The report, released Friday by the Vienna-based International Atomic Energy Agency, confirmed that Iran has continued to enrich uranium in defiance of repeated UN Security Council resolutions demanding that it suspend the uranium centrifuge program, which could produce both civilian nuclear fuel and the material for a nuclear bomb.
Tehran insists it is interested only in civilian nuclear energy, but the U.S. and others contend it harbors ambitions for a bomb.
"The United Nations has a very strong case for passing a third Security Council resolution imposing sanctions on Iran after the new report from the IAEA found that Tehran failed to cooperate fully with its investigators and left unanswered crucial questions about its nuclear past," Rice said.
"There is very good reason after this report to proceed to the third Security Council resolution," Rice told reporters at the State Department.
"This report demonstrates that whatever the Iranians may be doing to try to clean up some elements of the past, it is inadequate, given their current activities, given questions about their past activities and given what we all have to worry about, which is a future in which Iran could start to perfect the technologies that could lead to nuclear weapons," she said.
Rice spoke ahead of a meeting between senior diplomats from the five permanent members of the UN Security Council and from Germany, scheduled for Monday in Washington to discuss the new resolution. The six powers have agreed on a draft.
Undersecretary of State Nicholas Burns, the third-ranking U.S. diplomat, will represent the United States at the meeting. He said Friday there is all the more reason now for the Security Council to pass a third sanctions resolution.
The United States wants the Security Council to begin debate next week. Burns would not predict how long debate would last and would not rule out that the current package of proposed punishments might change. The proposed package slightly expands and strengthens previous penalties but is weaker than the United States had wanted.
Burns is the top U.S. negotiator on a carrot-and-stick package proposed by the UN Security Council's five permanent states, all of which are nuclear powers, plus Germany. Iran has rebuffed the offer and has brushed off the Security Council's penalties.
Iran's trade partners and sometime allies on the council, Russia and China, which hold Security Council veto power, oppose very harsh measures. Burns said the new round of sanctions would pinch Iran, but he argued more strongly that failing to act would make the Security Council look weak.
Earlier Friday, U.S. ambassador to the UN Zalmay Khalilzad expressed sentiments similar to those of Rice, saying that the IAEA report should pave the way for new tighter sanctions against Iran.
"They're increasing their capabilities," Khalilzad noted. "Not only have the number of centrifuges increased, but they're working on a second-generation, if you like, a more capable centrifuge. Things are getting worse in terms of the enrichment part."
He said he believed some were hoping the IAEA report would eliminate the need for the next resolution - by assessing Iranian cooperation with the UN nuclear watchdog more positively.
"The IAEA report does give us very important points to make," Khalilzad said. "They [Iran] did not come clean."
The report states that Iran has carried out a series of experiments associated with the production of nuclear weapons, high velocity explosives, and uranium enrichment. Teheran has also reportedly carried out simulations of warhead detonations and tests involving Polonium 210, a material used to develop nuclear weapons.
IAEA chief Mohammed ElBaradei writes in the report that some of the data they received on Iran's activities came from countries that were interested in increasing IAEA scrutiny of Iran's nuclear program.
Teheran has stated that the data in question, which includes documents, is fabricated.
The report did detail areas of greater Iranian cooperation, and said Teheran has produced documents detailing research and experiments carried in Iranian academic institutions, activities which were previously thought to be a front for the Atomic Energy Organization of Iran (AEOI).
ElBaradei on Friday said his agency had made "quite good progress" in clarifying Iran's nuclear program thanks to increased Iranian cooperation, but serious doubts persist.
"We are at it for the last five years. In the last four months, in particular, we have made quite good progress in clarifying the outstanding issues," he said in a statement accompanying a new report on Iran's behavior.
"On that score, Iran in the last few months has provided us with visits to many places that enable us to have a clearer picture of Iran's current program. However, that is not, in my view, sufficient," he said.
ElBaradei called on Iran to follow UN Security Council Resolution 1696, which said Iran must suspend uranium enrichment or face diplomatic sanctions. Nonetheless, the report states Iran has stocked its Natanz reactor with new, gas-powered centrifuges which are reportedly more advanced and able to enrich more uranium than their predecessors.
The report was welcomed by Iran's top nuclear negotiator Saeed Jalili, who said it provides "more evidence proving Iran's truthfulness on the nuclear issue."
"This victory is the result of resistance by the Iranian nation in insisting on its rights," Jalili said.