Bush says diplomacy with Iran has just started

WASHINGTON, Apr 29 (Reuters) US President George W Bush said that diplomacy aimed at halting Iran's nuclear program has only just begun and a top aide said the world must prepare to impose targeted sanctions on Tehran.

While Bush reaffirmed his commitment to a peaceful resolution of the nuclear dispute, he told reporters yesterday at the White House Iran's ''intransigence is unacceptable.'' He spoke after a report by the UN's International Atomic Energy Agency said Tehran had ignored a UN Security Council call to suspend all nuclear fuel enrichment and had accelerated the program.

Although Bush in the past has not ruled out military options, he stressed that ''diplomatic options are just beginning'' and said Washington would continue to consult with its allies on the issue.

In an interview with Reuters, Undersecretary of State Nicholas Burns said the IAEA report proved Iran is an ''international outlaw'' and countries should prepare to impose targeted sanctions, either by UN Security Council action or, if necessary, outside that process.

''Countries that have economic relations that give some leverage over Iran, including exports of dual use technology and arms sales ought to shut them down. ... We hope there will be a major international reassessment of doing business with Iran'' as major powers decide the way forward, he said.

The United States has maintained broad sanctions on Iran since the 1979 revolution but officials are considering additional steps, such a freeze of Iranian financial assets.

European nations have already been considering possible sanctions but Russia, which has the most significant leverage over Iran through nuclear cooperation and arms sales, has resisted punitive action.

TEHRAN REFUSES TO BACK DOWN Iranian President Mahmoud Ahmadinejad, speaking before the IAEA report, said Tehran would not back down from its nuclear program.

Iran insists the program is for producing energy but Western powers say it is a cover for developing weapons.

Burns, who will meet in Paris next Tuesday with counterparts from Russia, Britain, France, China and Germany, said Iran must feel the consequences of its defiance of international demands. The Paris meeting is expected to develop a timetable for further action, he said.

One Western diplomatic source in Washington predicted a sanctions resolution would be put before the Security Council later in the year. ''Meanwhile, the Iranians continue to consolidate their technical knowledge and we lose more valuable time. Everyone is concerned about this,'' said the diplomat.

Bush discussed Iran with German Chancellor Angela Merkel by telephone earlier yesterday, the White House said. Merkel is visiting Washington next week.

''It's very important for the Iranians to understand there is a common desire by a lot of nations in this world to convince them, peacefully convince them, that they ought to give up their weapons ambitions,'' Bush said.

At the United Nations, US Ambassador John Bolton said it was clear from the IAEA report Iran had done nothing to comply with Security Council demands that it suspend its nuclear activities.

Washington is prepared to seek council approval of a resolution making those demands mandatory under international law, he said.

REUTERS SRS RK0430