By Fredrik Dahl and Justyna Pawlak
VIENNA/BRUSSELS (Reuters) - Iran has halted its most sensitive nuclear operations under a preliminary deal with world powers, winning some relief from economic sanctions on Monday in a ground-breaking exchange that could ease a threat of war.
The United States and European Union both suspended some trade and other restrictions against the OPEC oil producer after the United Nations' nuclear watchdog confirmed that Iran had fulfilled its side of an agreement made on November 24.
The announcements, which coincided with a diplomatic row over Iran's role at peace talks on Syria [ID:nL5N0KU1X2], will allow six months of negotiation on a definitive accord that the West hopes can end fears of Tehran developing nuclear weapons and Iran wants to end sanctions that are crippling its economy.
Iranian officials hailed a warming of ties that will also see their new president make a pitch to international business leaders at Davos later this week: "The iceberg of sanctions against Iran is melting," the head of Iran's Atomic Energy Organisation, Ali Akbar Salehi, told Iranian state television.
Iran should be able to recover $4.2 billion in oil revenues frozen in foreign accounts over the six months of the interim deal, as well as resume trade in petrochemicals and gold and other precious metals. But EU and U.S. officials stressed that other sanctions will still be enforced during the six months of talks and that reaching a final accord will be difficult.
Israel, which has called the interim pact a "historic mistake" and has repeatedly warned it might attack Iran to prevent it developing nuclear arms, said any final deal must end any prospect of Tehran building an atomic bomb - something Iran insists it has never had any intention of doing.
The interim accord was the culmination of years of on-off diplomacy between Iran and six powers - the United States, Russia, China, Britain, France and Germany. It marks the first time in a decade that Tehran has limited nuclear operations that it says are aimed mainly at generating electricity and the first time the West has eased its economic pressure on Iran.
"This is an important first step," said EU foreign policy chief Catherine Ashton. "But more work will be needed to fully address the international community's concerns regarding the exclusively peaceful nature of the Iranian nuclear program."
Ashton, who coordinates diplomatic contacts with Iran on behalf of the six world powers, said she expected talks on the final settlement to start in February.
U.S. State Department spokeswoman Jen Psaki said those negotiations would be "even more complex" and added: "We go into it clear-eyed about the difficulties ahead."
A White House spokesman said the "aggressive enforcement" of the remaining sanctions would continue.
A senior U.S. official said: "This temporary relief will not fix the Iranian economy. It will not come close.
"Iran is not and will not be open for business until it reaches a comprehensive agreement."
President Barack Obama's administration faces opposition to the easing of sanctions from Israel and from some members of Congress who have threatened to tighten some restrictions.
Israeli Prime Minister Benjamin Netanyahu told parliament the temporary pact fell short of preventing Iran from working on nuclear arms. He said: "In the final deal, the international community must get the Iranian nuclear train off the track. Iran must not have the capability to produce atomic bombs."
Israel, assumed to be the only nuclear power in the Middle East, has been discomfited by U.S. detente with Iran since the election last year of President Hassan Rouhani, a relative moderate. He is expected to court global business this week at the World Economic Forum in Davos.
The deal took months of secret negotiations between Washington and Tehran and marks a new thaw in relations that have been generally hostile since the 1979 Islamic revolution.
Under the interim deal, Iran agreed to suspend enrichment of uranium to a fissile concentration of 20 percent, a short technical step away from the level needed for nuclear weapons.
It also has to dilute or convert its stockpile of this higher-grade uranium, and cease work on the Arak heavy water reactor, which could provide plutonium, an alternative to uranium for bombs.
The IAEA said Tehran had begun the dilution process and that enrichment of uranium to 20 percent had been stopped at the two facilities where such work is done.
"The Agency confirms that, as of January 20, 2014, Iran ... has ceased enriching uranium above 5 percent U-235 at the two cascades at the Pilot Fuel Enrichment Plant (PFEP) and four cascades at the Fordow Fuel Enrichment Plant (FFEP) previously used for this purpose," its report to member states said.
It was referring to Iran's two enrichment plants, at Natanz and Fordow. Cascades are linked networks of centrifuge machines that spin uranium gas to increase the concentration of U-235, the isotope used in nuclear fission chain reactions, which is found in nature at concentrations of less than 1 percent.
The U.S. government estimates the value to Iran of sanctions relief at about $7 billion in total, although some diplomats say much will depend on the extent to which Western companies will now seek to re-enter the Iranian market.
Analysts said much was still unclear about how world powers could achieve their goal of ensuring Iran cannot, secretly or otherwise, develop the capability to build a nuclear weapon.
Mark Dubowitz, head of the Foundation for Defense of Democracies in Washington and a proponent of tough sanctions on Iran, said that by providing short-term economic relief, the West was losing future bargaining power with Tehran.
"The interim deal does nothing over the next 12 months to prevent Iran from proceeding with the nuclear-weapon and ballistic-missile research that are the keys to a deliverable nuclear weapon," he said. "Ahead of final negotiations, Tehran will be in a stronger position to block peaceful Western efforts to dismantle its military-nuclear program."
The U.N. nuclear watchdog will play a key role in checking that Iran implements the deal, but its increased access falls short of what it says it needs to investigate suspicions that Tehran may have worked on designing an atomic bomb in the past.
"The accord gives the powers and Iran plenty of flexibility in going about reducing Iran's nuclear threat to a level the world will accept," said Mark Hibbs of the Carnegie Endowment. "But it hasn't spelled out how they will work with the IAEA to resolve allegations Iran has been working on nuclear weapons."
(Additional reporting by Parisa Hafezi in Ankara, Lesley Wroughton, Jeff Mason and Steve Holland in Washingon, Adrian Croft in Brussels and Maayan Lubell in Jerusalem; Writing by Justyna Pawlak; Editing by Peter Graff and Alastair Macdonald)