The United States will work with allies to strengthen sanctions against Iran following a UN nuclear watchdog's report that said Tehran is expanding its uranium enrichment program, U.S. President George W. Bush said Thursday.

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U.S. President George W. Bush during a news conference in the White House Rose Garden, Thursday. ((Charles Dharapak/Associated Press))

"My view is that we need to strengthen our sanction regime," Bush told reporters in a press conference at the White House Rose Garden.

"They continue to be defiant as to the demands of the free world."

Bush's comments come a day after a report by the Vienna-based International Atomic Energy Agency accused Iran of defying a UN Security Council deadline to suspend its nuclear program and blocking the agency's efforts to monitor its enrichment activities.

The Security Council imposed a second set of sanctions on Iran in March for its refusal to suspend enrichment programs and set a 60-day deadline for Iran to close down its program.

Bush said he had directed Secretary of State Condoleezza Rice to work with European partners to develop further sanctions.

"The first thing that these leaders have to understand isthat Iran with a nuclear weapon would greatly destabilize the region," he said.

Ahmadinejad defiant

During aspeech Thursdaytoa gathering of Iran's elite Revolutionary Guards, President Mahmoud Ahmadinejad reiterated his vow to continue the program and said he did not fear attempts to thwarthis country'snuclear ambitions.

"With the support of the Iranian nation, we do not fear the enemy's hyperbole and psychological warfare. We are nearing our final goals," Ahmadinejad said. "If we stop for a while, they [Iran's enemies] will achieve their goals. The enemy wants Iran to surrender so it won't have any sayin the world."

IAEA chief Mohamed El-Baradei said Thursdayhe agrees with CIA estimates that Iran is three to eight years away from being able to make nuclear weapons.

El-Baradei also urged Western nations tobuild a dialoguewith Iran now rather than engaging in sabre rattling. "One way to do that, rather than to continue the rhetoric, is to … sit down together," he said.

Enrichment isa process thatpurifies uranium gas in cascades with thousands of centrifuges to create fuel for a nuclear reactor.If refined to a high enough level, the process can result in enough material for a nuclear warhead.

The IAEA report says the Iranians were running eight 164-machine cascades atan underground site in Natanz, with five more cascades being prepared for operation.

With files from Associated Press