Iran continues to defy U.N. Security Council demands to scrap its uranium enrichment program and has instead expanded its activities, the International Atomic Energy Agency said Wednesday, in a finding that sets the stage for new council sanctions.

The report from Mohamed ElBaradei, the head of the U.N.'s nuclear watchdog agency, also faulted Tehran for blocking IAEA efforts to probe suspicious nuclear activities, saying that meant it could not "provide assurances about ... the exclusively peaceful nature" of its atomic program.

And, in new and worrying phrasing, it expressed concern about its "deteriorating" understanding of unexplored aspects of the program, despite four years of a probe sparked by revelations that Tehran had been clandestinely developing enrichment and other nuclear activities that could be used to make weapons for nearly two decades.

The report, one of a series keeping the IAEA's 35-nation board and the Security Council up to date on the agency's monitoring efforts, was posted simultaniously on the IAEA internal website and handed over to the president of the Security Council for distribution among its members.

While the reports finding that Iran was expanding enrichment instead of curtailing it was not surprising, it was important as a trigger for possible new U.N. sanctions, the third since the first were imposed Dec. 23.

With the council's latest deadline for Iranian compliance ending on Thursday, the report could set the stage for within days for consultarions on new council penalites.

A senior U.N. diplomat, who demanded anonymity because he was not authorized to publicly comment on the report, suggested that the shrinking hole left for inspections by Iran's rollback of previous monitoring agreements was potentially as worrying as its defiance on enrichment.

The brevity of the 4-page report indirectly reflected the lack of progress agency inspectors had made clearing up unresolved issues, among them; Iran's posession of diagrams showin how to form uranium into warhead form; unexplained uranium contamination at a research facility; information on high explosives experiments that could be linked to a nuclear program and the design of a missile re-entry vehicle.