TEHRAN - President Mahmoud Ahmadinejad said on Wednesday Iran would enrich uranium to a higher level itself, apparently ruling out a U.N.-brokered deal meant to minimize the risk of Tehran producing material for atomic bombs.

Western diplomats said Iran accepted in principle two months ago a plan for it to send 75 percent of its low-enriched uranium (LEU) to Russia and France to be further enriched, then converted into fuel for Iran's nuclear medicine program.

The West hoped that farming out much of Iran's LEU reserve for this humanitarian purpose would minimize the risk of Tehran refining the material to high purity suitable for nuclear arms -- a suspicion kindled by Iran's record of nuclear secrecy and stonewalling of U.N. atomic watchdog investigations.

But Tehran has since retreated from the deal, demanding what Western diplomats call killer amendments that would keep its LEU stockpile intact. Some Iranian officials suggested Iran could enrich the LEU itself from 3.5 percent to the 20 percent level needed to yield fuel rods for Iran's medical isotope reactor.

Ahmadinejad was more explicit. By the grace of God, the Iranian nation will produce 20 percent enriched uranium and anything it needs (itself), he said in a televised speech in the central city of Isfahan. He did not give a timetable.

If it goes ahead, Iran may stoke suspicions that its eventual nuclear goal is warheads, since it lacks the technology to fabricate medical reactor fuel from higher-grade LEU. For atom bombs, uranium must be enriched to 90 percent purity.

Iran could be enriching to 20 percent within months after changing the settings of its centrifuge machines, said David Albright, head of the Institute for Science and International Security, which tracks suspected nuclear proliferators.

Once at 20 percent, they'd be 90 percent of the way to 90 percent enrichment in terms of the time it takes, he said.

Meanwhile, for (the sake of) legitimacy, they'll say they are developing technology for the reactor fuel line. But concerns will rise since they will continue to stockpile LEU, and perhaps siphon some of it off for the civilian reactor.

Iran has become more defiant of pressure for nuclear restraint since the International Atomic Energy Agency's board of governors rebuked it on Friday for covertly building a second enrichment plant near the holy city of Qom, in addition to its IAEA-monitored one at Natanz, and demanding a construction halt.

ILLEGAL RESOLUTION

Under pressure of a few superficially powerful countries ... the (IAEA) passed an illegal resolution against the Iranian nation, Ahmadinejad added, alluding to the six world powers that sponsored the IAEA resolution.

Tehran said on Sunday it would build 10 more uranium enrichment sites in retaliation for the resolution, which sailed through by a 25-3 margin with rare Russian and Chinese support.

Ahmadinejad ruled out any further talks with the six powers, which they have sought to try to rein in Iran's nuclear program in exchange for trade benefits.

He also said Israel could not do a damn thing to stop the Islamic Republic's nuclear program, which the West suspects is a front to build bombs. Iran says it is enriching uranium only for power plant fuel, not for nuclear warheads.

Israel, which Iran refuses to recognize, has said a nuclear-armed Iran would be a threat to its existence and points to Ahmadinejad's calls for Israel to be wiped off the map.
The Zionist regime (Israel) and its (Western) backers can not do a damn thing to stop Iran's nuclear work, Ahmadinejad told a crowd to chants of Death to Israel and Death to America.

His remarks were likely to extend a fresh spiral in tensions between Iran and the West.

Tehran could face harsher international sanctions in the first half of next year or last-resort Israeli military action if it fails to create confidence in its nuclear aspirations.

U.S. President Barack Obama said Washington wanted Iran's nuclear dispute to be resolved through diplomatic negotiations but has not ruled out other options.

(Additional reporting by Mark Heinrich; Editing by Alison Williams)

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