The nuclear watchdog reported that Tehran may not have produced highly enriched uranium (HEU) - a key ingredient needed to produce nuclear weapons.
Nevertheless, US Secretary of State Colin Powell said on Wednesday the time had come for the UN to take punitive action against Iran.
Speaking to reporters flying back with him from a one-day trip to Panama, Powell said he would urge members of the IAEA, at its board meeting on 13 September, to refer the issue to the UN Security Council.
"We still believe that the Iranians are not fessing up to everything. They still have a programme that, in our judgment, is a nuclear programme designed to develop ultimately a nuclear weapon," said Powell.
Although HEU contamination had been found at the Kalaye Electric Company and at the Natanz sites in Iran, the report said: "It appears plausible that the HEU contamination found at those locations may not have resulted from enrichment of uranium by Iran."
Tehran has maintained that the source of the contamination was not domestically produced HEU but rather imported equipment - specifically centrifuge equipment it said it purchased from Pakistan in the 1990s.
But it appears unlikely the Bush administration will find support among the IAEA's 35-member body to refer the matter to the United Nations this month to consider imposing sanctions against Iran.
In Tehran, Iran's former representative to the IAEA, Ali Akbar Salehi, predicted that Iran's nuclear case would not be referred to the Security Council.
The agency knows that uranium enrichment has not been carried out in Iran, he said, adding, "We take it as a favourable decision."
The IAEA report also cites "very good cooperation" by Iran with UN weapons inspectors in affording them access to suspected nuclear sites.
And although it was under no legal obligation to do so, Iran this year agreed to suspend its enrichment program as a show of good will to the international community.
According to the Western diplomat, enrichment facilities at Natanz are still "under seal" and UN inspectors have continued to monitor them.