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ran has begun enriching uranium deep inside a mountain and sentenced an American to death for spying, angering the West and undermining hopes that diplomacy could avert further sanctions or war.

The start of enrichment at the Fordow bunker near the Shiite Muslim holy city of Qom was confirmed on Monday by an Iranian official in Tehran and by the Vienna-based International Atomic Energy Agency.

Iran says its nuclear program is purely non-military but the West believes it is designed to produce nuclear weapons.

The Islamic Republic’s decision to carry out enrichment work deep underground could eventually make it much harder for US or Israeli forces to bomb, narrowing the time window for diplomacy to avert any potential attack.

The US State Department called uranium enrichment at Fordow a “further escalation” of Iran’s “ongoing violations” of UN resolutions.

The European Union is expected to bring forward a meeting of foreign ministers due to decide on an oil embargo on Iran by one week to Jan. 23. France called for measures of “unprecedented scale and severity” against Tehran. Germany and Britain also condemned it.

The death sentence for Amir Mirza Hekmati, 28, an Arizona-born former U.S. military translator with dual nationality, further riled Washington, which denies he is a spy and has demanded his immediate release since his arrest.

The two moves come at a time when new US sanctions imposed over Iran’s nuclear program are causing real economic pain. Tehran has responded with threats to international shipping that have frightened oil markets. A parliamentary election in two months is widening Iran’s internal political divisions.

Iran’s President Mahmoud Ahmadinejad and Venezuela’s Hugo Chavez mocked US disapproval and joked about having an atom bomb.

“Despite those arrogant people who do not wish us to be together, we will unite forever,” the Iranian leader told Chavez during a visit to Caracas.

“That hill will open up and a big atomic bomb will come out,” Chavez said of a grassy knoll near his palace.

On New Year’s Eve, US President Barack Obama signed into law by far the toughest financial sanctions yet against Iran, which if fully implemented could make it impossible for most countries to pay for Iranian oil. The EU, which still buys a fifth of Iran’s 2.6 million barrels per day of exports, is expected to announce an embargo this month.

Nuclear talks collapsed a year ago between Iran and the five permanent UN Security Council members plus Germany, known as the P5+1 group. Efforts to restart them have foundered over Iran’s refusal to negotiate over its right to enrich uranium.

The United States and Israel say they are leaving the military option on the table in case it becomes the only way to prevent Iran from making a nuclear weapon.

Hekmati’s case is thought to be the first in which Tehran has passed a death sentence on a US citizen for spying. His family says he was arrested last August while visiting grandparents in Iran.

Iran has aired a televised confession — denounced by Washington — in which Hekmati said he worked for a New York-based video company designing games to manipulate public opinion in the Middle East on behalf of US intelligence.