The International Atomic Energy Agency, the Vienna-based UN nuclear watchdog, by letting it slip through anonymous "Western diplomatic sources" earlier this month that it is "investigating undeclared nuclear work in Egypt" that may have been linked to an atomic weapons programme, has unleashed a new storm over covert proliferation in West Asia, easily the world's most volatile region today.

Initial reports quoted an unnamed diplomat as saying that Egypt "tried to produce various components of uranium" without declaring it to the IAEA, as that country is bound to do under the Nuclear Non-Proliferation Treaty (NPT) which it signed in 1981.

Most of the undeclared work was carried out in the 1980s and 1990s, but the IAEA is also examining "evidence that suggests some work was performed as recently as a year ago".

But coming as this does in the wake of the US upping its ante on Iran's nuclear programme, the implications of the IAEA's revelation are at once both profound and unsettling, not least because subsequent reports have mentioned a possible linkage between Pakistan's rogue nuclear scientist A.Q. Khan and what is being described as Egypt's basement nuclear operation.

The IAEA, according to the diplomats, seems to have evidence that Egypt has been conducting experiments to produce different uranium components - several pounds of uranium metal and uranium tetrafluoride, a precursor to uranium hexafluoride gas.

Uranium metal can be processed into plutonium while uranium hexafluoride can be enriched into weapons-grade uranium - both for use in the core of nuclear warheads.

Egypt has responded with furious denials issued by Prime Minister Ahmed Nazif and Foreign Minister Ahmed Aboul Gheit.

President Hosni Mubarak's spokesman, who rarely speaks on contentious issues unless it is important enough to require a presidential comment, too has chipped in with a statement.

The Egyptians insist there has been no violation of the NPT and that Egypt has a declared nuclear programme for peaceful purposes, including medical and desalination projects.

The IAEA's disconcert is fuelled mainly by the fact that Egypt, which had an active nuclear weapons programme during 1954-67 but later opted for the NPT, has failed to disclose details of its experiments.

Egypt is believed to have two nuclear reactors and signed an agreement with Russia in 2001 for "scientific and technical cooperation in the peaceful use of atomic energy according to Egypt's national nuclear needs and priorities".

Egypt insists that IAEA officials regularly inspect its nuclear facilities and there is no covert element in its programme. While this is true, it does not automatically rule out the possibility of covert experiments at undisclosed locations with secretly procured technology.

The strategic importance of this possibility is underscored by the fact that Egypt straddles both West Asia and North Africa and has unshared control over the Suez Canal.

The US, for whom Egypt is a key ally in West Asia, has sought to downplay the reports out of Vienna.

A US State Department spokesman, asked to comment on American concerns, merely said: "At this point, we would defer to the IAEA to present the evidence that it has. I'm not in a position to talk about what indications we may or may not have.

"In our experience, Egypt has been a responsible member of the NPT and has an active safeguards agreement with the IAEA, and that's our view of the situation."

This has prompted strategic experts to wonder whether the US is scampering to suppress uncomfortable facts - either because of its close strategic relationship with Egypt or because the latest revelations could lead to further embarrassing disclosures about A.Q. Khan's nuclear black marketing that has inexplicably gone unpunished by America, if not both. 

Iran has been covertly working for the past two decades and was able to develop a full-fledged uranium enrichment programme with the help of know-how clandestinely provided by A.Q. Khan.

The details of Iran's programme emerged in 2002, the role played by A.Q. Khan became public as late as in 2004. For the record, Iran claims that it "plans to enrich only to the levels that are used to generate nuclear fuel and not to weapons-grade uranium".

It is now an established fact that A.Q. Khan was involved in an elaborate black market racket spanning countries and continents, peddling nuclear weapons know-how to Iran, Libya and North Korea.

Libya, as part of its makeover to rid itself of the image of a rogue state and sponsor of terrorism, has dismantled its nuclear programme and provided crucial information on A.Q. Khan's profiteering.

Information provided by Libya and subsequent investigations carried out by US intelligence agencies have come up with an interesting list of countries that A.Q. Khan visited before his nuclear racketeering was exposed: Afghanistan, Egypt, Iran, Ivory Coast, Kazakhstan, Kenya, Mali, Mauritania, Morocco, Niger, Nigeria, North Korea, Saudi Arabia, Senegal, Sudan, Syria, Tunisia and the United Arab Emirates.

