VIENNA (Reuters) - A U.N. atomic watchdog report due on Friday is likely to confirm that Iran is curbing its nuclear activities as agreed with world powers in a landmark accord last year, diplomatic sources said.

The flag of the International Atomic Energy Agency (IAEA) flies in front of its headquarters during a board of governors meeting in Vienna November 28, 2013 file photo. REUTERS/Heinz-Peter Bader

They said the International Atomic Energy Agency (IAEA) would probably verify in a monthly update that Iran is living up to its part of the interim agreement struck in November, designed to buy time for talks on a long-term deal.

The update “will show continuing compliance,” one Western diplomat said on Thursday.

The report is also expected to include information about Iran’s agreement this week to address two issues in a long-stalled IAEA investigation into suspected atomic bomb research by Tehran, which denies any such work.

The undertaking could advance the research the IAEA is trying to carry out, and may also help Iran and six world powers to negotiate a broader deal to end a dispute that has raised fears of a new Middle East war.

But Western capitals, aware of past failures to get Iran to cooperate with the IAEA, are likely to remain sceptical until it has fully implemented the agreed steps and others to clear up allegations of illicit atomic work.

The IAEA-Iran talks are separate from those between Tehran and the six powers - United States, France, Germany, Britain, China and Russia. But they are complementary as both focus on fears that Iran may covertly be seeking the means and expertise to assemble nuclear weapons, which it denies.

U.S. officials say it is vital for Iran to address the IAEA’s concerns if Washington and five other powers are to reach a long-term nuclear accord with Iran by a self-imposed deadline of July 20. But the Islamic state’s repeated denials of any nuclear bomb aspirations will make it hard for it to admit to any wrongdoing in the past without losing face.

KEEPING “DIPLOMATIC PROCESS ALIVE”

Under last year’s deal - made possible by the June election of pragmatist Hassan Rouhani as Iranian president after years of increasingly tense relations with the West - Iran scaled back its most sensitive work in exchange for some sanctions easing.

Diplomats and experts say it will be much more difficult to agree the terms of a final deal, as Iran and the powers remain far apart on the permissible scope of its nuclear programme, especially regarding its uranium enrichment capacity.

U.S. and Iranian officials said little progress was made in the latest round of negotiations, which ended in Vienna on Friday. They will meet again in June as they step up their push to try to clinch a long-elusive agreement.

Rouhani said in Shanghai on Thursday that the talks had reached an important and tough juncture, but a deal was still possible by the July deadline.

Gary Samore, until last year the top nuclear proliferation expert on U.S. President Barack Obama’s national security staff, predicted it would be “very difficult” to achieve that goal.

But, he said in a speech, “both sides have a strong interest to keep the diplomatic process alive because neither wants to return to previous cycle of escalation of increased sanctions and increased nuclear activities with increased risk of war.”

The United States and its allies want Iran to reduce its uranium enrichment programme significantly to deny it the capability to produce an atomic bomb quickly. Iran has made it clear that it will resist such demands.

Refined uranium can be used to fuel nuclear power plants, which is Iran’s stated goal, but can also provide material for bombs if processed much further, which the West fears may be Tehran’s ultimate aim.