By Louis Charbonneau and Parisa Hafezi
GENEVA, Nov 22 (Reuters) - Iran and six global powers struggled on Friday to overcome stumbling blocks holding up an interim deal under which Tehran would restrain its contested nuclear programme in exchange for some relief from punitive sanctions.
Western diplomats played down the prospect of a pending breakthrough in the talks that began on Wednesday after a Nov. 7-9 round in which the United States, Russia, China, France, Britain and Germany came close to winning concessions they count on to reduce the risk of an Iranian nuclear weapon.
They said some progress had been made during the first two days and the number of disagreements reduced. But Iran's insistence that the six powers explicitly acknowledge its right to enrich uranium - a process which can yield both electricity and nuclear bombs - was proving a major political obstacle.
Iranian Foreign Minister Mohammad Javad Zarif, Tehran's chief negotiator, said significant headway had been made.
"We are negotiating our differences and we have made considerable progress," he told state television.
Policymakers from the six major powers have said an interim accord on confidence-building steps could be within reach to defuse a decade-long stand-off and dispel the spectre of a wider Middle East war over the Islamic state's nuclear quest.
Under discussion is an Iranian suspension of some sensitive nuclear activities, above all medium-level uranium enrichment, in exchange for modest sanctions relief. That would involve releasing some Iranian funds frozen in foreign bank accounts and allowing trade in precious metals and petrochemicals.
The United States may also agree to relax pressure on other countries not to buy Iranian oil. Tehran has made clear it is most interested in resuming oil exports and getting respite from international sanctions on Iranian banking and financial transactions that have shackled the oil-dependent economy.
Iran rejects suspicions that it is covertly try to develop the means to produce nuclear weapons, saying it is stockpiling nuclear fuel material solely for future atomic power plants.
Asked whether he believed there would be an agreement this week, Russian Deputy Foreign Minister Sergei Ryabkov said: "I think it's a possibility. It's not final yet. I'm always optimistic. It depends on many factors."
Western diplomats said there was still a chance U.S. Secretary of State John Kerry would come to Geneva again to join foreign ministers from the other five members of the six-nation group in another attempt to clinch an elusive deal.
IRAN SEES "EXCESSIVE DEMANDS"
But a senior European diplomat told reporters the ministers would make the trip only if there was an agreement to sign.
"We have made progress, including core issues," the diplomat said, adding that "there are four or five things still on the table" that need to be resolved.
Iranian Deputy Foreign Minister Abbas Araqchi, one of Iran's senior negotiators, urged the six powers to be flexible.
"We're currently working on a text, the majority of provisions of which there is common understanding on, and this points to progress," he was quoted as saying by Iran's IRNA news agency. Differences persisted, however, he said.
"If the other side show flexibility, we can reach an agreement. If the (six-power group) is not flexible in its excessive demands, the negotiations will not progress."
Zarif and European Union foreign policy chief Catherine Ashton, who is coordinating the talks on behalf of the five permanent members of the U.N. Security Council plus Germany, met again on Friday morning to explore ways to narrow differences on the outstanding sticking points.
There was no immediate word on whether they succeeded in getting any closer to an accord; Ashton's spokesman only described the meeting as "useful". But one Iranian delegate said "this morning's session was better then the one last night". Ashton later briefed the six powers.
A senior Western diplomat said late on Thursday that it would "not be a tragedy" if the third round of Geneva negotiations within a month adjourned without a deal and reconvened in a few weeks for another try.
RIGHT TO ENRICH?
Israel continued its public campaign of criticising the offer of sanctions rollbacks for Iran, voicing pessimism that this could end what Israel and the West regard as the threat of an eventual Iranian nuclear arsenal.
"We think it's not a useful agreement, perhaps even damaging," Deputy Foreign Minister Ze'ev Elkin told Israel Radio. "We are certainly interested in improving it as far as possible. But even those who support the agreement say the only goal of the agreement is to play for time."
He appeared to be referring to France, which has taken a harder line than other Western powers and repeatedly urged the six-power group not to make too many compromises with Tehran.
The renewal of nuclear negotiations with Iran became possible after the landslide election in June of Hassan Rouhani, a relative moderate, as president on promises of improving the economy and mending ties with the West.
For the powers, an interim deal would mandate a halt to Iran's enrichment of uranium to a purity of 20 percent - a major technical step towards the bomb threshold, more sweeping U.N. nuclear inspections in Iran and a shutdown of the Arak reactor project, a potential source of bomb-grade plutonium.
The U.S. delegation at the talks has said no country has an inherent right to enrich uranium, but also indicated that some kind of compromise on the issue could be devised. But the U.S. ability to be flexible is limited, especially in light of scepticism in U.S. Congress about cutting a deal with Tehran.
U.S. Senate Majority Leader Harry Reid said on Thursday he was committed to pursuing a tougher Iran sanctions bill when the Senate returns from a holiday recess early next month.
President Barack Obama has urged Congress to hold off on any new sanctions to avoid derailing the diplomacy in Geneva.
If a preliminary agreement is reached for a six-month suspension of some of Iran's most sensitive nuclear activity, the six powers and Tehran will use that time to hammer out a broader and longer-term accord. (Additional reporting by Justyna Pawlak, Fredrik Dahl and John Irish in Geneva, Marcus George in Dubai and Allyn Fisher in Jerusalem; Editing by Mark Heinrich)