By Yeganeh Torbati and Lesley Wroughton
GENEVA (Reuters) - U.S. Secretary of State John Kerry said on Friday important gaps needed to be bridged in high-stakes talks with Iran on curbing its nuclear program and he began talks with Tehran's foreign minister to try to clinch an interim deal.
"I want to emphasize there is not an agreement at this point," Kerry said shortly after arriving in Geneva, tempering expectations of an imminent breakthrough that could reduce the risk of a Middle East war over Iran's nuclear aspirations.
"We hope to try to narrow these differences but I don't think anybody should mistake there are some important gaps that have to be closed," he told reporters.
Iran spelled out a major difference soon afterwards, with a member of its negotiating team, Majid Takt-Ravanchi, telling Mehr news agency that oil and banking sanctions imposed on Tehran should be eased during the first phase of any deal.
The powers have offered Iran access to up to $50 billion in Iranian funds frozen abroad for many years but ruled out any broad dilution of sanctions in the early going of an agreement.
Midway through the second round of negotiations since Iran elected a moderate president who opened doors to a peaceful solution to the nuclear dispute, Kerry joined fellow big power foreign ministers in Geneva to help cement a preliminary accord, with Israel warning they were making an epic mistake.
Diplomats said a breakthrough remained uncertain and would in any case mark only the first step in a long, complex process towards a permanent resolution of international concerns that Iran may be seeking the means to build nuclear bombs.
But they said the arrival of Kerry, British Foreign Secretary William Hague and French and German foreign ministers Laurent Fabius and Guido Westerwelle signaled that the five permanent U.N. Security Council members and Germany may be closer to an elusive pact with Iran than ever before.
Russian Foreign Minister Sergei Lavrov will join the talks on Saturday, diplomats said, signaling the November 7-8 timetable for the talks will be extended into a third day.
Lavrov's deputy was quoted by state-run RIA news agency as saying the sides were loath to leave Geneva "without a positive result (since to do so) would be a serious strategic mistake".
"There are many issues affecting the deep-seated interests of several countries. That is why the level (of the talks) is becoming ministerial. We hope that tomorrow we can achieve a result that will be long-lasting and that the whole world is waiting for," Sergei Ryabkov, Russia's main negotiator, said.
ISRAEL REJECTS MOOTED DEAL
Kerry, who postponed trips to Algeria and Morocco to come to Switzerland, began a trilateral meeting late on Friday with Iranian Foreign Minister Mohammad Javad Zarif and European Union foreign policy chief Catherine Ashton.
A senior U.S. State Department official said Kerry was committed to doing "anything he can" to overcome the chasm with the Islamic Republic. The powers aim to cap Iran's nuclear work to prevent any advance towards a nuclear weapons capability.
The top U.S. diplomat arrived from Tel Aviv where he met Israeli Prime Minister Benjamin Netanyahu, who regards Iran's atomic aspirations as a menace to the Jewish state.
Netanyahu warned Kerry and his European counterparts that Iran would be getting "the deal of the century" if they carried out proposals to grant Tehran limited, temporary relief from sanctions in exchange for a partial suspension of, and pledge not to expand, its enrichment of uranium for nuclear fuel.
"Israel utterly rejects it and what I am saying is shared by many in the region, whether or not they express that publicly," Netanyahu told reporters.
"Israel is not obliged by this agreement and Israel will do everything it needs to do to defend itself and the security of its people," he said before meeting Kerry in Jerusalem.
The White House responded by saying it was "premature" To criticize what was being deliberated in Geneva.
"There is no deal, but there is an opportunity here for a possible diplomatic solution, and that is exactly what we are pursuing," said Josh Earnest, deputy White House spokesman. "So any critique of the deal is premature."
Israel is not the only Middle East country fretting about Iran's nuclear ambitions. Saudi Arabia, Iran's chief rival for regional influence, has made clear to Washington that it does not like the signs of a possible U.S.-Iran rapprochement.