It is known that A.Q. Khan visited Egypt several times, but the purpose of his trips remains shrouded in mystery though some American newspapers, on the strength of leaks from intelligence agencies, have alleged he was doing in Egypt what he did in North Korea, Iran and Libya.

In the past, there have been reports of Egyptian collaboration with North Korea and Iraq on missiles projects.

Ephraim Halevy, the former chief of Mossad who is now an adviser to the Israeli government, said in a recent interview that Syria, Saudi Arabia and Egypt may have acquired nuclear parts from A.Q. Khan and that one of these countries now has the potential to achieve a significant nuclear leap.

By not naming the country, he has strengthened the speculation over the true nature of Egypt's nuclear programme.

What has added to speculation in strategic circles over Egypt's intentions is the fact that despite signing the NPT, it has never unambiguously denounced or repudiated nuclear weapons.

This is partly because of Israel's presumed status as a nuclear weapons state and largely because Egypt does not wish to be seen in the Arab region as having foreclosed its nuclear option at the behest of the USA.

That would have been perceived as Cairo succumbing to Washington's diktat for its $2 billion annual aid.

Therefore, Egypt has not shied away from declaring on more than one occasion that Arabs have the right to acquire nuclear weapons to defend themselves from Israeli weapons of mass destruction.

This line has been actively promoted by Egyptian strategic experts and has struck a chord with Arab Islamists at home and abroad. A clever ploy, some would say, to keep the bitterly divided Arabs from turning on Egypt for its proximity to the US.

Soon after the IAEA revelation through media reports, an influential, conservative Washington newspaper was prompt to point out that at "a 1989 Chemical Weapons Conference in Paris...Egypt said these weapons were necessary to counterbalance Israeli nukes.

"In October 1998, President Hosni Mubarak said that Egypt reserved the right to acquire nuclear weapons."

Ever since the Arab Republic of Egypt, as the official name goes, and Israel signed a peace treaty in 1979, peace between the two countries has survived several blows: in the worst of times, relations have been chilly but neither has posed an overt military threat to the other.

Right now, President Mubarak and Prime Minister Ariel Sharon are working in tandem to ensure a smooth Israeli pullout from the Gaza Strip and to initiate tentative steps towards peace between Israel and Palestine.

So while it may be useful for Egypt to describe Israel as the agent provocateur for its secret nuclear arsenal and thus retain its leadership of the Arab League, it does not hold up to reason.

If there is any grist to the IAEA's revelation and if Egypt has indeed been conducting experiments on the sly in the past couple of years, the reason lies east of Israel.

Egypt has never been comfortable with a post-Islamic revolution Iran. Diplomatic relations between the two countries are frozen and each tries to put down the other.

Shia-majority Iran feels little companionship with Sunni-majority Arab countries. And it sees Egypt's liberalism and democratic polity, flawed though it is, as a hindrance and obstacle to radical, political Islamism.

Egypt sees Khamenei's Iran as a troublemaker promoting subversion through political Islam.

More than Israel, therefore, it is Iran and its covert nuclear programme that worries the Arabs, especially Egypt. Iranian expansionist aspirations are bound to get a boost if its nuclear arsenal becomes a reality.

That's in the long-term. In the short-term, once Iraq's Shia majority gets political power, Iran would have made its first proxy incursion into Sunni Arabia.

Neither the long-term nor the short-term prospects of Iranian gains are comforting thoughts for Arabs who have long presided over the destiny of West Asia.

Meanwhile, a twist has been added to the tale from Vienna through a whispering campaign that the IAEA's director-general, Mohammed ElBaradei, an Egyptian, has been covering up Cairo's transgressions.

ElBaradei, whose professional integrity is known to be beyond reproach, is running for a third term, and his detractors would be happy to see him discredited by making some of the mud being slung stick on him.

(Kanchan Gupta, a current affairs analyst, did an assignment in Cairo during the previous Vajpayee administration . He can be reached at mail12kgupta@yahoo.co.in)