By Jonathan Marcus
BBC diplomatic correspondent
It looks increasingly clear that traces of enriched uranium found by IAEA inspectors on centrifuge parts in Iran were contamination from their supplier.
Iran says its nuclear programme is for purely peaceful purposes
The parts were purchased second-hand from Pakistan.
This news destroys what might have been a powerful line of evidence suggesting Iran was pressing ahead with a secret uranium enrichment programme.
So where do these latest revelations leave US and European efforts to halt Iran's enrichment activities?
Western governments hoped the traces of highly enriched uranium found in Iran would be positive proof that the Iranians had already embarked upon a secret enrichment programme.
While the full details of the scientific investigation have not been made public, all the indications are that this material was already on the centrifuge parts when they were imported from Pakistan.
NUCLEAR FUEL CYCLE
Mined uranium ore is purified and reconstituted into solid form known as yellowcake
Yellowcake is converted into a gas by heating it to about 64C (147F)
Gas is fed through centrifuges, where its isotopes separate and process is repeated until uranium is enriched
Low-level enriched uranium is used for nuclear fuel
Highly enriched uranium can be used in nuclear weapons
Iran has seized on the news as justification of its denials that it was up to no good.
Western diplomats have been thrown into some disarray - the news greatly complicating their efforts to persuade Iran to give up its enrichment activities altogether.
The next round of planned talks between the Europeans and Iran that were to have taken place at the end of this month have been abandoned.
A Foreign Office spokesman in London noted that "there is no basis for negotiations until Iran responds to the IAEA board's last resolution".
The resolution urged the country to halt its recently resumed uranium conversion activities - a process that provides the seed material for enrichment.
No smoking gun
Iran shows no sign of complying with the IAEA's demand.
IAEA head, Mohammed ElBaradei, will receive the full scientific report on Iran's activities early next month.
A further board meeting will be held once the findings have been digested.
But the absence of any "smoking gun" may make it much harder to convince the board's members to refer the matter to the UN Security Council.
That said, the board may well urge Iran to do more to explain some of its past nuclear activities and some may want to give it more time to do so, thereby delaying a full-scale crisis.