Iran is nearing the ability to arm a nuclear warhead even if it insists its atomic activities are peaceful, the European Union warned Wednesday.

In comments prepared for delivery to the International Atomic Energy Agency's 35 board members, the EU also asserted that Iran appeared to have had a past nuclear arms program despite its denials.

The statement was made available to reporters as the meeting turned its attention on Iran's nuclear defiance on its third day. The main international concerns focus on the country's refusal to freeze uranium enrichment despite three U.N. Security Council sanctions and its blocking of IAEA attempts to follow up on intelligence suggesting it was developing a nuclear arms program until several years ago.

Iran insists its nuclear activities are geared only toward generating power. But Israel says the Islamic Republic could have enough nuclear material to make its first bomb within a year. The U.S. estimates Iran is at least two years away from that stage, and some experts say the country could reach that stage in as little as 6 months through uranium enrichment.

An IAEA report drawn up for Wednesday's meeting says Iran has increased the number of centrifuges used to process uranium to nearly 4,000 from 3,000 just a few months ago.

But David Albright, whose Washington-based Institute for Science and International Security closely tracks suspect secret proliferators, has also been able to extrapolate other information from the report that is less obvious but of at least equal concern.

Iran, he says, has managed to iron out most of the bugs in the intensely complicated process of enrichment that often saw the centrifuges breaking down. The machines, he says "now appear to be running at approximately 85 percent of their stated target capacity, a significant increase over previous rates."

That, he says means, they can produce more enriched uranium faster. And while the IAEA says the machines have spewed out only low-enriched material suitable solely for nuclear fuel, producing enough of that can make it easy to "break out" quickly by reprocessing it to weapons-grade uranium.

To date, Iran has produced nearly 1,000 pounds of low-enriched uranium, said the report - close to what Albright says is the 1,500-pound minimum needed to produce the 45-60 pounds needed for a simple nuclear bomb under optimal conditions.

And with Iran's centrifuges running ever more smoothly, it "is progressing toward this capability and can be expected to reach it in six months to two years," says Albright.

Touching on such fears, the statement by the 27-nation EU said that Iran's defiance of Security Council demands on enrichment is troubling "because it brings us closer to the moment where Iran will have fissile materials for a weapon, if it chose to increase their degree of enrichment."

It also cast serious doubt on Iranian assertions that it never embarked on studies geared toward making nuclear weapons.

While the evidence "remains to be verified, the IAEA's exhaustive and detailed" information, "leads one to think that the Iran has methodically pursued a program aimed at acquiring the nuclear bomb," the statement said.

In a statement, Iran's mission to the IAEA again denied wrongdoing and suggested the pressure was part of a U.S. witchhunt.

The Islamic Republic "has repeatedly declared that there is not and has not been any undeclared nuclear activities and material in Iran," it said, denouncing the "fabricated and baseless allegations ... produced by the United States."

An IAEA report circulated to the board members Monday that faulted Iran for blocking efforts to further investigate the alleged weapons program.

Part of the report touched on what appeared to be drawings and calculations by Iranian engineers on reconfiguring its Shahab-3 missile to be able to carry a nuclear payload. Iranian officials say the missile has a range of 1,250 miles - enabling a strike on Israel and most of the Middle East.

Gregory L. Schulte, Washington's chief IAEA delegate, noted that - beyond dismissing the allegations - Iran "refuses to provide credible explanations to support its claims that all of this information ... is pure forgery and fabrication."

And his German counterpart, Ruediger Luedeking, said that "if Iran is not pursuing a military nuclear program it should have no difficulty in cooperating with the agency.

"Iran needs to explain why its military is so deeply involved in its nuclear program," he said.

Officials of a Christian university say a life-size effigy of Democratic presidential candidate Barack Obama was hung from a tree on the campus.

George Fox University President Robin Baker says a custodian discovered the cardboard cutout of Obama early Tuesday at the Oregon school and removed it.

The effigy was accompanied by a message targeting participants of a minority student scholarship program called Act Six.

It read, "Act Six reject."

Baker says he met with the students in the Act Six program, who receive full scholarships, late Tuesday and plans to address the school's student body Wednesday.

