By Yeganeh Torbati and Jon Hemming
DUBAI (Reuters) - The presidency of moderate cleric Hassan Rouhani has opened a window of opportunity in Iran's delicate nuclear diplomacy with the West but Tehran-watchers say that window could close as each side waits for the other to make the first move.
Cautious optimism about talks between Iran and six world powers due to restart in September is a stark contrast to the gloom over on-off negotiations under eight years of previous President Mahmoud Ahmadinejad.
In that time, ever more stringent U.N., U.S. and European Union sanctions on Iran's energy, shipping and banking sectors have helped weaken its currency, contributed to a steep rise in inflation and nearly halved oil exports since 2011.
Meanwhile the Islamic Republic has continued to enrich uranium, edging towards Israel's "red line" after which it says it will launch military strikes on Iranian facilities.
The leadership of Rouhani, who defeated more conservative rivals in a June 14 election with just over 50 percent of the vote, appears to offer the prospect of an alternative to the worst case scenario.
"We are prepared, seriously and without wasting time, to enter negotiations which are serious and substantive with the other side," Rouhani said at his first news conference as president on Tuesday, and in answer to a question did not rule out direct talks with the United States.
The United States, which has said it would be a "willing partner" if Iran were serious about resolving the problem peacefully, was careful in its response.
"There are steps they need to take to meet their international obligations and find a peaceful solution to this issue, and the ball is in their court," said State Department spokeswoman Jen Psaki.
The fact that Rouhani has been able to reach out to Washington even in a limited way indicates he has at least the tacit support of Supreme Leader Ayatollah Ali Khamenei, the most powerful figure in Iran's complex and often opaque power structure.
Khamenei has publicly voiced scepticism of the West's willingness to compromise, but for now appears to be giving Rouhani room to make a deal. If there is a lack of progress, that could easily change.
Western powers must demonstrate that they are willing to engage or Rouhani's ability to negotiate might be undercut by conservative elements at home, said Dina Esfandiary, a research associate at the International Institute for Strategic Studies.
"If faced with inertia or a blind insistence on increasing sanctions, then hardliners will discredit him and Iran will revert back to a policy of resistance," Esfandiary told Reuters.
Rouhani's key appointment so far has been Mohammad Javad Zarif as foreign minister. Zarif has been involved in back-channel talks and behind-the-scenes negotiations with the United States dating back to the arms-for-hostages deal of the 1980s, and has had contacts with top U.S. officials, including U.S. President Joe Biden and Defense Secretary Chuck Hagel.
A new head of the Supreme National Security Council, who has traditionally acted as Iran's chief nuclear negotiator, has yet to be appointed. The delay has led some Iran-watchers to speculate Rouhani may want to the bring the job of nuclear negotiator under the foreign ministry, giving an even stronger signal that he wants to streamline the talks process.
The basis of a deal is just about visible.
The two governments appear closer to holding direct talks than they have been in many years, perhaps even reviving the idea of a "grand bargain" to resolve all the issues between them dating back to the overthrow of the U.S.-backed Shah in the 1979 Islamic Revolution.
Rouhani has signalled he would be willing to allow more transparency in Tehran's nuclear activities in return for the acceptance of Iran's right to enrich for peaceful purposes.
WHO WILL MAKE THE FIRST MOVE
But both the United States and Iran appear to be waiting for the other side to make the first big concession, which is likely to stall any breakthrough.
Rouhani said on Tuesday Iran retained the "right" to enrich uranium, a position that has scuttled past talks and is likely to be a sticking point again.
World powers have demanded Iran cease the enrichment of uranium up to 20 percent and U.N. Security Council resolutions require Iran to suspend all enrichment.
"It was always going to be unlikely that Iran would happily give up enrichment - the Islamic Republic of Iran has painted itself into a corner by elevating the issue to one of national resistance and pride," Esfandiary said.
And there are those on both sides arguing for their government to take a tougher stance.
Some in the United States believe it is the strict sanctions that have brought about Iran's new willingness to negotiate and the opportunity should not be lost to press the advantage home.
A large majority of U.S. senators urged President Barack Obama in a letter this week to step up sanctions to strengthen Washington's hand in talks. The House of Representatives also passed a bill aiming to choke off Iranian oil exports altogether last week. The full Senate is expected to debate the bill after the summer recess.
Rouhani blamed what he called a "war-mongering group" in U.S. Congress that he said was doing the bidding of Iran's sworn foe Israel.
"The key issue remains the insistence in both camps that the other side must make the first move," said Jamie Ingram, Middle East analyst at IHS Country Risk.
"There is inherent mistrust between the U.S. and Iran and each are reticent to make any firm commitments on the back of what they fear may just be 'rhetoric'," he told Reuters.
"I think there is some willingness in the Obama administration which sees the potential to make a massive achievement in its final term - conversely, they will be wary of being seen to make a huge mistake."
(Additional reporting by Marcus George; Editing by Sonya Hepinstall)