VIENNA, Austria (AP) – America and other world powers on Thursday worked on a response to Tehran’s defiance of a U.N. Security Council ultimatum on mothballing its uranium enrichment program.

With Tehran showing no signs it had met the council’s Wednesday deadline on an enrichment freeze, the U.N. nuclear watchdog finalized a report to be released later in the day.

Officials at the International Atomic Energy Agency said the report by Mohamed ElBaradei, head of the Vienna-based agency, would say that Iran has expanded enrichment efforts instead of freezing them, a conclusion that could trigger tougher U.N. sanctions against Tehran.

Once released, the report will be sent to the agency’s 35-nation board and to the U.N. Security Council, which – in setting the deadline – had said that any enrichment related activities past Wednesday could lead to sanctions in addition to those imposed last month.

America and its allies suspect Iran is using its nuclear program to produce an atomic weapon – charges Iran denies, saying its aim is to generate electricity. Enriched to a low level, uranium is used to produce nuclear fuel, but further enrichment makes it suitable for a bomb.

The Security Council is demanding an immediate and unconditional stop to uranium enrichment, after which European-led negotiations over an economic reward package might begin. Iran has long insisted it will not stop its nuclear activities as a condition for negotiations to start.

In Berlin, Secretary of State Rice and her German counterpart, Frank-Walter Steinmeier, expressed hope after a meeting Wednesday that a compromise still might be reached with Iran. They refused to comment on what action Tehran might face for defying the latest U.N. deadline. “I am not giving up hope of succeeding in this, but I say again and again that decisions are needed in Tehran itself,” he told reporters.

Ms. Rice planned to confer Thursday with Russian and other European diplomats on the next steps in a joint Iran strategy.

British Prime Minister Tony Blair said Thursday that pursuing a diplomatic solution is the only way to defuse the standoff with Tehran.

Mr. Blair said “the only sensible way” to solve the crisis was to pursue political solutions, but that he could not “absolutely predict every set of circumstances.”

“No one is preparing for military action. No one wants military action,” Mr. Blair said in an interview with British Broadcasting Corp. radio. “I can’t think that it would be right to take military action against Iran.”

Tehran’s refusal to freeze all its enrichment-related activities prompted the U.N. Security Council on Dec. 23 to impose sanctions targeting its nuclear and missile programs and persons involved in them. Back then, it gave the country 60 days to halt enrichment or face additional measures.

Discussions on a new resolution aimed at stepping up pressure on Iran to suspend enrichment were expected to start next week, a Security Council diplomat said in New York, speaking on condition of anonymity because of the sensitivity of the issue.

In Tehranm, some 400 students rallied on Thursday in support of Iran’s controversial nuclear program, burning British and Israeli flags and urging the Iranian government not to scale down the program. The students marched to the French and Italian embassies in central Tehran as they condemned the West’s stance.

Part of the sanctions target companies suspected of involvement in Iran’s nuclear program – a measure that an Iranian dissident group on Thursday said Tehran was circumventing by renaming the companies and otherwise disguising them, or setting up new ones.

In a list provided The Associated Press ahead of general publication, the National Council of Resistance in Iran said firms under sanctions that were renamed were the Farayand Technique Company and the Pars Thrash Company.

It named new companies set up to work on Iran’s enrichment programs while avoiding sanctions as Tamin Tajhizat Sanayeh Hasteieh; Shakhes Behbood Sanaat and Sookht Atomi Reactorhaye Iran.

All are headed by Gholamreza Aghazadeh, the head of Iran’s atomic energy programs and some involve others on the Security Council’s list of those involved in Iran’s nuclear program, said the group – the political wing of the People’s Mujahedeen of Iran, which advocates the overthrow of Iran’s Islamic government.

There was no independent confirmation of the information provided by the group, which America and the European Union list as a terrorist organization. But it has revealed past secret Iranian nuclear activities that were subsequently verified by the IAEA or governments.
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Associated Press Diplomatic Writer Anne Gearan in Berlin contributed to this report.