By Yeganeh Torbati and Fredrik Dahl
DUBAI/VIENNA (Reuters) - Iran on Sunday rejected the West's demand that it send sensitive nuclear material out of the country but signaled flexibility on other aspects of its atomic activities that worry world powers, ahead of renewed negotiations this week.
Talks about Iran's nuclear program, due to start in Geneva on Tuesday, will be the first since the election of Iranian President Hassan Rouhani, who has tried to improve relations with the West to pave the way for lifting economic sanctions.
Rouhani's election in June to succeed Mahmoud Ahmadinejad has raised hopes of a negotiated solution to a decade-old dispute over Iran's nuclear program that could otherwise trigger a new war in the volatile Middle East.
Iranian Deputy Foreign Minister Abbas Araqchi's comments on Sunday may disappoint Western officials, who want Iran to ship out uranium enriched to a fissile concentration of 20 percent, a short technical step away from weapons-grade material.
However, Araqchi, who will join the talks in Switzerland, was less hardline about other areas of uranium enrichment, which Tehran says is for peaceful nuclear fuel purposes but the West fears may be aimed at developing nuclear weapons capability.
"Of course we will negotiate regarding the form, amount, and various levels of (uranium) enrichment, but the shipping of materials out of the country is our red line," he was quoted as saying on state television's website.
In negotiations since early 2012, world powers have demanded that Iran suspend 20-percent enrichment, send some of its existing uranium stockpiles abroad and shutter the Fordow underground site, where most higher-grade enrichment is done.
In return, they offered to lift sanctions on trade in gold, precious metals and petrochemicals but Iran, which wants oil and banking restrictions to be removed, has dismissed that offer. It says it needs 20-percent uranium for a medical research reactor.
However, Araqchi's statement may be "the usual pre-negotiation posturing", said Middle East specialist Shashank Joshi at the Royal United Services Institute (RUSI) in London.
"It is easy to imagine a compromise whereby Iran would ship out only some of its uranium, allowing the negotiating team to claim a victory. There are many potential compromises that will be explored," Joshi told Reuters.
Cliff Kupchan, a director and Middle East analyst at risk consultancy Eurasia Group, took a similar line, saying Iran was seeking to gain leverage ahead of negotiations.
"Still, it is sobering that a lead Iranian negotiator is setting red lines so early. These are going to be tough talks."
Since the Islamic Republic started making 20-percent uranium gas in 2010 it has produced more than the 240-250 kg (530-550 pounds) needed for one atomic bomb, which Israel has suggested may provoke it to take military action against Iran.
Iran has kept its stockpile below this figure by converting some of it into oxide powder for reactor fuel, potentially buying more time for diplomacy, U.N. watchdog reports show.
But it has also amassed stocks of low-enriched uranium gas that experts say would be enough for several bombs if processed much further to weapons-grade material. It has also sharply expanded its enrichment capacity in recent years.
Israel, which has threatened preemptive military action if it deems diplomacy a dead end, demands the total removal of Tehran's enriched uranium stockpiles along with a dismantling of its enrichment facilities.
U.S. Secretary of State John Kerry said in London on Sunday "the window for diplomacy is cracking open", in comments via satellite to the American Israel Public Affairs Committee summit in California.
"But I want you to know that our eyes are open, too. While we seek a peaceful resolution to Iran's nuclear program, words must be matched with actions," he added.
"In any engagement with Iran, we are mindful of Israel's security needs."
Iran says it will never give up its right to refine uranium and Western experts acknowledge it may no longer be realistic to expect Iran to suspend all such work, as demanded by a series of U.N. Security Council resolutions since 2006.
Instead, they say, Iran's enrichment capacity should be scaled back in order to make it more difficult for the country to launch any weapons bid without being detected in time.
R. Scott Kemp, an assistant professor of nuclear science and engineering at the Massachusetts Institute of Technology, said that merely capping Iran's nuclear program was unlikely to provide enough confidence in the West.
"Some rollback of the program ... is really the only path to confidence and stability," Kemp wrote in a blog last week.
David Albright, of the Institute for Science and International Security think-tank, told a U.S. Senate committee in early October, referring to machines used to refine uranium: "Any future nuclear agreement must include a limit on the number and type of centrifuges Iran can install."
(Additional reporting by Dan Williams in Jerusalem and Justyna Pawlak in Brussels; Editing by Andrew Roche)