Â鶹ӰÊÓ

DUBAI, United Arab Emirates - When talks between Iran and world powers collapsed last year, Tehran quickly blamed the West for trying to trample its "nuclear rights." The Iranian line appears little changed -- signalling that critical negotiations could begin this week where the impasse left off.

But Iranian officials also display a hint of confidence going into Friday's talks. They believe Tehran may have beaten back the toughest Western demands for a complete halt to uranium enrichment -- the key issue of the standoff -- and some bargaining room could open for new proposals.

"They have not gained anything through confrontation with Iran," said Alaeddin Boroujerdi, head of the Iranian parliament's influential committee on national security and foreign policy.

His message Saturday reflected the challenges of finding a new tone for dialogue with much on the line, including Israel's threats of possible military action, allegations of covert attacks that have killed Iranian scientists and targeted Israeli officials, and Western sanctions that have taken aim at Iran's key oil exports and helped drive inflation past 21 per cent.

Iranian envoys in Istanbul will face a cross-section of its foes and allies: the five permanent Security Council members plus Germany. The manoeuvring has already begun, with various policy probes, trial balloons and a flap over the venue that was only resolved Sunday with Iran agreeing to return to Turkey for negotiations.

Yet neither side seems willing -- in public declarations, at least -- to budge too far from the positions that undercut the last round of talks 14 months ago.

Iran insists it will never surrender the ability to enrich uranium, which allows Tehran to make its own nuclear fuel and is a cornerstone of what the Islamist Republic's leaders call patriotic efforts toward technological self-sufficiency.

"The nuclear industry is like a locomotive that can push ahead other industries such as the space industry that takes up tens of other industries with itself," Iranian President Mahmoud Ahmadinejad said Sunday, according to the official IRNA news agency. "This is the same clear path we must continue."

The U.S. and Western allies may demand that Iran agree to close and dismantle a new enrichment lab built into a mountainside bunker south of Tehran and transfer stockpiles of its most high-grade uranium out of Iran, The New York Times first reported, citing U.S. and European diplomats.

No issue looms larger than uranium enrichment, which Iran is permitted to do under a U.N. treaty overseeing nuclear advances. The U.S. and others fear the labs could be used to make weapons-grade material. Iran says it nuclear program is only for energy and medical research.

"Without some new ideas or proposals on the table, it's hard to imagine the talks finding some kind of breakthrough," said Shadi Hamid, director of research at the Brookings Doha Center in Qatar.

But there have been some tiny cracks in the wall of distrust between Washington and Tehran that could at least offer some toeholds in the talks.

Iran's Supreme Leader Ayatollah Ali Khamenei gave a rare nod of approval last month toward U.S. President Barack Obama's assertion that there is still room for diplomacy. Washington now says they want to hear further details about Khamenei's pledge that Iran would never seek nuclear arms.

"Diplomacy has not reached a deadlock," said Iranian lawmaker Heshmatollah Falahatpisheh, a conservative member of parliament's foreign policy and national security committee.

However, he echoed the common stance among Iranian officials that Western demands to halt uranium enrichment are a dead end.

What could get traction -- suggested the hardline newspaper Kayhan -- is a so-called "enrichment level stabilization." That means halting the 20 per cent enrichment, the highest level acknowledged by Iran, and continuing with lower levels of about 3.5 per cent needed for ordinary reactors.

The 20 per cent material, which is used for medical isotopes for cancer treatments and other research, is several steps closer to the more than 90 per cent level needed for a nuclear warhead.

"Americans have always made big demands and then retreated step by step as they saw that it's not possible to achieve them," Kayhan wrote in an editorial Sunday.

Mehdi Sanaei, a moderate lawmaker, said a possible bargaining position could be an agreement to temporarily stop 20 per cent enrichment in exchange for lifting some economic sanctions.

Iran's Central Bank said the official inflation rate nearly doubled over the past year to 21.5 per cent in urban areas as the economy is battered by sanctions, rising prices and a slumping national currency. Some analysts believe the actual inflation figures are higher and say unemployment is well over the official report of nearly 12 per cent.

This would appear to give added leverage to Western envoys in the talks. But it also gives Iran some opportunities to "create trust," said Sanaei, by scaling back on enrichment for some economic easing.

"There are indications a deal is possible because (world powers) have reached the conclusion that they need to recognize Iran's nuclear rights and continuation of uranium enrichment in Iran," he added.

Even Israel's defence minister appeared to focus on the 20 per cent enriched uranium as a key goal of the talks. Ehud Barak told CNN on Sunday that Iran should ship all of its uranium enriched at the 20 per cent level to a "trusted" neighbouring country. Anything short of that would "be a total change of direction for the worse," he said.