By Lesley Wroughton and Fredrik Dahl
GENEVA, Nov 8 (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 would meet Tehran's foreign minister shortly 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 rising anticipation of a breakthrough that would 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.
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 signalled that the five permanent U.N. Security Council members and Germany may be closer to an elusive pact with Iran than ever before.
Kerry was expected to hold a trilateral meeting with European Union foreign policy chief Catherine Ashton and Iranian Foreign Minister Mohammad Javad Zarif.
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.
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 an accord may finally be feasible after a decade of rhetorical feuding and hostility rather than genuine negotiations between Iran and the West highlighted a striking shift in Tehran's foreign policy since the election in June of 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 caving in to old enemy America.
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 of the main ideas under consideration is the disbursement in instalments of up to around $50 billion of Iranian funds frozen in foreign accounts for many years. Other ideas included temporarily relaxing restrictions on Iran's trade in petrochemicals and precious metals.
Both sides have limited room to manoeuvre, as hardliners in Tehran and in Washington could sharply criticise any agreement they believed went too far in offering concessions.
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 sceptics 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.
Ashton's spokesman Michael Mann told reporters that there was no deal yet and "very intense work is continuing."
France's Laurent Fabius, the first of the Western foreign ministers to arrive in Geneva, said the talks were difficult. "There is progress, but nothing is concluded yet," he said.
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 dismantled 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 sanctions against Iran in the early stages of negotiating a comprehensive permanent deal.
"There is the possibility of a phased agreement in which the first phase would be us ... halting any advances on their nuclear program ... and putting in place a way where we can provide them some very modest relief, but keeping the sanctions architecture in place," he said in an interview with NBC News.
Kerry said earlier that Tehran would need to prove its atomic activities were peaceful, and that Washington would not make a "bad deal, that leaves any of our friends or ourselves exposed to a nuclear weapons program".
"We're asking them to step up and provide a complete freeze over where they are today," he said on Thursday.
In Geneva, Iranian Deputy Foreign Minister Abbas Araqchi was cautious on the chances of an accord. "Too soon to say," he told reporters on Thursday after the first day of talks. "I'm a bit optimistic. We are still working. We are in a very sensitive phase. We are engaged in real negotiations."
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 fragile diplomatic opening with the Islamic Republic.
But many U.S. lawmakers, including several of Obama's fellow Democrats, believe tough sanctions brought Iran to the negotiating table in the first place and that more are needed to discourage it from diverting enrichment toward bombmaking.
Zarif, Tehran's chief negotiator, suggested a partial suspension of Iran's enrichment campaign might be possible - a concession Iran ruled out before Rouhani's landslide election.
Zarif said he hoped the two sides would agree on a joint statement on Friday stipulating goals to be reached "within a limited period of time, hopefully in less than a year", and a series of reciprocal actions they would take "to build confidence and address their most immediate concerns".
Iran and the United States have had no diplomatic ties since soon after the 1979 Islamic Revolution that overthrew the U.S.-backed monarchy, and their mutual mistrust and enmity have posed the biggest obstacle to any historic nuclear settlement. (Additional reporting by Louis Charbonneau and Yeganeh Torbati in Geneva, Timothy Gardner in Washington, Marcus George in Dubai, Michelle Nichols in New York and Crispian Balmer in Jerusalem; writing by Louis Charbonneau; Editing by Mark Heinrich)