for post victory tasks of the kind the United States has encountered in Iraq.

"The very attributes that have contributed to the establishment of unchallenged and unchallengeable American conventional military supremacy -- impatience, an engineering approach to war, confidence in tech solutions to non-technological problems, preference for decisive conventional military operations, sensitivity to casualties, and above all the habit of divorcing war from politics -- are liabilities in approaching war against motivated and resourceful irregular armies, he said."

To win a counter-insurgency war, the U.S military, and its political establishment and its citizenry, would have to turn its fundamental predilections on their head: it would need far greater numbers, because counter-insurgency is manpower intensive. It would need to embrace the idea that small wars are won not by inflicting greater casualties than the enemy but by affecting local opinion, and firepower is always a last report.

It would need to abandon ingrained American optimism and notions of control and instead embrace the lessons of history, to recognize what lesser goals might be achievable. It must become culturally adept, reduce its dependency on technology and engage with vulnerable populations. It would have to patient, occupy foreign countries with a smaller logistical footprint, and give up its sensitivity to casualties.

Record sees no sign of that happening.

For 20 years, the military was guided by the so-called Weinberger-Powell doctrine, a philosophy that counseled the use of overwhelming force, clearly defined objectives, strong popular support, and an exit strategy. It was an "all or nothing" approach that came out of the Vietnam war experience, and one that left the U.S. Army ill-prepared for the Iraq insurgency.

"The Army may well leave that country with an 'Iraq Syndrome' as hostile to counter-insurgency as the 'Vietnam syndrome,'" he writes.

Even in the midst of an insurgent war, the Pentagon still resists making the sweeping and difficult changes that would enable a victory, according to Record.

The Pentagon conducted a bottom-up review of forces and capabilities in its 2005 Quadrennial Defense Review. While it called for a modest increase in special forces -- those best able to fight an insurgency and that embody many of the above characteristics -- it did not seriously address the problem, he writes.

"Four years of war against a deadly unconventional enemy have not disturbed any Navy or Air Force conventional weapon system in the acquisition pipeline even though these two services are supporting players in counter-insurgent operations," he writes. "The U.S. military force posture appears increasingly at odds with the emerging strategic environment."

The Army is half the size it was 15 years ago, and there is no effort to enlarge it. The Pentagon, and Army, is insistent that a temporary increase of 30,000 soldiers during the Iraq war be just that -- temporary. The Marine Corps has been repeatedly rebuffed in its effort to add at least 5,000 Marines permanently. The smaller troops numbers are supposed to be offset by improved weapons and technology that puts more "boots on the ground."

Record told UPI Thursday the situation in Iraq may have been unavoidable, given the nature of the U.S. military and U.S. politics, which he considers fundamentally incapable of fighting a protracted small war.

"I'm not sure we are in the mess we are in because faulty execution," he said. "It was doomed from the beginning, one can argue.

"Barring profound changes in America's political and military cultures, the United States runs a significant risk of failure in entering small wars of choice, and great power intervention in small wars is almost always a matter of choice," he writes

Small wars serve more to showcase the "embarrassing" limits of American conventional military power, he believes.

"Indeed the very act of intervention in small wars risks gratuitous damage to American military reputation," he writes.

Record calls for a rejection of intervention in foreign internal conflicts except when American interests are directly threatened.

"We're no good at this stuff, and we never will be. If we are no good at it, why do we keep getting involved in it?" he said.

"The policy question is not whether the United States should abandon its conventional capabilities but whether given the evolving strategic environment it should create ground (and supporting air forces) dedicated to performing operations other than war, including counter-insurgency, or simply abandon direct military intervention in foreign internal wars all together unless there is a compelling national interest at stake and intervention commands broad public support."