VIENNA - Iran has sharply cut its most sensitive nuclear stockpile under an interim pact with world powers and has begun engaging with a long-stalled IAEA investigation into suspected weapons research, the UN nuclear agency said on Friday.The findings, in a quarterly report by the International Atomic Energy Agency, are likely to be welcomed by the six powers trying to negotiate a long-term deal with Iran on ending a decade-old dispute over its nuclear program that has raised fears of a new war in the Middle East.Iran rejects Western allegations that it has been trying to develop the capability to build nuclear weapons. But it has offered to work with the IAEA to resolve its concerns after pragmatist President Hassan Rouhani won office last year on a platform to end the Islamic Republic's isolation.The IAEA, which has a pivotal role in verifying that Iran is living up to its part of the six-month accord reached in November, made clear that Iran so far is undertaking the agreed steps to curb its nuclear program.Under the breakthrough agreement that took effect on Jan. 20, Iran halted some aspects of its nuclear program in exchange for a limited easing of international sanctions that have laid low the major oil producer's economy. It was designed to buy time for talks on a final deal that began in February.The IAEA report showed that Iran since January had acted to reduce its stockpile of higher-grade enriched uranium gas - a relatively short technical step away from weapons-grade material - by more than 80 percent.The amount that remains after most of the material was either converted or diluted to less proliferation-prone forms - less than 40 kg - is far below the 250 kg which experts say is needed for one nuclear bomb.On another closely watched aspect of Iran's nuclear program, the IAEA report said Iran at a meeting in Tehran this week had shown the UN agency information that a fast-functioning detonator was tested for a civilian application.The IAEA, which for years has been trying to investigate allegations that Iran may have worked on designing a nuclear bomb, had asked Tehran for explanations about the so-called Exploding Bridge Wire (EBW) detonators as part of its probe.IRAN'S COOPERATION WITH PROBE "IMPROVING" How Iran responds to the UN agency's questions is seen as an important test of its willingness to cooperate fully with the investigation of concerns about nuclear weapons-related work."This is the first time that Iran has engaged in a technical exchange with the agency on this or any other of the outstanding issues related to possible military dimensions to Iran's nuclear program since 2008," the report said."The agency's assessment of the information provided by Iran is ongoing." Iran agreed at this week's meeting in the Iranian capital to address two other issues that are part of the IAEA's investigation by late August, a potentially important step forward for the agency's efforts to look into the allegations.A senior diplomat familiar with the Iran file said its cooperation "has been improving all the time".Western diplomats and experts caution that Iran must still do more to fully address suspicions about what the IAEA calls the possible military dimensions of its nuclear program.Iran's discussions with the IAEA are separate from its talks with the powers, but both are aimed at ensuring that it does not develop nuclear weapons. The United States and Israel, itself believed to be nuclear-armed, have not ruled out military action against Iran if diplomacy fails to resolve the standoff.After years of confrontation with the West under Rouhani's hardline predecessor, Mahmoud Ahmadinejad, Iran and the powers aim to reach a final agreement by July 20.But the latest round of negotiations failed to make much headway last week, raising doubts over the prospects for a breakthrough by late July. The powers want Iran to sharply scale back its nuclear program, but Iran resists that demand.