By Michael Shields VIENNA, May 29 (Reuters) - The U.N. nuclear watchdog said on Friday it had made incremental progress but no breakthrough in its inquiry into whether Iran may have researched an atom bomb, a sobering message that may dim chances for a deal between Tehran and big powers next month. Diplomats view Iran's reluctance to open up to investigators from the International Atomic Energy Agency as a sign of its reluctance to cooperate fully until punitive sanctions imposed on it are lifted as part of any settlement with the powers. A confidential, quarterly report issued by the IAEA said the Islamic Republic had provided some information about one of two open items in the investigation into possible military dimensions to its nuclear energy program "The Agency and Iran agreed to continue the dialog on these practical measures and to meet again in the near future," said the report, which was obtained by Reuters. A diplomat familiar with the IAEA's update played down the development.

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