WRAPUP 1-Iran amasses more enriched uranium than allowed by nuclear deal

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* IAEA confirms breach of stocks limit

* Initial European reaction muted

* Iran carries out threat made after U.S. tightened sanctions

By Parisa Hafezi and Francois Murphy

DUBAI/VIENNA, July 1 (Reuters) - Iran announced on Monday it had amassed more low-enriched uranium than permitted under its 2015 deal with major powers, its first major step in violation of the deal since the United States pulled out of it more than a year ago.

The U.N. nuclear watchdog, the International Atomic Energy Agency (IAEA), which monitors Iran's nuclear programme under the deal, confirmed in Vienna that Tehran had breached the limit.

The step could have far-reaching consequences for diplomacy at a time when European countries are trying to pull the United States and Iran back from the brink of war, less than two weeks after Washington aborted air strikes at the last minute.

The Europeans, who opposed last year's decision by President Donald to abandon the nuclear deal signed under his predecessor Barack Obama, had pleaded with Iran to keep within its parameters.

Iran has said it aims to do so but cannot do so indefinitely, as long as sanctions imposed by have deprived it of the benefits it was meant to receive in return for accepting curbs on its nuclear programme under the deal.

Foreign Minister Mohammad Javad Zarif said Iran had passed the threshold, exactly as it had warned it would: "We have said very transparently what we will do."

French, British and German officials had promised a strong diplomatic response if Iran fundamentally breached the deal, but the initial European response appeared muted. A European diplomat told Reuters there was a mechanism under the agreement to deal with "any inconsistencies", and it would be up to a joint commission of signatories to decide on next steps.

"ECONOMIC WAR"

Iran announced in May that it would speed up production of enriched uranium in response to the administration sharply tightening sanctions that month. Washington has now effectively ordered all countries to halt purchases of Iranian oil or face sanctions of their own, which Tehran calls "economic war" designed to starve its population.

In the two months since the U.S. sanctions were tightened, the confrontation has taken on a military dimension, with Washington blaming Tehran for attacks on ships, and Iran shooting down a U.S. drone. ordered air strikes in retaliation, only to abort them minutes before impact.

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Enriching uranium to a low level of 3.6% fissile material is the first step in a process that could eventually be used to produce the more highly enriched uranium that can be used to build a nuclear warhead. Iran has always denied it has any plans to build a weapon.

The nuclear deal imposes limits both on how much enriched uranium Iran can hold and on how pure those stocks can be. Zarif said Iran's next move would be to enrich uranium slightly beyond 3.6%, a threshold Tehran has previously said it would cross on July 7. That could be seen as a bigger breach.

European officials had held last-ditch talks with Iranian envoys last week in the hope of persuading them not to breach either threshold. Those talks failed, with the Iranians saying European efforts to shield Iran from the impact of U.S. sanctions were insufficient.

IRAN SHUNNED

The Europeans say they want to help Iran boost its economy. But so far those efforts have failed, with Iran largely shunned on oil markets and major foreign companies having cancelled plans to invest for fear of falling foul of U.S. rules.

The confrontation has put the United States in the position of demanding that the Europeans ensure Iranian compliance with an agreement that Washington itself has rejected.

argues that the deal is too weak because some of its terms are not permanent, and because it does not cover non-nuclear issues such as Iran's missile programme and regional behaviour. Washington says sanctions are aimed at pushing Tehran back to the negotiating table. Iran says it cannot talk as long as Washington is ignoring the deal that it signed.

Israel, which considers the Iranian nuclear programme an existential threat, has backed 's hard line, as have U.S. allies among the rich Arab states of the Gulf, which consider Iran a foe and benefit from having its oil kept off markets.

"Just imagine what will happen if the material stockpiled by the Iranians becomes fissionable, at military enrichment grade, and then an actual bomb," Joseph Cohen, head of Israel's Mossad intelligence agency, told a security conference. "The Middle East, and then the entire world, will be a different place. Therefore, the world must not allow this to happen."

The chairman of the Iranian parliament's National Security and Foreign Policy commission said on Monday that Israel would be destroyed in half an hour if the United States attacks Iran, according to the semi-official Mehr news agency. (Additional reporting by Babak Dehghanpisheh in Geneva, Jeffrey Heller in Jerusale, John Irish in Paris; Writing by Parisa Hafezi, Babak Deghanpisheh and Peter Graff; Editing by Kevin Liffey)

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