By Fredrik Dahl
VIENNA (Reuters) - The U.N. nuclear watchdog and Iran failed on Friday to strike a deal aimed at allaying concerns about suspected nuclear weapons research by Tehran, a setback in efforts to resolve the stand-off diplomatically before any Israeli or U.S. military action.
A flurry of bellicose rhetoric from some Israeli politicians this month has fanned speculation that Israel might hit Iran's nuclear sites before the U.S. presidential election in November.
Tensions rose another notch on the eve of Friday's talks between Iran and the International Atomic Energy Agency (IAEA) when diplomatic sources said Iran had installed many more uranium enrichment centrifuges at its Fordow underground site.
While the new machines are not yet operating, the move reaffirmed Iranian defiance of international demands on it to suspend enrichment and may strengthen the Israeli belief that toughened sanctions and concerted diplomacy are failing to make the Islamic Republic change course.
"The discussions today were intensive but important differences remain between Iran and the U.N. that prevented agreement," Herman Nackaerts, the IAEA's chief inspector, told journalists after about seven hours of talks with an Iranian delegation in Vienna.
"At the moment we have no plans for another meeting."
Little headway appeared to have been made on the IAEA's most urgent request - access for its inspectors to the Parchin military site where the agency believes Iran has done explosives tests relevant for developing a nuclear weapons capability.
Iran's ambassador to the Vienna-based IAEA, Ali Asghar Soltanieh, said that "undoubtedly some progress" was made but that differences remained.
"Because it is a very complex issue ... issues related to national security of a member state are something very delicate," the veteran Iranian diplomat said.
"But I have to say that we are moving forward ... and we are going to continue this process so that we at the end of the day will have a framework agreed by both sides."
Soltanieh had said before the talks began: "Both sides are trying to bridge the gap."
The diplomatic sources who revealed the expansion of centrifuge capacity at Fordow also said satellite imagery indicated Iran had used a brightly colored tent-like structure to cover a building at Parchin, increasing concern about a possible removal of evidence of illicit past nuclear work there.
ISRAEL SAYS IRAN IGNORING WORLD
Israel signaled its patience with diplomacy was fading.
"Only yesterday we received additional proof that Iran is continuing accelerated progress towards achieving nuclear weapons and is totally ignoring international demands," Israeli Prime Minister Benjamin Netanyahu said before the talks ended.
But in Washington, an official of President Barack Obama's administration said the new centrifuges, while concerning, would not significantly change the amount of time Iran would need to "break out" of its treaty obligations and construct a nuclear device.
"This work ... does not build confidence in their intent and it further demonstrates their failure to fulfill their obligations," said the official, speaking on condition of anonymity. "But, it is also not a game-changer."
Asked about the outcome of the Vienna meeting, a Western diplomat accredited to the IAEA said: "As dismal as expected."
Iran, Israel's arch-enemy and the world's No. 5 oil exporter, insists it wants nuclear energy for more electricity to serve a rapidly growing population, not nuclear weapons, and has threatened wide-ranging reprisals if attacked.
Nackaerts, the IAEA's global chief of inspections, said before the meeting that the broader goal was a deal on greater, overall inspector access to answer the U.N. watchdog's questions about possible military dimensions to Iran's nuclear program.
It was the first meeting between the two sides since discussions in early June petered out inconclusively, dashing previous hopes that an accord might be on the cards.
Friday's talks were separate from Tehran's negotiations with six world powers that have made little progress since resuming in April after a 15-month hiatus, but the focus on suspicions about Iran's nuclear ambitions means they are still closely linked.
Washington has said there is still time for diplomatic pressure to work in pressing Iran to curb its enrichment program, which is the immediate priority of the six powers - the United States, Britain, Russia, China, France and Germany.
Refined uranium can fuel nuclear power plants or nuclear bombs, depending on the level of enrichment.
Iran says it seeks only civilian nuclear energy.
But its refusal to limit and open up its atomic activity to unfettered IAEA inspections that could determine whether it is purely peaceful, or not, has led to harsher punitive sanctions and louder talk about possible military action.
Western diplomats had expected no breakthrough on Friday but said Iran could offer a concession to inspectors - who want access to sites, officials and documents - in hopes of blunting their upcoming quarterly report on Iran, which is due next week.
In so doing, Iran would also seek to deflect a planned Western move to have the 35-nation IAEA board of governors, meeting next month, to formally rebuke Tehran over its failure to cooperate with the agency's inquiry.
So any Iranian concession should be treated with skepticism, one diplomat accredited to the IAEA said.
The IAEA's immediate priority remains access to Parchin, even though Western diplomats say it may now have been purged of any evidence of nuclear weapons research, possibly carried out a decade ago.
Citing satellite images, diplomats said this week that Iran has demolished some small buildings and moved earth at Parchin.
Diplomatic sources said the building believed to be housing an explosives chamber - if it is still there - had been "wrapped" with scaffolding and tarpaulin, hiding any sanitization or other activity there from satellite cameras.
Iran says Parchin, about 30 km (20 miles) southeast of the capital Tehran, is a conventional military facility and has dismissed allegations aired about it as "ridiculous". It says a broad framework agreement for how the IAEA should conduct its inquiry is needed before possibly allowing access to Parchin.
(Additional reporting by Allyn Fisher-Ilan in Jerusalem and Andrew Quinn in Washington; Editing by Mark Heinrich)