"We are ready to take action in the Security Council," U.S. Ambasador to the U.N. John Bolton told reporters. "We're concerned about Iran's efforts to obtain nuclear weapons."
The report, which was prepared by IAEA Chief Mohamed Elbaradei, said Iran has successfully enriched uranium and continues related activities in defiance of the U.N. Security Council. Iran continued to rebuff agency efforts to get answers in regard to suspicions Iran was attempting to make nuclear arms, the report said.
"After more than three years of agency efforts to seek clarity about all aspects of Iran's nuclear program, the existing gaps in knowledge continue to be a matter of concern," said the report. "Any progress in that regard requires full transparency and active cooperation by Iran."
In Washington, President Bush said "the world is united and concerned" about what he called Iran's "desire to have not only a nuclear weapon but the capacity to make a nuclear weapon or the knowledge to make a nuclear weapon."
Britain said it would ask the Security Council to "increase the pressure on Iran," following the report.
"It is very serious that the Iranian regime has failed fully to cooperate with the IAEA and the United Nations Security Council," Foreign Secretary Jack Straw said in a statement.
The eight-page report was presented to IAEA members in Vienna, Austria, on the day set by the council as the deadline for Iran to stop all enrichment activities.
The report formally served notice that Tehran's defiance opened the way for further council steps, including the potential threat of sanctions and military action if Iran continues to defy the international community.
On enrichment the report said Iran's claim to have enriched small amounts to a level of 3.6 percent -- fuel grade uranium as opposed to weapons grade enriched to levels above 90 percent -- appeared to be true according to initial IAEA analysis of samples it took.
In one of the few new developments in the IAEA's investigation of more than three years, the report concluded that Iran used undeclared plutonium in conducting small-scale separation experiments.
"The agency cannot exclude the possibility ... that the plutonium analyzed by the agency was derived from source(s) other than declared by Iran," the report said. Plutonium separation is one of the suspect "dual use" activities that could be used for a weapons program.
But Iran refused to give further information on other key issues -- details of Iran's centrifuge programs that are used to enrich uranium, information on drawings that show how to form fissile uranium into warheads and apparent links between Iran's military establishment and what it says is a civilian nuclear program.
The conclusion on enrichment was not surprising -- just hours before it was issued, Iran again defied a formal Security Council request to freeze uranium enrichment and related activities.
Iran shrugged off the report -- and its unanswered questions, which Mohammed Saeedi, deputy head of Iran's Atomic Energy Organization, described as "not important."
He did not find what he called "negative points" in the report, and said, "it shows that the agency still has the necessary capacity to investigate Iran's nuclear issue, and the path that some countries have chosen to investigate the issue in another venue (the Security Council) is completely wrong and misleading," he told Iranian state television.
Iran's U.N. ambassador, Javad Zarif, said Tehran will refuse to comply even if the council request is turned into a demand through a resolution because its activities are legal and peaceful. Enrichment can be used to generate fuel or make the fissile core of nuclear weapons.
"If the Security Council decides to take decisions that are not within its competence, then Iran does not feel obliged to obey," he said Thursday in New York.
Earlier, Iranian President Mahmoud Ahmadinejad said no Security Council resolution could make Iran give up its nuclear program.
"The Iranian nation won't give a damn about such useless resolutions," Ahmadinejad told thousands of people in Khorramdareh in northwestern Iran.
"Today, they want to force us to give up our way through threats and sanctions but those who resort to language of coercion should know that nuclear energy is a national demand and by the grace of God, today Iran is a nuclear country," state-run television quoted him as saying.
Ambassador Bolton said the report showed action against Iran should be swift, adding that the U.S. was prepared to begin consultations as early as next week.
"I think if anything, the IAEA report shows that Iran has accelerated its efforts to acquire nuclear weapons although, of course, the report doesn't make any conclusions in that regard," Bolton said.
Bolton said the resolution should be under Chapter 7 of the U.N. Charter "making mandatory for Iran the existing requirements of the IAEA resolutions, and particularly the resolution the board passed in February." Chapter 7 resolutions can be enforced by sanctions, or militarily.
While Bolton did not elaborate, such sanctions would not likely be directed against Iran's oil industry, which is part of a crucial energy lifeline to the rest of the world. They could include measures including freezing Tehran's foreign assets and banning oversees travel by top officials.
The time of any such moves remained unclear however, considering strong opposition to sanctions by China and Russia, both important economic clients of Iran.
As late as Thursday, Russian President Vladimir Putin questioned the primacy of the council, insisting the U.N. nuclear watchdog should continue to play a central role in the dispute. "It mustn't shrug this role from its shoulders and pass it on to the U.N. Security Council," Putin said.
China, which wields a veto in the council, said it would oppose tough action in the powerful U.N. body.
"All we want is to work for a diplomatic solution because this region is already complicated, there are a lot of problems in the region, and we should not do anything that would cause the situation (to be) more complicated," China's Ambassador Wang Guangya.
But a top French diplomat laid out a starkly contrasting position that also reflects U.S. and British views: The Security Council should not only have the main say in dealing with Iran but also should start considering how to increase the pressure. But, the diplomat said, a U.N. resolution enforceable by military action would not automatically mean resorting to such action.
The Associated Press contributed to this report.