By Fredrik Dahl and Justyna Pawlak
ISTANBUL (Reuters) - Iran and world powers have a rare chance on Saturday to halt a downward diplomatic spiral over Tehran's nuclear program and ease fears of a new Middle East war when they resume stalled talks, but diplomats warn against expecting quick results.
The negotiations in Istanbul, the first between Iran and the six powers in 15 months, are unlikely to yield any major breakthrough but Western diplomats hope at last to see readiness from Tehran to start discuss issues of substance.
That, they say, would mark a big change in Iran's attitude from the last meeting when it refused even to talk about its nuclear program and could be enough for scheduling a second round of talks next month, perhaps in Baghdad.
Such an outcome could, at least for the time being, dampen persistent speculation that Israel might launch military strikes on Iranian nuclear sites to prevent its enemy from obtaining atomic arms.
Both sides say they are ready at the meeting, which is due to start at around 10 a.m (0700 GMT), to work towards resolving the deepening dispute over the nuclear program which Iran says has purely peaceful purposes.
"For their own reasons, each side wants to give diplomacy a chance at this point, to start a process rather than to force a quick fix," said analyst Michael Adler at the Woodrow Wilson International Center for Scholars.
Iran must show in Istanbul that it is willing to enter "serious engagement," one senior diplomat said, suggesting Saturday's discussions were unlikely to go into detailed issues.
"My tip is to set your sights low," the diplomat said. "It is not part of our game plan for tomorrow to lay out a long list of specific demands and conditions. They know what we think about all these things."
Iran says it will propose "new initiatives" in Istanbul, but it is unclear whether this means it is now prepared to discuss curbs to its controversial uranium enrichment program, which the West suspects has military links.
"Iran is sending signals they want a serious and constructive meeting," another diplomat said before the meeting between Iran and the United States, France, Russia, China, Germany and Britain and their main representative, European Union foreign policy chief Catherine Ashton.
The West accuses Iran of seeking to develop a nuclear weapons capability. Israel - believed to be the only Middle East state with an atomic arsenal - sees Iran's atomic plans as a threat to its existence. Iran has threatened to retaliate for any attack by closing a major oil shipping route.
Iran, one of the world's largest oil producers, says its nuclear program is a peaceful attempt to generate electricity and medical isotopes for cancer patients.
But its refusal to halt sensitive nuclear work which can have both civilian and military purposes has been punished with intensifying U.S. and European steps targeting its lifeblood oil exports.
"Given that oil revenue accounts for over half of government income, the budget will be under significant strain this year as oil exports fall as a result of sanctions and oil production is cut back by Iran as its pool of buyers begins to shrink," said Dubai-based independent analyst Mohammed Shakeel.
In a sign of what is at stake in the attempt to restart diplomacy, the fate of a new package of sanctions on Iran proposed by U.S. lawmakers may hinge on whether progress is made at the Istanbul talks.
Western officials have made clear their immediate priority is to convince Tehran to cease the higher-grade uranium enrichment it began in 2010. It has since expanded that work, shortening the time it would need for any weapons "break-out".
Iran has signaled some flexibility over halting its enrichment to a fissile purity of 20 percent - compared with the 5 percent level required for nuclear power plants - but also suggests it is not ready to do so yet.
Iranian leaders would probably expect to be rewarded with an easing of sanctions if they agree to scale back their sensitive nuclear work, but Western officials say this is not an issue to which is up for negotiation in Istanbul.
"Stopping 20 percent enrichment would be seen as a gesture to start negotiations, not to lift sanctions," one diplomat at the talks said.
In the end, experts and some diplomats say, both sides must compromise for any long-term deal to resolve the dispute: Iran could keep enriching uranium to low levels in return for accepting much more intrusive U.N. nuclear inspections.
"From a nonproliferation point of view, zero enrichment is beneficial, but not necessary to prevent a nuclear-armed Iran," Ali Vaez of the International Crisis Group think-tank said.
(Additional reporting by Alexandra Hudson, Jonathan Burch, Zahra Hosseinian and Marcus George; Editing by David Stamp)