The U.N. nuclear watchdog says Iran has obtained enough sensitive material and expertise that it could build a nuclear weapon relatively quickly if it wanted to. The new evidence reinforces Western suspicions that Tehran's nuclear ambitions are not peaceful as it has long claimed.
Iranian President Mahmoud Ahmadinejad has already dismissed the International Atomic Energy Agency's report, released on Tuesday.
"The IAEA is just publishing reports provided by American officials," he said.
The report suggests that Iran has the materials and the knowhow to produce a nuclear warhead in a matter of months.
Anthony Cordesman, of the Center for Strategic and International Studies in Washington, says Iran is dispersing the materials and has unidentified underground facilities.
"Now all of this confronts everyone with the question: 'How long do you go on negotiating? At what point do you actually say the military option has to be used or we have to decide to let them have a nuclear device?,'" Cordesman said.
Israel has long seen Iran's nuclear program as a mortal threat. Reports last week said that Israel is considering a preemptive strike. The U.S. has also not ruled out military action.
Israel's 1981 strike against Iraq's Osirek reactor is believed to have crippled Saddam Hussein's nuclear program.
But Cordesman says Israel knows attacking Iran would be much riskier.
"It has to believe that its current exercises and tests would actually allow it to hit Iran's key facilities, to destroy the underground and sheltered facilities, to locate all of the enriched material, to stop the centrifuge effort long enough to have real meaning," Cordesman said.
Peter Crail of the Arms Control Association in Washington says having nuclear capabilities would make Iran more assertive in the region. "Essentially that it may be able to more freely use Hezbollah or other proxies to attack Israel or countries that it has difficult relations with without fearing that it risks an attack itself," Crail said.
Crail concedes that sanctions against Iran have had limited success. But he says the IAEA report will harm Iran's international standing.
"Whereas Iran prides itself on being a leader of the developing world, on the nuclear issue it champions itself as being - it's only working to preserve the rights to peaceful energy and there are a lot of developing countries that have bought into that," Crail said.
But he says if major developing countries can be persuaded to isolate Iran, then its leaders will think twice about actually producing a nuclear weapon.