TEHRAN - The Pentagon said on Tuesday that the United States wanted a U.N. Security Council resolution within weeks to tackle Iran's nuclear programme as Iran said it had begun making higher-grade nuclear fuel.

The Islamic Republic, which denies its programme has military aims, announced on Sunday it would produce uranium enriched to a level of 20 percent for a Tehran research reactor making medical isotopes for cancer patients.

This followed a failure to agree terms for a proposed nuclear swap with major powers, under which Iran would send most of its low-enriched uranium abroad in return for such fuel.

The powers have now stepped up discussions on how to respond and what form a possible fourth set of U.N. sanctions over Iran's nuclear programme could take.

U.S. Defence Secretary Robert Gates told Fox News: I think it's going to take some period of time -- I would say weeks, not months -- to see if we can't get another U.N. Security Council resolution, according to the transcript of his interview.

ENRICHMENT STEPPED UP

State television quoted Iranian nuclear agency chief Ali Akbar Salehi as saying that enrichment to 20 percent started in the Natanz facility under the supervision of the (International Atomic Energy Agency).

Despite its denials, Western powers fear Iran is enriching uranium with a view to producing nuclear weapons.

Iran currently enriches uranium to 3.5 percent purity.
Salehi said Iran had set up a chain of 164 centrifuges to refine the uranium to 20 percent purity. He said the production capacity was 3 to 5 kg a month, above the Tehran reactor's needs of 1.5 kg, ISNA news agency reported.

Although a nuclear bomb requires about 90 percent purity, getting to 20 percent is a big step because low-level enrichment is the most time-consuming and difficult stage of the process.

Iran currently has no nuclear power plants able to use the low-enriched uranium it has already produced, and also lacks the technology to convert the 20-percent pure uranium into the fuel rods needed to run the medical reactor.

I think Iran all along intended to enrich to 20 percent, said Mark Fitzpatrick, proliferation expert at the International Institute for Strategic Studies, ostensibly to supply the research reactor but also to gain experience enriching to higher levels that would prove useful for weapons production.

The national security chief of Russia, which in the past has urged talks rather than punishment, said Western concerns about Iran's nuclear intentions were well-founded and that it might take more than talks to end Tehran's defiance.

The actions (Iran) is taking ... raise doubts in other countries and those doubts are quite valid, the hawkish secretary of the presidential Security Council, Nikolai Patrushev, said in televised comments.

The remarks strengthened indications that Russia could agree to new U.N. sanctions. A senior lawmaker said economic measures should be considered against Iran, a major oil producer.

CHINA HOLDS OUT

Among the big powers only China, which can block any U.N. sanctions, has remained unswervingly opposed to punishing Iran.
On Tuesday it urged increased diplomatic efforts to resolve the stand-off, calling for all sides to work towards agreement on the fuel exchange plan.

Possible targets for any new sanctions include Iran's central bank, the Revolutionary Guards, who Western powers say are key to Iran's nuclear programme, shipping firms and its energy sector, Western diplomats say.

Analysts say Iran will anyway need a few months to reconfigure the Natanz plant to refine uranium to higher purity.

Iran may also be having more difficulty obtaining crucial components due to U.N. sanctions, said the analysts, who added that the latest move might be a negotiating tactic.

Salehi told state TV late on Monday that Iran was still prepared to carry out the fuel swap if its conditions were met:

The president announced that we will start production of 20 percent enriched uranium, but he has kept the doors of interaction open ... which means we would stop working (enrichment to 20 percent) if they provide us the necessary fuel.

On Monday, the IAEA confirmed that Tehran had notified it of its plans to produce higher-grade fuel.

Prime Minister Benjamin Netanyahu of Iran's sworn enemy Israel, widely believed to be the region's only nuclear armed state, demanded immediate sanctions against Iran.

Iran is racing forward to produce nuclear weapons, Netanyahu told European diplomats. This means crippling sanctions and these sanctions must be applied right now.

(Additional reporting by Parisa Hafezi and Hossein Jaseb in Tehran and Chris Buckley in Beijing; Writing by Fredrik Dahl; Editing by Kevin Liffey)

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