TEHRAN - Iran on Tuesday exulted at a U.S. intelligence report contradicting Bush administration assertions it was building an atomic bomb, but France said it would continue to press for further sanctions against Tehran.

Israel was sceptical about the report -- which said Tehran had halted its nuclear weapons programme in 2003 -- and Britain urged continued pressure on Iran.

The U.S. National Intelligence Estimate (NIE) report took U.S. friends and foes by surprise after years of strident rhetoric from Washington accusing Iran of pursuing a covert nuclear weapons programme.

Analysts said the report might undermine Washington's drive to persuade other world powers to agree further U.N. sanctions against the Islamic Republic.

Iran quickly welcomed the report, published on Monday, as a vindication of its long-standing claim that its nuclear programme had only peaceful civilian aims.

"It's natural that we welcome it when those countries who in the past have questions and ambiguities about this case ... now amend their views realistically," Foreign Minister Manouchehr Mottaki told state radio.

"The condition of Iran's peaceful nuclear activities is becoming clear to the world."

But Britain, whose position on Iran is closely aligned with Washington's, said it would continue to push for increased international pressure.

"We think the report's conclusions justify the actions already taken by the international community to both show the extent of and try to restrict Iran's nuclear programme and to increase pressure on the regime to stop its (uranium) enrichment and reprocessing activities," a spokesman for Prime Minister Gordon Brown said.

"It confirms we were right to be worried about Iran seeking to develop nuclear weapons (and) shows that the sanctions programme and international pressure were having an effect in that they seem to have abandoned the weaponisation element."

ISRAEL SCEPTICAL

France took a similar stand. "It appears that Iran is not respecting its international obligations," a French foreign ministry spokeswoman said.

"We must keep up the pressure on Iran ... we will continue to work on the introduction of restrictive measures in the framework of the United Nations," she said.

Close U.S. ally Israel was unimpressed by the report, and

Prime Minister Ehud Olmert called for the U.S.-backed campaign to curb Iran's nuclear ambitions to press ahead regardless.

"It is vital to pursue efforts to prevent Iran from developing a capability like this and we will continue doing so along with our friends the United States," he told reporters.

Israeli Defence Minister Ehud Barak told Army Radio that as far as Israel knew Iran had probably renewed its weapons programme since 2003.

In Berlin, a spokesman said Foreign Minister Frank-Walter Steinmeier would discuss the report later on Tuesday with U.S. Secretary of State Condoleezza Rice.

China said its stand on Iran remained the same -- to seek a solution through dialogue. A foreign ministry spokesman said he hoped Iran could fulfil its U.N. resolution obligations and cooperate with the International Atomic Energy Agency.

A European security source familiar with intelligence on Iran said the change of American stance was welcome, and would undermine the position of U.S. hawks.

"The American agencies have in essence come closer to the position of the European ones," the source said.

"I think a political process (in dealing with Tehran) is more of an option than what we've perhaps been seeing from the hawks in the United States, the positioning for a military attack on Iran and so on."

The official said there was "no definitive proof either way" as to whether Iran had halted a nuclear arms programme in 2003. "And ... we keep seeing (Iranian) procurement attempts in Europe ... to acquire proliferation-relevant material."

World powers met last Saturday in Paris to discuss a further round of sanctions against Iran over its refusal to halt uranium enrichment, a process that can produce fuel for power plants or, potentially, nuclear weapons.

Two U.N. sanctions resolutions have been passed so far against Iran, unanimously but after diplomatic wrangling among the five permanent U.N. Security Council members -- the United States, China, Russia, France and Britain -- plus Germany.

Russia has been wary of harsh sanctions, arguing there is no evidence that Iran has sought to develop nuclear arms. Iran's top nuclear negotiator was meeting Russian President Vladimir Putin in Moscow on Tuesday.

Tension has escalated in recent months as Washington has ratcheted up the rhetoric against Tehran.

In Vienna, The United Nations nuclear watchdog said the latest U.S. intelligence report on Iran's nuclear weapons programme backed up the findings of IAEA inspectors over the past few years.