By Fredrik Dahl
VIENNA (Reuters) - The U.N. nuclear watchdog is expected to report in a monthly update on Friday that Iran is living up to its commitments to curb its atomic activities under an interim pact with six world powers last year, diplomats said.
In exchange for a limited easing of sanctions, Iran agreed last Nov. 24 to take action to eliminate its most proliferation-prone enriched uranium gas stockpile and halt the production of the material.
The six-month agreement, which took effect on Jan. 20, was designed to buy time for negotiations on a final settlement of the decade-old dispute over a nuclear programme which Iran says is peaceful but the West fears may be aimed at developing bombs.
Those talks began in February and are continuing this week in Vienna. One diplomat from one of the six powers - the United States, Russia, France, Germany, Britain and China - said some progress had been made but that big gaps remained.
The aim is to reach a comprehensive solution by a self-imposed July 20 deadline on scaling back Iran's nuclear programme in return for an end to sanctions that have severely hurt the major oil producer's economy.
"Progress has been made but we have not concluded a big element of the negotiation," the diplomat said.
There are "still a lot of differences between the two sides and they are important differences of substance".
"It has been another really tough round," the diplomat said, talking after the fourth day of the June 16-20 meeting.
The U.N. International Atomic Energy Agency (IAEA), which has inspectors on the ground in Iran around the clock, has a pivotal role in ensuring that the Islamic Republic is abiding by the terms of the preliminary, half-year accord.
Diplomats said the IAEA was expected to issue the monthly report on Friday, the fifth since the accord entered into force, confirming that Tehran was continuing to honour the terms.
They gave no details. Under the deal, Iran must by the end of the six-month period have converted or diluted its stockpile of uranium gas refined to a fissile concentration of 20 percent, which is a relatively short technical step away from weapons-grade material. The release of some previously blocked oil revenue funds depend on Iran taking this action.
Last month's IAEA update said Iran had so far reduced the stockpile by around 82 percent and that figure is likely to have risen further since. The amount that remains, less than 40 kg in May, is far below the 250 kg that experts say would be needed for one bomb if processed further.
Iran denies accusations that it has been seeking the capability to make nuclear bombs through enrichment.
After years of increasing tension between Iran and the West - and fears of a new war in the Middle East - the election last year of pragmatist Hassan Rouhani as Iranian president paved the way for a dramatic thaw in relations.
However, clinching a long-term settlement is expected to be far more difficult than the interim deal as Iran and the powers remain far apart on the permissible scope of the country's uranium enrichment.
But Western officials say they are still focusing on reaching a deal by the agreed deadline and are not discussing a possible extension of the talks.
"I hope that July 20 is not in doubt," German Foreign Minister Frank-Walter Steinmeier told reporters during a bilateral visit to the Austrian capital. "All parties should focus on bringing this to a conclusion by that date."
Refined uranium can be used to fuel nuclear power plants, which is Iran's stated purpose, but also provide material for bombs if refined to a high degree, which the West fears may be Tehran's ultimate intention.
(Additional reporting by Angelika Gruber, Justyna Pawlak, Parisa Hafezi and Louis Charbonneau; editing by Andrew Roche)