Democrats typically skip right over reliably Republican Indiana when plotting presidential campaign strategy.

Not Barack Obama.

The candidate from next-door Illinois is bidding to flip the state into the Democratic column this year.

To that end, he is doing what no presidential candidate has done in decades - spending significant amounts of money and time in the state, while Republican John McCain maintains a low profile.

Obama narrowly lost the May primary here to Hillary Rodham Clinton. And in the process, he had "the opportunity to at least define himself with Hoosier voters and that has lingered," said Kip Tew, a former state Democratic chairman who is a volunteer adviser to the Obama campaign. "They competed with a ground game that no one's ever seen in the state."

Indiana, with 11 electoral votes, is one of only a handful of states where Obama's advertising has been unanswered by McCain. The Democrat has 32 offices across the state and dozens of paid staffers. His campaign spent about $6 million on television advertising in Indiana leading up to the May primary and has aired at least $1.5 million in TV ads since June.

Obama has made five stops in the state since mid-July, and running mate Joe Biden was returning to the state Wednesday.

The McCain campaign, by contrast, is nearly invisible. It has no field offices or paid staffers working full-time in the state, and McCain hasn't visited the state since July 1. Republicans were expected to respond to Obama's ad presence in the state with ads of their own later this week.

Both candidates know history is not on Obama's side: For more than a generation, Indiana has been colored in for the GOP nominee soon after polls start closing. George W. Bush won with 60 percent in 2004 and 57 percent in 2000, and the state last went Democratic in the 1964 Lyndon Johnson landslide.

But Jessie Bochert, 45, who runs a business preparing houses for sale from her home in Granger, shows why Obama thinks he may have an opening in the state. Bochert, who voted for Bush in 2000 and 2004, initially supported McCain but switched to Obama and began volunteering for his campaign.

"I feel guilty for all that has happened" under Bush, she said. "There are so many people I talk to, they can't afford their prescriptions, they don't know what to pay, they can't afford anything. It's really the economy, and that's what it's coming down to."

Republican Tim Surber said he believes McCain appeals to Indiana voters because of his military background and his push for more offshore oil drilling. Surber, 49, who runs a computer consulting office in Indianapolis, thinks McCain got a big boost among Indiana conservatives when he chose Alaska Gov. Sarah Palin as his running mate.

Still, he worries about the McCain campaign's low-key approach.

"I know they feel like it's a state they're going to win," he said. "I really wish Palin would come in, I wish McCain would come in. ... They need to at least let us know that they know we're out here."

Public polls taken this month show the two candidates running about even or McCain slightly ahead.

Republicans say the numbers reflect the state's conservative-leaning voters and validate their approach, which involves working through state and county-level organizations to build support for McCain.

"Given the millions of dollars and months of staff time that Senator Obama has spent here, you question whether or not he ought to be doing a little better," said Luke Messer, the co-chairman of McCain's Indiana campaign and a former state GOP executive director. "They were polling in May at 43, 44 percent and that's essentially where they remain."

But Democrats are buoyed by how close the race is. They note that three incumbent Republican congressmen lost re-election bids two years ago, and say the state's struggling economy makes voters more receptive to Obama. The state's unemployment rate hit 6.4 percent in August, up nearly 2 percentage points from a year earlier.

An increase of more than 425,000 new voter registrations since the 2006 election, and Obama's name recognition in northwestern Indiana, a heavily Democratic area where more than 10 percent of the state's voters see Chicago TV stations, also could help.

But to win Indiana, Obama also must consolidate the support of Democrats in rural areas and the blue-collar factory towns that strongly backed Clinton in May.

Messer, the McCain campaign's state leader, said Obama faces an uphill fight in many parts of the state where Republicans are well organized. Several Obama campaign offices are in counties where most Republicans are unopposed in local races on the election ballot. No Democrat other than Sen. Evan Bayh has won a statewide race since 2000.

"We're more interested in winning an election than putting on a show," Messer said.

Tew, the Obama adviser, said it would take a significant strategy shift for McCain to more actively campaign in the state.

"If they start to compete in Indiana then it's an admission that there's another state in play that they didn't think was ever going to be in play," Tew said. "If they don't compete in Indiana, then they're in danger of losing it. So they're in a box."