Israel has repeatedly suggested that it might strike Iran if it did not shelve its entire nuclear program and warned against allowing it to maintain what Israel sees as a nascent atomic bomb capability. Iran says its nuclear activities are geared only to civilian needs and has refused to suspend them.
The fact that a deal may finally be feasible after a decade of rhetorical feuding rather than genuine negotiations between Iran and the West highlighted a striking shift in the tone of Tehran's foreign policy since the election in June of Hassan Rouhani, a pragmatic former nuclear negotiator, as president.
In Iran, Iranian clerics voiced important support for the Iranian negotiating team. The Friday prayer leader in the town of Meshgin, Gholamreza Baveqar, was quoted by Fars news agency as saying that "the nuclear negotiators are sons of this nation and the Supreme Leader (Ali Khamenei) supports them."
Earlier this week Khamenei accorded crucial backing to Rouhani's negotiating track with the West, warning hardliners not to accuse him of capitulating to old enemy America.
SEQUENCING OF DEAL IN DISPUTE
The negotiations in Geneva involve Iran and the permanent members of the U.N. Security Council - the United States, Russia, China, France and Britain - plus Germany. While Iran has in the past suggested broadening the agenda to include issues like Afghanistan, Iraq or Syria, the six powers have insisted on sticking to Tehran's nuclear activity.
The Islamic Republic, which harbors some of the world's largest oil and gas reserves, wants the six powers to lift increasingly tough restrictions that have slashed its daily crude sales revenue by 60 percent in the last two years.
Iran and the powers are discussing a partial nuclear suspension deal covering around half a year. If a preliminary deal is nailed down, it would only be the first stage in a process involving many rounds of intricate negotiations in the next few months aimed at securing a permanent agreement.
One main idea under consideration is the disbursement in installments of up to around $50 billion of Iranian funds blocked in foreign accounts for decades. Another gesture would entail temporarily relaxing restrictions on metals trade.
A further gesture could be Washington suspending pressure on countries not to buy Iranian oil. Diplomats say that such a move by Washington could be immediate and easily reversible if Iran failed to meet its obligations under a deal.
Negotiators have limited political room to maneuver as conservatives in Tehran and in Washington could denounce any agreement they believed went too far and seek to undermine it.
One Western diplomat told Reuters that Israel's fury at the proposed deal might actually make it easier for Rouhani to sell the interim deal to skeptics in Iran's powerful security and clerical elites who are wary of U.S. overtures to Tehran 33 years after Washington broke off diplomatic relations.
Tehran wants respite from a panoply of international sanctions choking its economy. The United States has said world powers will consider some sanctions relief, while leaving the complex web of U.S., EU and U.N. restrictions in place, if Iran takes verifiable steps to rein in its nuclear program.
Israel has argued against sanctions relief until Iran has scrapped its enrichment facilities. "The Iranians are walking around very satisfied in Geneva - as well they should be, because they got everything and paid nothing," Netanyahu said.
PHASED SANCTIONS RELIEF?
U.S. President Barack Obama said on Thursday that the world could slightly ease up on some sanctions against Iran in the early stages of negotiating a comprehensive permanent deal.
Lending urgency to the need for a breakthrough was a threat by the U.S. Congress to pursue tough new sanctions on Iran.
Obama has been urging Congress to hold off on more punitive steps to isolate Iran, demanded by Israel, to avoid undermining the delicate diplomatic opening with the Islamic Republic.
But many U.S. lawmakers, including several of Obama's fellow Democrats, believe tough sanctions forced Iran to the negotiating table in the first place and that more are needed to discourage it from diverting enrichment toward bomb-making.
Iran and the United States have had no diplomatic relations since soon after the 1979 Islamic Revolution that overthrew the U.S.-backed monarchy. Their mutual mistrust and enmity may pose the most formidable obstacle to any nuclear settlement.
(Additional reporting by Justyna Pawlak, Fredrik Dahl and Louis Charbonneau in Geneva, Timothy Gardner in Washington, Marcus George in Dubai and Crispian Balmer in Jerusalem; Writing by Louis Charbonneau; Editing by Mark Heinrich)