(Updates with State Department, IAEA)

By Jon Hemming

TEHRAN, Nov 14 (Reuters) - The U.N.'s nuclear watchdog agency said on Tuesday it could not confirm if Iran's nuclear intentions were entirely peaceful and that Tehran was pressing ahead with uranium enrichment despite the threat of sanctions.

The International Atomic Energy Agency's report seemed to bolster Washington's call for Tehran to give up uranium enrichment -- or face U.N. sanctions -- before it agrees to any talks with Iranian President Mahmoud Ahmadinejad.

Ahmadinejad told a news conference on Tuesday he was ready to talk with the United States if there was a change of attitude in Washington, which faces pressure to deal directly with Tehran to help ease violence in neighboring Iraq.

But the White House responded that Tehran must end its uranium enrichment, stop meddling in Iraq and play a constructive role in the Middle East.

"I don't think this is about a U.S. attitude adjustment," said Gordon Johndroe, spokesman for the White House National Security Council.

The IAEA said Iran is still stonewalling agency investigations. It reported U.N. inspectors have found unexplainable traces of plutonium in samples of particles of highly enriched uranium at a nuclear waste site. In larger amounts, plutonium and HEU can detonate atom bombs.

The State Department said the U.N.'s credibility was at risk if it did not act after this report and its findings underscored the need for a strong resolution against Iran.

"There must be costs to that failure to abide by the demands of the international community," said State Department spokesman Sean McCormack.

"This is starting to become an issue of the credibility of the Security Council," he said. "We are doing everything we can to have the Security Council function as it was envisaged functioning," he added.

The U.S. ambassador to the United Nations, John Bolton, who leads Washington's drive for sanctions on Iran, said Ahmadinejad's statements and the IAEA report show the urgency in U.N. action. "Sanctions are obviously the only means to get Iran's attention," he said in New York.

NUCLEAR FUEL AND IRAQ TALKS

Iranian officials have often said they were ready for talks with the United States, but have always made negotiations conditional on major U.S. policy changes. Ahmadinejad said he would soon explain his policies to the American people.

"The conditions concern the attitude of the American government. If they correct their behavior, we will talk to them like others," he said at a news conference.

Bush's administration is also conducting a review of its policies in Iraq and a report by the outside Iraq Study Group is expected to offer involvement by Iran and Syria as one alternative course. Bush has maintained that any talks with Iran are predicated on Tehran abandoning its nuclear plans, which Western powers believe involve making nuclear bombs.

Ahmadinejad on Tuesday gave further evidence that giving up the nuclear program, which he says is to generate electricity, was not on his agenda.

"We want to produce nuclear fuel and we have to install 60,000 centrifuges, but still we are at the first stages," Ahmadinejad said at news conference carried by state television.

Iran so far runs two chains of 164 centrifuges, known as cascades, which can make fuel for use in nuclear power plants or material for warheads. Previously it had said it wanted 54,000 centrifuges. On their own, these cascades would take years to produce enough material for a bomb.

Washington broke ties with Tehran in 1979 after Iranian students stormed its embassy and took 52 Americans hostage.

British Prime Minister Tony Blair is among those promoting U.S. engagement with Syria and Iran over Iraq, an idea under discussion by the Iraq Study Group -- commissioned by Bush to review policy in Iraq.

James Baker, a Republican and former U.S. secretary of state who is co-chairman of the Iraq Study Group, had a three-hour dinner in New York with Iran's U.N. ambassador Javad Zarif, The Washington Post reported on Sunday.

The newspaper did not say when the dinner took place.

Hamid Reza Haji Babaee, a member of the Iranian parliament's national security committee, described the meeting as "the beginning of negotiations" with America, the Iranian Web site Aftab reported.

Other members of parliament played down the significance.

(Additional reporting by Mark Heinrich and Francois Murphy in Vienna, Evelyn Leopold at the United Nations and Sue Pleming and Tabassum Zakaria in Washington.)

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