A U.S. intelligence report claiming Iran halted a nuclear weapons program in 2003 has caught Washington's Gulf Arab allies off guard, analysts say, raising concern that U.S. pressure against Tehran could slacken.

Leaders of the Sunni-led Arab Gulf Cooperation Council (GCC) meeting in Qatar this week avoided comment on the report.

Neil Partrick of the International Crisis Group said there was concern behind closed doors at the summit that the report could signal a new direction in U.S. policy but that President George W. Bush's rhetorical pressure will reassure them.

The GCC states want a firm U.S. stance and are somewhat bewildered having been urged by the U.S. to cut economic links and maintain a firm stance themselves for fear of Iran going nuclear, he said.

None of this alters the GCC's fundamental strategic relationship with the U.S. or the sense of potential threat emanating from Iran, including in Iraq, he added.

The U.S. National Intelligence Estimate published Monday said Iran had stopped its nuclear weapons program four years ago, but that Tehran was continuing to develop the technical means that could be applied to producing nuclear weapons.

Iran's president declared the report a victory over the United States and the head of the International Atomic Energy Agency said Iran had been somewhat vindicated.

Washington, backed by Western countries and Gulf Arab countries led by Saudi Arabia, has led a diplomatic campaign against Tehran over the past year over a nuclear energy program it said was a cover for developing nuclear weapons.

Iran has denied the charge, saying it has the right to enrich uranium to fulfill future energy needs.

DELICATE BALANCING ACT

Gulf Arab rulers have traditionally relied on the United States military presence in the region for protection, and they have watched with alarm as U.S. prestige fell because of its Iraq invasion of 2003 while Iranian power rose.

They face a delicate balancing act, however, because of popular support throughout much of the Arab world for Iran in its backing for Islamist groups Hezbollah in Lebanon and Hamas in the Palestinian territories. Some Gulf countries with a Shi'ite population worry about a backlash in case of a U.S. attack on Iran.

Saudi leaders backed the United States in its Iraq invasion despite public statements to the contrary. Support for military action against Iran would require a carefully-crafted public policy, analysts say.

I don't think they will be concerned that Iran will be let off the hook in a meaningful way, a Western diplomat in Riyadh said. They will view the Americans as being better informed on the issue while not shifting rhetoric.

Arab countries including Saudi Arabia agreed to attend a U.S. conference with Israel and Palestinian leaders last month which in part formed a front against Iranian influence.

Rochdi Younsi, an analyst with Eurasia Group, said in a report that the intelligence conclusion will only stir further bad publicity on the street for the United States, while Arab leaders still hope for a strong U.S. line against Tehran.

Middle Eastern public opinion has generally reacted with a mixture of relief and anger to the release of the National Intelligence Estimate, he said. Gulf Arab states will remain particularly suspicious of Tehran's ambitions.

Saudi Arabia already faces pressure within the GCC to soften its line towards Iran, analysts and diplomats said. The body is a loose political and economic alliance which comprises Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain and Oman -- all U.S. allies with traditional ties to Iran.

Qatar surprised neighbors when it invited President Mahmoud Ahmadinejad to this week's summit of a Gulf Arab body originally set up in 1981 to counter Iran's revolutionary expansionism.

I have tried to fathom the reasons behind the invitation extended by various Gulf officials to Ahmadinejad without reaching any convincing conclusions, Saudi columnist Tariq Alhomayed wrote this week in Saudi daily Asharq al-Awsat.

Younsi said smaller Gulf countries have begun to respond positively to Iran's greater weight in the region.

While Saudi Arabia would like to maintain a unified bloc against Iran, smaller GCC states advocate the necessity of appeasing the regime in Tehran through a multitude of economic partnerships and shared political influence, he said.

Iran's regional power has grown tremendously and it is now quite popular among various Arab Gulf populations.

(Editing by Samia Nakhoul)

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