In a major concession towards Iran’s nuclear programme, the US on Friday gave its public backing to a proposal by Russia and the European Union that would allow the Islamic republic to develop part of the nuclear fuel cycle on its own territory.

The shift in US policy – revealed after talks between President George W. Bush and Vladimir Putin, the Russian leader – came despite a report from the UN nuclear watchdog that lent credence to US and European claims that Iran is trying, or once had ambitions, to develop nuclear weapons.