Iran appears to have overcome the technical difficulties of enriching uranium, such as spinning the plant's centrifuges at the required high speeds, although it was unclear whether Iran would be able to sustain its recent progress.
Mohammed ElBaradei, the IAEA's director-general, said it was clear Iran had the "knowledge" to enrich uranium. The paper quoted ElBAradei as saying: "From now on, it is simply a question of perfecting that knowledge."
For months Washington and a number of European governments have applied pressure on Iran over its nuclear programme, which many believe is intended to ultimately produce a nuclear bomb.
Iran, though, says the programme aims to produce energy for peaceful civilian use.
It has already ignored two sets of UN sanctions imposed over its uranium enrichment plans and some countries, especially Russia, have asked whether it is really necessary to prevent Iran from developing nuclear fuel.
The material currently being produced by the centrifuges would need to undergo further enrichment before it reaches weapons-grade fuel as reactor-grade uranium is enriched to levels of only about five per cent, while weapons-grade uranium must be enriched to 90 per cent or higher.
The paper cited Nicholas Burns, the US undersecretary of state for policy, as saying that if Iran did not agree to suspend the activities by the time of next month's Group of Eight industrial nations' meeting, the US would press for a third round of sanctions.
The IAEA is expected to report its findings to the UN Security Council early next week.