Iran confirmed that it has expanded its controversial uranium enrichment program, a semiofficial news agency reported, even as the U.S. and its partners prepared a U.N. resolution to impose limited sanctions.

Tehran's plan to inject gas into a second cascade of centrifuges — a process that yields either nuclear fuel or material for a warhead — was a tiny step unlikely to bring Iran within grasp of a weapon.

But its timing, while Western powers prepared recommendations for possible sanctions, was a further sign of defiance.

The move also violates a resolution of the International Atomic Energy Agency, a U.N. watchdog, that requires Iran to cease enrichment-related activity.

The confirmation came Wednesday on the semiofficial Iranian Students News Agency. Iran's government sometimes uses the agency to leak information deemed too sensitive for official channels.

Politicians were on holiday for the Islamic feast of Eid al-Fitr, and the report could not be immediately corroborated.

Iran started a second cascade of centrifuges two weeks ago, and "gas will be injected into the cascade during the current week," the agency reported. That step produces enriched uranium, which Tehran intends to use, the agency added.

Tehran says its uranium enrichment program aims only to generate electricity, while the United States and others suspect it is a cover for building atomic weapons.

A draft U.N. resolution floated by Germany, France and Britain would ban the sale of missile and atomic technology to Iran, and end most U.N. help for its nuclear programs, diplomats said on condition of anonymity because the draft was not yet public.

The U.S. indicated Wednesday it saw the European proposal as too weak.

"We look forward to a full meeting of the five permanent members where we will obviously have American changes to the proposed European text," said Richard Grenell, spokesman for the U.S. Mission to the United Nations. He refused to comment on any U.S. proposals.

The United States, France, Britain, Russia and China have veto power on the 15-nation Security Council and could block any measure. All five were expected to meet in the next day or two to discuss the European draft.

One diplomat said it contained moderate language aimed at winning support from Russia and China — both of whom agreed in principle to imposing sanctions after Tehran bypassed an Aug. 31 deadline to cease all experiments linked to uranium enrichment.

But Moscow and Beijing also have major commercial ties with Iran, and they continue to publicly push for dialogue instead of U.N. punishment.

In Washington, President Bush ruled out more talks until Iran agrees to suspend uranium enrichment. "If they would verifiably stop their enrichment, the United States would be at the table with them," he said.

Echoing Bush, Germany's chancellor also took a hard line Wednesday, saying Tehran's refusal to halt uranium enrichment left the West "no choice" but to impose sanctions.

"It is regrettable that Iran has not yet responded to any of the demands of the international community," Chancellor Angela Merkel said during a speech in Berlin. "For that reason, we had no choice but to pursue sanctions in the U.N. Security Council."

"There must be no Iranian nuclear program," Merkel said.

Earlier this week, diplomats in Vienna said Iran started the second cascade of centrifuges in the central Iranian city of Natanz. A small batch of enriched uranium was produced there in February, from a previous cascade of 164 centrifuges.

Centrifuges are machines that rotate at high speed, using centrifugal force to separate lighter and heavier substances.

Iran says it plans to install 3,000 centrifuges at Natanz by the end of this year, but it would take 54,000 centrifuges to churn out enough uranium to fuel a reactor. Iran is believed to be nowhere close to that number, but its addition of more cascades shows the country is gradually mastering the complexities of producing enriched uranium.

Iranian President Mahmoud Ahmadinejad said Monday that his country's nuclear capability had increased tenfold despite Western pressure to curb its atomic program.