TEHRAN (Reuters) - Iran has started production of a new ground-to-air missile system, Iranian media reported on Saturday, amid persistent speculation that Israel might attack the Islamic Republics nuclear facilities. The range of this defence system (missile) is more than 40 km and it is able to pursue and hit the enemys airplanes and copters on a smart basis and at supersonic speed, Defence Minister Mostafa Mohammad Najjar said, without specifying how the missile compared to previous such weapons. Najjar was quoted by Irans Fars News Agency three days after Israel issued contradictory signals on whether it might bomb Iran, with its foreign minister saying there were no such plans and the defence minister saying all options were open. The missile announcement came less than a week before a June 12 presidential election, in which conservative President Mahmoud Ahmadinejad is facing a challenge from moderates advocating a detente in Tehrans international relations. Fars, a semi-official news agency, said production of the Shahin (hawk) missile defence system was one of the most important and complex projects undertaken by Irans defence industry after the countrys 1979 Islamic revolution. Irans Press TV said all parts of Shahin were produced in the country, which is under UN and US sanctions over its disputed nuclear programme. Meanwhile, Iran said on Saturday a new report from the United Nations nuclear watchdog showed Tehrans nuclear programme was peaceful, despite Western suspicions it is aimed at making atomic bombs. Fridays report said Iran had significantly expanded uranium enrichment with almost 5,000 centrifuges now operating and this had made it harder for UN inspectors to keep track of the disputed nuclear activity. The International Atomic Energy Agency (IAEA) report said Iran had increased its rate of production of low-enriched uranium (LEU), boosting its stockpile by 500 kg to 1,339 kg in the past six months. Irans improved efficiency in turning out potential nuclear fuel was sure to fan Western fears of the Islamic Republic nearing the ability to make atomic bombs, if it chose to do so. But Ali Ashgar Soltanieh, Irans ambassador to the IAEA, said the report made clear again there was no evidence of any diversion of nuclear materials or pursuit of military aims and also that the agency was able to carry out its supervisory work. This is in fact a clear and categorical document in demonstration of the peaceful nature of Irans nuclear activities, he said in remarks broadcast by state television. We will not suspend our nuclear activities and we will not, at the same time, suspend our cooperation with the agency, Soltanieh said. The latest IAEA report highlighted the challenges facing US President Barack Obama as he seeks to work towards reconciliation with Iran after three decades of mutual mistrust. Obama has set a rough timetable for negotiating results with Iran, saying he wanted serious progress by the end of the year. He has underlined that any US overtures will be accompanied by harsher sanctions if there is no cooperation. This (IAEA) report will increase Washingtons sense of urgency over the need to deal with this issue, said Cliff Kupchan of Eurasia, a risk consultancy. Kupchan said it could also help conservative President Mahmoud Ahmadinejad in his bid for a second four-year term in a June 12 election, in which he faces a challenge from moderates seeking a detente in Tehrans international relations. Voters ... are proud of Irans technological accomplishments; the Ahmadinejad camp will probably trumpet the agency report with gusto, he said in an e-mailed commentary.