World powers and Iran held unusually detailed talks on Wednesday about how it could show its nuclear work is not a disguised quest for atom bombs, in a Baghdad meeting aimed at halting a slide toward a new Middle East war.

After a 15-month diplomatic freeze which saw tensions soar, and exploratory talks in Istanbul last month, the six powers were testing Iran's readiness to curb its disputed uranium enrichment program, under pressure of harsher sanctions.

The stakes could hardly be higher: global oil markets are jittery over sanctions imposed on Iran's vital crude exports and the possibility of Israeli strikes against its defiant arch-enemy, which has threatened reprisals if it comes under attack.

Iran warned again that it would not give in to pressure, but both sides were upbeat about the scope for an outline deal as the meeting between Iran and the United States, Russia, China, Germany, France and Britain began in the Iraqi capital.

"We had a detailed exchange this morning. (We) presented our package, the atmosphere was businesslike and meetings will continue this afternoon," a Western diplomat close to the negotiations told Reuters.

The powers' overall goal is an Iranian agreement to measures that would allay suspicions it is using its nuclear energy program as a cover for designing atomic bombs. Iran's priority will be to negotiate relief from sanctions damaging its economy.

The pivotal proposal by the six, led by European Union foreign policy chief Catherine Ashton, was for Iran to halt its enrichment of uranium to the higher fissile concentration of 20 percent, her spokesman Michael Mann said after talks began.

That is the Iranian nuclear advance most worrying to the West since it largely overcomes technical obstacles to reaching 90-percent, or bomb-grade, enrichment. Iran says it is enhancing the fissile purity of uranium only for medical research.

"We have a new offer on the table which addresses our main concerns about the Iranian nuclear program. The 20-percent enrichment question," Mann told reporters. "We hope the Iranians respond positively and we can make progress today."

In a separate interview with Iran's state-run English-language Press TV, Mann said no final deal was expected in Baghdad because progress was likely to be only gradual.

But he said toughened sanctions, especially an EU ban on Iranian oil exports due to take full effect on July 1, had helped to draw Iran finally into serious negotiations.

"We have put forward some things from our side to give back to the Iranians," Mann said, welcoming the approach of chief Iranian negotiator Saeed Jalili. "The mood music is certainly good between Jalili and Mrs Ashton and hopefully we can get a positive result."

Iran has hinted at flexibility on higher-grade enrichment although analysts caution that it would be unlikely to compromise much while sanctions remain in place.

In previous meetings the two sides could not even agree an agenda, with each largely repeating known positions and Tehran refusing any dialogue on changes to its nuclear path.

Ashton aides did not rule out talks extending into Thursday.

Iran hopes for 'good news' soon

Iranian Foreign Minister Ali Akbar Salehi, speaking to reporters in Tehran, said: "The ideas fielded to us speak of the fact that the other side would like to make Baghdad a success. We hope that in a day or two we can bring good news."

Salehi also warned that Iran would not bow to pressure. "Their policies of pressure and intimidation are futile. They have to adopt policies to show goodwill to solve this issue."

Russia said the Islamic Republic appeared ready for serious discussion of substantive steps to resolve the impasse in return for the phased removal of sanctions.

Speaking of preparatory discussions before Baghdad, Foreign Minister Sergei Lavrov said in Moscow: "We got the clear impression ... that the Iranian side is ready to seek agreement on concrete actions."

These would be taken step by step.

Another proposed step will be an updated version of an idea first floated in 2009 that envisaged Iran shipping out the bulk of its stockpile of low-grade uranium - which is potential nuclear weapons fuel - in return for higher-enriched fuel for the medical research reactor in Tehran, a diplomat said.

It was unclear whether that idea would gain traction after Iran's announcement on Tuesday that it had supplied its first batch of domestically made fuel to that reactor - a message likely meant to boost its leverage in negotiations.

Iran launched higher-grade enrichment two years ago and has since transferred the operation to a bunkered, underground plant at Fordow that, to Israeli alarm, would be largely impervious to attack from the air.

"The key issue is the 20-percent enrichment potential. This has to be addressed in order to have a productive outcome," said one Western diplomat. "The marching orders for Baghdad are to have concrete ideas on the table, maybe not necessarily agree on all details of these ideas, but to have a clear commitment."

Iran, a major oil exporter, says it is enriching uranium for electricity. That requires fuel refined to 5 percent, although it will be many years before power stations are built. It also wants radioactive isotopes for cancer treatment.

Tehran has repeatedly ruled out suspending enrichment as called for by several UN Security Council resolutions.

Deal on expanded UN inspections 'close'

In a possible sign of a new Iranian willingness to address concerns about its atomic ambitions, the UN nuclear supervisor said on Tuesday he expected to sign a deal soon to unblock an investigation into suspected work on atom bombs.

But Western officials note past failures to carry out deals on more intrusive inspections between the International Atomic Energy Agency and Iran, and their patience is running out.

Some Iranian officials kept up a hardline before the talks.

"The wall of distrust between Iran and the West is high and our public opinion has serious doubts about their compliance with their obligations. The negotiations ... are a good litmus test to prove the West's goodwill," Press TV quoted Kazem Jalili, spokesman for parliament's national security and foreign policy committee, as saying on Wednesday.

Iran suggested it would try to parlay its reported rapprochement with the IAEA into a deal in Baghdad to relax sanctions inflicting increasing damage on its economy, including a European Union oil embargo due to take effect in July.

But Western officials ruled out such a weighty concession so soon, even though their call for a "step-by-step" negotiating process is widely seen as a tacit admission that sanctions will have to be eased at some point.

"Sanctions are only going to be lifted if we have significant and genuine progress," one diplomat said.

Israel, widely assumed to have the Middle East's only atomic arsenal, has loudly expressed its skepticism about the chances for diplomacy to rein in its major adversary.

Defence Minister Ehud Barak said Israel was concerned that the world powers would not press hard enough to put a full stop its nuclear program and that Israel would keep all options open - an allusion to military action - to achieve that goal.