A few straight answers:
1. Iran IS enriching uranium. They have stated so publicly and have allowed UN inspectors to visit their facilities. They are using technology supplied to them by rouge scientists from Pakistan (the same people who supplied information to Lybia).
They are using a centrifuge process and have declared they have some 6000 centrifuges in operation.
According to published reports, the centrifuges are connected in such a way as to be capable of only low level enrichment (approximately 3%). Most of the centrifuges in service are a fairly old (P1) design
The main enrichment facility is an underground complex in Nataze. This is the plant that the UN has been allowed to inspect. Iran announced last year that they had been building a second smaller facility about 20 km from Qom. This plant is smaller than Nataze and has a capacity for about 3000 centrifuges. However, the centrifuges reportedly being installed are of the more advanced P2 model
2. Iran has been enriching uranium for several years. They currently have a reported stockpile of over 1000 tons of 3% enriched uranium hexafluoride gas.
3. Iran recently rejected a proposed deal where they would swap their stockpile of 3% enrichment material for 20% enriched fuel rods for their medical research reactor.
The rods would have powered their research reactor, but would be nearly impossible to convert to weapons grade material.
After rejecting the proposal, Iran announced they were changing the configuration of some of their centrifuges (or binging the new plant on line) in order to enrich some amount of their stockpile to 20%. They announced on Feb 11 that this process was underway.
4. What does all this mean?
The Iranians have an operating enrichment system. By changing the configuration of the centrifuge cascades, they can enrich uranium to whatever level they wish. The higher the purity they desire, the longer the process takes (or the more centrifuges are required). But no new science need be done. The enrichment process is the same.
5. Should we be scared?
Not Yet. The Iranians have often made statements that were later proven to be false, misleading, or just plain wrong. There have been many reports that the program is not going all that well, that there have been many breakdowns and failures, and that they have not achieved as much as they claim. But verification has been very slow and spotty. There are as many guesses out there as there are hard facts.
6. What can happen if Iran gets Bomb Grade material?
Given the current accepted numbers for the Iranian stockpile, they have enough feed stock to create 1 or 2 Hiroshima type weapons. It is not believed that Iran has enough raw uranium ore to make more than that. They have been trying to purchase more from outside the country, but have not had any luck so far.
A Hiroshima type weapon will do Iran no good at all. They do not have any aircraft that could carry such a device and still penetrate the airspace of a target such as Israel. The device would take a shipping container to transport, making it hard to smuggle into a target. It is obviously too large to be carried by any missile that they have.
The most likely use for the material would be to create a man portable atomic weapon. The United States created several such devices. The W54, the warhead for the Davy Crockett and the Genie missile, weighed in at just over 50 lbs.
So the bad news is that the threat of a terrorist nuke has a basis in fact.
But the good news is that it took the United States nearly 20 years using a budget the Iranians can only dream about, (and several failed tests which used up more bomb grade uranium that the Iranians can make) to produce a weapon that small. The physics behind shrinking a weapon down to that size are difficult, and not foolproof. The techniques for creating the weapon are still well guarded secrets and are unlikely to be recreated.without live tests. Replicating that science and technology will be a major challenge for Iran. I would not expect to see them produce a "backpack nuke" anytime soon.
7. So what will they do?
For now they seem hell bent on mortgaging their county's future and neglecting their people and their infrastructure as they chase the nuclear genie and the power they believe it brings. As they chase their genie, they will blather and bluster and see if they can scare the pants off the other states in the Middle East, because like all bullies, they are cowards at heart.