WASHINGTON - A new U.S. intelligence report says Iran halted its nuclear weapons programme in 2003 and it remains on hold, contradicting the Bush administration's earlier assertion that Tehran was intent on developing a bomb.

The National Intelligence Estimate (NIE) released on Monday could undermine U.S. efforts to convince other world powers to agree on a third package of U.N. sanctions against Iran for defying demands to halt uranium enrichment activities.

Tensions have escalated in recent months as Washington has ratcheted up the rhetoric against Tehran, with U.S. President George W. Bush insisting in October that a nuclear-armed Iran could lead to World War Three.

But in a finding likely to surprise U.S. friends and foes alike, the latest NIE concluded: "We do not know whether (Iran) currently intends to develop nuclear weapons."

That marked a sharp contrast to an intelligence report two years ago that stated Iran was "determined to develop nuclear weapons."

But the new assessment found Iran was continuing to develop technical capabilities that could be used to build a bomb and that it would likely be capable of producing enough highly enriched uranium for a nuclear weapon "sometime during the 2010-2015 time-frame."

The shift in the intelligence community's thinking on Iran comes five years after a flawed NIE concluded neighbouring Iraq was developing weapons of mass destruction -- a report that helped pave the way for the U.S.-led invasion in March 2003.

No weapons of mass destruction were ever found in Iraq and intelligence agencies since have been more cautious about Iran's nuclear ambitions.

Bush and Vice President Dick Cheney were briefed on the NIE last Wednesday, senior intelligence officials said. They said political officials had no input into the findings.

Iran has already been hit with two rounds of U.N. sanctions. Washington, which insists it wants to solve the problem diplomatically while leaving military options "on the table," is pushing for tougher measures but faces resistance from China and Russia.

Tehran insists it wants nuclear technology only for civilian purposes, such as electricity generation.

The nuclear standoff has become a major issue in the 2008 U.S. presidential campaign, with candidates weighing in on the prospects for military action against Iran.

U.S. STILL SEES IRANIAN "RISK"

"Today's National Intelligence Estimate offers some positive news," Bush's national security adviser Stephen Hadley said in a statement.

"It confirms that we were right to be worried about Iran seeking to develop nuclear weapons. It tells us that we have made progress in trying to ensure that this does not happen," he said.

"But the intelligence also tells us that the risk of Iran acquiring a nuclear weapon remains a very serious problem."

In one key finding, the NIE stated: "Tehran's decision to halt its nuclear weapons program suggests it is less determined to develop nuclear weapons than we have been judging since 2005."

Still, it said: "We also assess with moderate-to-high confidence that Tehran at a minimum is keeping open the option to develop nuclear weapons."

But the report suggested Tehran's suspension showed it was susceptible to international pressure.

It also said U.S. intelligence had "moderate confidence" that Tehran had not restarted its nuclear weapons effort by mid-2007 but added that Tehran's intentions were unclear.

"Iranian entities are continuing to develop a range of technical capabilities that could be applied to producing nuclear weapons, if a decision is made to do so," it said.