Iran vows no nuclear retreat, U.S. urges diplomacy

TEHRAN (Reuters) - Iran underlined its determination to press ahead with sensitive nuclear work despite Western opposition on Wednesday when a senior official said it was capable of mass-producing machines used for enriching uranium.

Iran is embroiled in a deepening standoff with the West over its nuclear ambitions. Major powers fear it is seeking to develop atomic weapons but Tehran says it wants only to generate electricity so it can export more of its oil and gas.

Ahead of a meeting of the United States and five other big powers over the issue in London, U.S. Undersecretary of State Nicholas Burns said Tehran was facing growing isolation in the world and called for a diplomatic solution.

"We have a choice of confrontation or diplomacy. We prefer diplomacy," he said. "We would like to see a diplomatic engagement."

The United Nations has already imposed two sets of sanctions on the oil-rich Islamic state since December over its refusal to halt uranium enrichment, which can be used to fuel power stations or make bombs.

The London meeting is expected to review renewed contact between Iran and the European Union and whether a third, tougher sanctions resolution might be needed.

But Iranian President Mahmoud Ahmadinejad, while suggesting his country in general favored negotiations, said Tehran would not retreat "one iota" from what it sees as its right to develop a civilian nuclear energy industry.

"The world should know that ... Iran is among those countries who have the industrial (nuclear) fuel cycle," he told a cheering crowd in the central province of Kerman.

US "PUZZLED" BY IRAN

Iran said last month it could now make nuclear fuel on an industrial scale, a move that would take it closer to developing atomic weapons if it wanted to. Western experts expressed doubt about the announcement.

The country aims to have 3,000 centrifuges running at its main enrichment plant, Natanz, by the end of this month. That could be enough to refine uranium for one bomb within a year.

"One day Iran had problems to produce one centrifuge but right now we have obtained the technology for mass production of centrifuges," Ali Akbar Velayati, international affairs adviser to Supreme Leader Ayatollah Ali Khamenei, told the Jomohouri Eslami newspaper in an interview.

Centrifuges, tubular devices that are tricky to calibrate, spin at supersonic speed to refine fuel for power plants or, if it is enriched to high levels, nuclear explosives.

It was believed to be the first time a senior aide of Khamenei, who has the final say on nuclear and other policies, has said it could make centrifuges on a large scale.

Diplomats and analysts say Iran has not shown the ability to run centrifuges for long periods without breakdown, the key to producing nuclear fuel, and say it is at least 3-8 years away from making enough enriched uranium for a bomb, if it wants one.

In London, senior officials from the United States, Russia, China, Britain, France and Germany were due to discuss last week's talks between EU foreign policy chief Javier Solana and Iran's nuclear negotiator Ali Larijani in Turkey.

World powers were "trying quite intently to open up a channel on the nuclear issue" through Solana, who is expected to meet Larijani again next week, Burns said.

They have repeatedly offered Iran economic, civil nuclear and security incentives if it suspends enrichment.

"All of us are a little bit puzzled that the Iranians have not taken a single offer of negotiations over the last 18 months," Burns said. "Iran is very much in isolation ... Wouldn't it want to consider that negotiation and diplomacy is the best way forward?"

(Additional reporting by Sophie Walker in London and Mark Heinrich in Vienna)