y Mark Heinrich

VIENNA, May 23 (Reuters) A UN report today is expected to document notable gains in Iran's contentious nuclear programme amid discord between Western powers and the atomic energy watchdog chief over what to do to rein in Tehran.

U.S. and major European envoys plan to visit Mohamed ElBaradei, head of the International Atomic Energy Agency (IAEA), soon to complain about his suggestion to let Iran retain some uranium enrichment activity, a US official said yesterday.

Major powers stand behind UN Security Council resolutions demanding Iran suspend all nuclear fuel work in exchange for negotiations on trade incentives, with the threat of escalating sanctions if Tehran keeps refusing.

ElBaradei upset Western powers for saying their bid to prevent Iran learning the enrichment process was obsolete as Tehran had already done so. He said they should focus on negotiating to limit the programme to a level short of ''industrial scale'' posing little risk of yielding atomic bombs.

The US, British, French and German ambassadors to the IAEA plan to make a formal private complaint that ElBaradei's comments ''were not helpful'', the US official said.

Iran, the world's No 4 oil exporter, says it is only seeking an alternative source of energy through its civilian nuclear energy programme. But the West suspects Iran is using it as a facade for mastering the means to make atomic bombs.

The IAEA report due out later today was expected to show that Iran has significantly expanded its programme, exposing it to broader sanctions.

In remarks published last week, ElBaradei said Iran seemed to have vanquished most technical problems in shifting from a research-scale towards a planned industrial-scale production of nuclear fuel over the past few months.

''A FACT'' ''We believe they pretty much have the knowledge about how to enrich,'' ElBaradei told the New York Times. ''From now, it's simply a question of perfecting that knowledge. People will not like to hear it, but that's a fact.'' ''ElBaradei's point is that Iran's administration cannot afford (politically) to back down from their current state of 'achievement' -- but they can be asked to stop where they are,'' a diplomat close to the IAEA told Reuters today.

''If Iran stops expanding its enrichment capability now, it's no threat. Why keep this dance going until they achieve industrial level enrichment? That's ElBaradei's argument,'' he said.

ElBaradei has occasionally irked US leaders but his latest comments disturbed both US and European officials because they were interpreted as bolstering Tehran at a critical juncture.

As a 60-day grace period set by the Security Council on March 24 for Iran to back down was running out, Tehran vowed not to freeze its quest for atomic energy before, during or even as an outcome of negotiations.

US officials said six major powers would start drafting a third, harsher batch of sanctions if the deadline was flouted, and diplomatic leaks ahead of the IAEA inspectors' report left little suspense about its verdict.

Iran had hooked up over 1,600 centrifuges as of the first half of May, diplomats said, raising its potential enrichment capacity fivefold since the last IAEA report in February. Tehran has been installing about one cascade a week of late, they said.

REUTERS LPB ND1426