A U.N. report that Iran worked to develop an atomic bomb design is likely to trigger more Western sanctions and give impetus to a suspected covert campaign by the West and Israel to sabotage Tehran's nuclear activities.

But any unilateral Western curbs will probably stop short of sweeping extra steps on Tehran's lifeline energy sector for fear of damaging the global economy and backfiring politically on Western governments struggling to stave off recession.

And chances are slim of stiffer United Nations sanctions, potentially the most effective type as they bind the whole of the international community, because Tehran's traditional sympathisers Russia and China have the power to veto any council resolution mandating them.

For those two countries to throw their weight behind additional tough U.N. measures, analysts say, the U.N. report would probably have had to provide incontrovertible smoking gun evidence of a current programme to build a nuclear weapon.

Instead, the International Atomic Energy Agency (IAEA) report, although widely seen as its most damning to date and citing serious concerns about possible military dimensions to Iran's nuclear programme, was less categorical.

Its main finding was that Iran appeared to have worked on designing a nuclear warhead and that secret weapons-relevant research may be continuing.

The Obama administration, pressured by the U.S. Congress, will now likely push for tougher sanctions, said Trita Parsi, President of the National Iranian American Council, a moderate public interest group.

But the bottom line is that, while a new package of sanctions targeting the nuclear program may help slow down the program, it is unlikely to change its trajectory, he said.

Indiscriminate sanctions that harm the Iranian people rather than the government ... will only make matters worse, he said, referring to economic strains experienced by ordinary Iranians.

To resolve the problem, sustained and persistent diplomacy is needed. But diplomacy is a tough road to travel, because it requires more political capital and will than sanctions do.

The IAEA report lent support to analysts who suspect the Islamic republic is developing the ability to weaponise its nuclear material in the event it ever decided to build a bomb.

But it offered little concrete backup for who those fear Iran is rushing to develop nuclear weapons, or to those at the other end of the spectrum of opinion who say assurances that Iran's nuclear work is solely peaceful should be believed.

For its part, the Islamic Republic dismissed the report.

We do not need an atomic bomb and ... history has shown none of Iran's enemies taste victory and glory, President Mahmoud Ahmadinejad said in Shahr Kord in western Iran.

Some analysts say the most promising avenue, from a Western perspective, for nations worried about Iran's nuclear work is to use the report to lobby for stricter unilateral curbs by the European Union, the United States and other nations. Such measures would tighten pressure on Iranian banks and shipping companies but without bringing the economy to its knees.

We aren't ruling out anything. Neither unilateral action, EU action or UN action, said a Western diplomatic source.

But the source suggested further U.N. sanctions would be difficult to achieve, and even EU curbs were not a done deal.

You know the climate at the UN Security Council, the source said. We are in a complex situation in the post-Libya era, and we are experiencing it with Syria, so with regard Iran things would not be possible.

Iran's nuclear advance may have been slowed by sanctions, suspected sabotage such as the Stuxnet computer virus, covert interception of Iranian nuclear smuggling and possibly by mysterious killings of several Iranian nuclear scientists, but the country's stockpile of refined uranium is steadily growing.

Experts estimate Iran now has enough low-enriched material for 2-4 bombs, if the material is refined much more, and Israel and the United States, Tehran's arch foes, have not ruled out military action if diplomacy fails to solve the row.

Israel reacted to the report by urging the international community to stop Iran from getting nuclear weapons, saying its pursuit of such arms endangered the peace of the world.

France lost little time in signalling Western resolve, Foreign Minister Alain Juppe telling RFI radio that France planned to push for unprecedented sanctions against Iran.

I think we have to do everything we can to avoid the irreparable damage that military action would cause, he said.

The standoff over Iran's nuclear programme is entering a more dangerous phase and the risk of conflict will increase if Iran does not negotiate, British Foreign Secretary William Hague warned on Wednesday.

He said Britain was studying additional measures against Iran's financial, oil and gas sectors, and Germany said the report reinforced concerns over Iran's nuclear work.

NOT QUITE A SMOKING GUN

On the oil market, there were concerns that the standoff could escalate militarily.

Nicholas Brooks, head of research and strategies at ETF Securities, saw an increased risk of an attack on Iranian facilities, leading to an oil price jump. Investors might start buying oil to hedge themselves against that risk, he said.

Mark Fitzpatrick, a nuclear expert and a Director of the International Institute for Strategic Studies, said the evidence about Iran's nuclear-related activities all point to one conclusion -- Iran wants to be able to produce a nuclear weapon if and when it makes a political decision to do so.

Davis Lewin, political director of the Henry Jackson Society, a UK think-tank sympathetic to U.S. neo-conservatives, said that with the report's release we can expect a paradigm shift in international diplomacy whereby Iran's disingenuous and time-buying tactics are seen for what they are.

If not quite a 'smoking gun', the agency report ought to convince even sceptics of the mullahs' true intentions.

But divisions within the international community on Iran remain gaping. Russia said on Wednesday it would not back new sanctions. And influential nations outside the Western diplomacy mainstream have yet to respond.

Turkey, whose ties with Tehran have come under strain in recent months after Ankara decided to host a radar system for a NATO missile shield programme and increased criticism of Syrian President Bashar al-Assad's crackdown, has yet to give an official reaction to the IAEA report. However, a foreign ministry official said Turkey was studying the document.

Our views regarding nuclear proliferation in the world and in particular the adjacent regions are well known. We are against any kind of proliferation by any state. We also believe that peaceful efforts for civilian usage should not be prevented, the official told Reuters.

Richard Dalton, a former British ambassador to Iran, told Reuters he doubted whether in an election period U.S. President Barack Obama would directly sanction either the Iranian central bank or oil exports because of the effect on the world economy of the (higher) price of gasoline.

Even (Obama's predecessor) George Bush wasn't prepared to do anything ahead of his election that would impact on volumes of oil so I'm not expecting Obama to do that.

Dalton said the six outside powers involved in Iran nuclear diplomacy -- the United States, Russia, China, Britain, France and Germany -- should devise additional sanctions and use the threat of them as leverage to obtain Iranian flexibility.

We have to face the fact that only Iran can prevent Iran from having a nuclear weapon, he said.

He said this would involve talking to Iran about lifting obstacles to further negotiations on its nuclear work by discussing issues including confidence-building measures and regional affairs such as drugs, Afghanistan and Gulf security.

Dalton said it was not effective to pile up the costs without spelling out the benefits of a progressive reduction of areas of disagreement between the outside world and Iran.

They have concentrated far too much on belabouring Iran including highly aggressive actions like Stuxnet ... and then they are surprised that Iran is defiant.