By Parisa Hafezi and Louis Charbonneau
VIENNA (Reuters) - The biggest hurdle Iran and world powers must overcome to clinch a lasting deal on Tehran's nuclear program by a July deadline is agreeing on the future scope of uranium enrichment in the Islamic Republic, officials and diplomats said on Thursday.
An Iranian official said it will be "very difficult though not impossible" to bridge the divide. Western officials said Iran and the six powers must agree not only on the number and type of centrifuge machines Iran will operate but also the level of enrichment and size of uranium stocks Tehran can accumulate.
As a result, diplomats said that enrichment has emerged as the principal sticking point in negotiations on what U.S. officials say must be a comprehensive agreement covering every issue under discussion if it is to be acceptable to Washington.
Iran has defied a U.N. Security Council ban on uranium enrichment and other sensitive nuclear activities, resulting in crippling U.S., U.N. and European Union sanctions. It denies allegations from Western powers and their allies that it is covertly seeking the capability to produce atomic weapons.
Some issues have been satisfactorily resolved, though U.S. officials caution that an agreement will not be possible until every detail is resolved. "Nothing is agreed until everything is agreed," a senior U.S. official told reporters this week.
One of the thorniest issues in the talks has been the future of Iran's planned Arak heavy-water reactor, which Western powers fear could yield significant amounts of weapons-grade plutonium. But a senior Iranian official said that issue was essentially settled, an assertion several Western officials supported.
Iran, which says the Arak reactor is for peaceful medical purposes, has ruled out converting it to a light-water reactor, a model less amenable to producing bomb material.
The idea, the Iranian official suggested, is that Tehran would leave it as a heavy-water plant but run it at a low enough output to ensure any plutonium yields are minimal.
"There are ways to reach an agreement over the Arak plant to allay concerns," he told Reuters. "Arak is not a problem any more." A Western diplomat agreed: "Arak is not a problem."
But there is a much more formidable obstacle to clear.
Despite the smiles and handshakes at photo opportunities, there have been fierce exchanges behind closed doors at Vienna's Coburg palace touching on the yawning divide over enrichment capacity, diplomats and senior Iranian officials said.
The gap can be measured in tens of thousands of centrifuges, the slender cylindrical machines that spin in linked clusters at supersonic speed to concentrate uranium's fissile element.
"We need at least 100,000 IR-1 (first generation) centrifuges to produce enough fuel for each of our (civilian) nuclear (power) plants. We have informed the International Atomic Energy Agency about our plans to build 20 plants," a senior Iranian official said on condition of anonymity.
U.S. officials, however, have made clear for months that the number of centrifuges they are willing to tolerate operating in Iran over the medium term is in the low thousands to ensure that Tehran's ability to produce a usable amount of bomb-grade uranium, should it go down that road, is severely limited.
Iran, which has demonstrated a readiness to curb higher-level enrichment, says such draconian limitations would be a violation of its right to enrich - an issue Supreme Leader Ayatollah Ali Khamenei has said is a "red line" for Tehran.
JULY 20 DEADLINE
A broad accord, which has eluded Tehran and Western powers for over a decade, is meant to end years of antagonism and avert the risk of a wider Middle East war with global repercussions.
Iran and Britain, China, France, Germany, Russia and the United States have set a July 20 deadline for a permanent accord that could bring a gradual end of sanctions hamstringing Iran's oil-dependent economy. That deadline was part of an interim November 2013 deal under which Iran froze some parts of its atomic program in exchange for limited sanctions relief.
The sides began their fourth round of Vienna talks on Wednesday. U.S. and Iranian officials say they are already working on drafting a final accord that would curb Iran's enrichment program and to reduce the risk that it could lead to the making of atomic bombs. The talks are to end on Friday.
In exchange, Iran wants an end to biting international sanctions that have forced a sharp reduction in crude oil exports vital to the economic wellbeing of the Islamic Republic.
Robert Einhorn, a former top U.S. State Department official once involved in talks with Iran and now at the Brookings Institution, dismissed remarks from the head of Tehran's atomic energy organization, Ali Akbar Salehi, that the Natanz enrichment plant alone would need 50,000 advanced centrifuges.
"An enrichment capacity that large, indeed, an enrichment capacity greater than a few thousand first-generation centrifuges, would give Iran an unacceptably rapid (bomb) breakout capability," he wrote on his think-tank's website.
"If Tehran's position at the negotiating table is a reflection of Salehi's public remarks, it is a show-stopper, and Iran must know that," Einhorn said.
Despite the huge gap in negotiating positions, several officials from the six-power group said they believed a deal was the most likely outcome of the talks, given the intense pressure on the Iranians and Americans to get one.
CONSENSUS ELUSIVE, BUT CRUCIAL
At the same time, securing consensus was not a certainty, since the Iranians will find themselves forced to make decisions on limiting their enrichment that may be very difficult to sell to powerful conservatives in Tehran.
"This will be hard, very technical work," a Western official said about the process of drafting the details of Iran's permissible enrichment program.
The Iranian official said Tehran felt the six powers would eventually yield on the enrichment issue. But Western officials said Iran would have to climb down from unreasonable demands.
"We will find a face-saving solution that will allow both sides to say they got their way," the Iranian official said.
While any deal, at its core, will be a bilateral agreement between Iran and the United States, officials said it was crucial all members of the six power group fully accept it.
"We saw what happened in Geneva when one country broke ranks," a Western official said, referring to France's last-minute objections that helped foil a preliminary pact with Iran in the second round of Geneva talks in early November. Several weeks later an interim deal was signed.
Securing acceptance of any deal struck in Vienna by security hawks in Tehran on the one hand and in Washington on the other will also be a challenge, Western officials say.
Israel has talked of bombing arch-foe Iran if diplomacy does not effectively shut down its nuclear activity. It is dead-set against Iran retaining even limited enrichment under any deal.
The Americans are consulting with Israel, their closest ally in the Middle East and a country that is widely assumed to be the only nuclear-armed state in the region. Western officials say the Israelis are slowly realizing they may have to accept something other than a "zero enrichment" scenario for Iran.
The 1970 Non-Proliferation Treaty guarantees the right of all countries to having nuclear energy for peaceful purposes. Iran frequently cites this, and says enrichment is a foundation of its national sovereignty and modernization.