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THE threat posed by a nuclear-armed Iran has been recast by a US intelligence report saying Tehran bowed to diplomatic pressure in 2003 and shut down its atomic weapons program.

The shock assessment by 16 US spy agencies reporting collectively as the National Intelligence Estimate reverses its 2005 claim Iran was pursuing a nuclear bomb.

It undermines years of aggressive anti-Tehran posturing by the Bush administration premised on the assumption that Iran had a secret nuclear weapons program.

In particular, it robs the administration of the key rationale for a military strike against Iran, a move that has been the subject of much speculation this year.

Among those making the case for an attack have been former US ambassador to the UN John Bolton and former Republican house speaker Newt Gingrich.

"We judge with high confidence that in fall 2003 Tehran halted its nuclear weapons program," the NIE report says.

"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."

European officials said the new assessment was likely to complicate efforts to impose new UN sanctions on Iran.

The officials told the New York Times Washington`s European allies were struggling to understand why the US chose to issue the report just two days after the six powers negotiating with Iran - the US, Russia, China, France, Britain and Germany - had decided to press ahead with a new Security Council resolution.

"Officially, we will study the document carefully; unofficially, our efforts to build up momentum for another resolution are gone," one official told the paper.

Another senior European official called the conclusions of the assessment "unfathomable".

While the report warns Iran is keeping its options open, and could have the technical ability to make a nuclear weapon between 2010-15, it says the weapons program had remained dormant.

The office of the US Director of National Intelligence described the report as "an extensive re-examination" of its 2005 assessment. It will demand at least some reassessment of Iran`s President Mahmoud Ahmadinejad, who has always denied his country has a nuclear weapons program. He has insisted Iran wants to develop a nuclear industry for peaceful purposes only and is entitled to do so under the Nuclear Non-Proliferation Treaty.

Iran`s Foreign Minister, Manouchehr Mottaki, said the report proved the peaceful nature of the country`s nuclear program.

"We welcome all countries that had questions about Iran`s nuclear case in the past - regardless of their motives - when they realistically correct their views," he told state radio.

The report represents a potential windfall for Democrat presidential aspirant Barack Obama, who has been criticised by other candidates, including Hillary Clinton, for pledging to open dialogue with rogue states such as Iran, Syria and Venezuela if elected to the White House.

The NIE assessment suggests there is little justification for the Bush administration, or any other US administration, to deny Iran a seat at the table when Middle East issues are up for discussion.

Senate Democratic Majority leader Harry Reid called for a "surge of diplomacy" with Tehran that would emulate the approach of former Republican president Ronald Reagan in dealing with the Soviet Union in the 1980s.

The Democratic chairman of the Senate Intelligence Committee, Jay Rockefeller, said the NIE report proved the US intelligence community had learned much from the debacle of Iraq`s non-existent weapons of mass destruction.

"The NIE has issued judgments that break sharply with its own previous assessments, and they reflect a real difference from the views espoused by top administration officials," he said.

Rand Beers, president of the National Security Network and a former adviser to ex-Democratic presidential candidate John Kerry, said the report threw cold water on those urging military confrontation with Iran.

"This report demonstrates a clear opening for US policy in terms of engaging on mutual interests with Iran throughout the Middle East," he said.

US President George W. Bush was advised of the NIE findings on November 28, 11 days after he warned that a nuclear-armed Iran risked the outbreak of "World War III".

Asked yesterday if the White House was now embarrassed by that claim, National Security Adviser Stephen Hadley denied Mr Bush had exaggerated the threat.

"He was describing the threat as the intelligence community itself had been describing the threat both publicly and in their briefings to him," Mr Hadley said.

But Mr Hadley conceded that the revised intelligence estimate offered "grounds for hope" that problems surrounding Iran`s nuclear ambitions could be solved diplomatically.

He said the US would continue to push for further sanctions against Iran in the UN Security Council.

However, the NIE report is likely to harden the resolve of Russia and China, which have resisted an escalation of the sanctions regime.

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