(Adds reported Iranian nuclear advance, paragraphs 27-29)
* Deal for probe into nuclear bomb concerns in sight -Amano
* IAEA headway with Iran may boost big power talks with Iran
* Powers aim to stop Iran's higher-scale uranium enrichment
* Wary West wants acts from Iran, not just words
* Iran reports nuclear advance to boost bargaining power
By Fredrik Dahl
VIENNA, May 22 (Reuters) - The U.N. nuclear watchdog director said on Tuesday he expected to sign a deal with Iran soon to unblock an investigation into suspected work on atom bombs, potentially brightening prospects for big-power talks with Tehran to stop a drift toward conflict.
Yukiya Amano was summarising the outcome of rare talks he conducted in Tehran on Monday, two days before six powers meet Iran's security council chief in Baghdad to test Iranian willingness to curb its nuclear programme in a transparent way.
Amano, director-general of the International Atomic Energy Agency, said his wish for access to Iran's Parchin military complex where nuclear weapons-relevant tests may have occurred would be addressed as part of the accord.
But the powers will be wary of past failures to carry out extra inspection deals between the International Atomic Energy Agency and Iran, and Western patience is wearing thin.
European sanctions to block Iran's economically vital oil exports are to take force in July and Israel has mooted military action. A defiant Iran, which denies any ambition to acquire atom bombs, has threatened reprisals and oil prices have risen on fear of a new Middle East war hitting a wobbly world economy.
Amano acknowledged that "some differences" remained before the deal he hashed out on his first visit to Tehran could be sealed, although chief Iranian negotiator Saeed Jalili had assured him these would not thwart agreement.
"The decision was made to conclude and sign the agreement ... At this stage, I can say it will be signed quite soon," Amano told reporters at Vienna airport on his return from the Iranian capital.
The veteran Japanese diplomat, who flew impromptu to Tehran capitalise on progress in talks with Iran in Vienna held by senior aides, described the outcome of his meetings in Iran as an "important development...
"We understood each other's position better."
Asked what differences persisted, Amano said only that they were "details of discussions on this document," adding that it was "almost a clean text."
Driving home Western scepticism rooted in the checkered history of IAEA transparency deals with Iran, the acting U.S. ambassador to the agency urged the Islamic Republic to open up immediately and meaningfully to inspectors.
"While we appreciate the efforts (by the IAEA) to conclude a substantive agreement, we remain concerned by the urgent obligation for Iran to ... cooperate fully with the verification efforts of the IAEA ... to resolve all outstanding concerns about the nature of its nuclear programme," Robert Wood said.
Israel greeted word of a incipient IAEA-Iran pact with suspicion, citing an Iranian track record of evading and restricting inspections aimed at ensuring no military diversions of nuclear activity.
"Iran has proven over the years its lack of credibility, its dishonesty -- telling the truth is not its strong side -- and therefore we have to be suspicious of them all the time, and examine the agreement that is being formulated," Civil Defence Minister Matan Vilnai said on Israel Radio.
Asked whether last-resort air strikes on Iran were still conceivable with apparent headway being made on the diplomatic track, Vilnai replied: "One shouldn't get confused for even a moment -- everything is on the table."
Iran has for four years stonewalled IAEA requests to examine sites, especially the Parchin site southeast of Tehran, interview senior nuclear scientists and peruse documents to verify Western intelligence reports about Iranian research and experiments pertinent to manufacturing nuclear explosives.
Western diplomats accredited to the IAEA said that whether concerns about Iran's nuclear intentions would be allayed by the deal would depend on how it was applied on the ground.
"There is scepticism until this is signed and then, once it is signed, there will be scepticism until it is implemented," a official from one Western power in Vienna told Reuters.
In Baghdad, Jalili - the personal representative of Iranian Supreme Leader Ayatollah Ali Khamenei - will meet Catherine Ashton, the EU foreign policy chief heading a coalition of the five U.N. Security Council permanent members - the United States, Britain, France, Russia and China - plus Germany.
Their main goal is expected to be an Iranian agreement to shut down the higher-grade uranium enrichment that it launched in 2010 and has since expanded in an underground plant at Fordow largely impervious to attack from the air, effectively shortening the time needed to weaponise nuclear technology.
"Cooperation with the IAEA like access to Parchin is important but not sufficient. The 20 percent enrichment has to be addressed as a priority," a European diplomat said.
Iran maintains that it needs uranium refined to a fissile concentration of 20 percent for its medical isotope reactor. Enrichment to 5 percent of fissile purity is suitable for power plant fuel, while 90 percent constitutes fuel for bombs.
Iranian state television quoted Amano as saying that his talks would have a "positive impact" on the Baghdad meeting.
But diverging agendas stand in the way of a breakthrough.
Iran has suggested it will try to leverage its reported rapprochement with the IAEA into a deal in Baghdad to relax sanctions inflicting increasing damage to its economy. But Western officials ruled out such a weighty concession so soon.
"We are not going to do anything concrete in exchange for nice words," a senior Western diplomat cautioned.
In an apparent move to beef up its bargaining position, Iran announced on Tuesday that it had delivered its first two batches of domestically made nuclear fuel to a Tehran research reactor.
If confirmed, Iran's ability to run the reactor with its own fuel could remove any basis for a mooted deal under which Iran would ship most of its enriched uranium abroad in a swap for such fuel, reducing its stocks of potential atom bomb material.
Tehran tentatively agreed to the swap in 2009 talks with the powers but the deal collapsed over details of implementation. Iran's foreign minister had said last month it was willing to consider an updated version of the idea.
Iran insists it wants nuclear energy only for electricity generation and medical treatments, but has long defied U.N. resolutions calling for a confidence-building suspension of uranium enrichment and unfettered IAEA access.
Another senior Western diplomat said Amano's unusual mission to Tehran had put the onus on the Iranians to clinch the deal.
"The fact that he said he is confident that the agreement may be signed soon may also mean that if everything goes wrong, and the remaining differences are not overcome, the blame will be squarely on the Iranian side," the diplomat said.
U.S. analyst Graham Allison said Iran had been "cautiously, but steadily, putting in place all the elements it needs to construct a nuclear weapon in short order", but so far astutely stopped short of a decision to do so.
"Any scenario that requires months between tripping the IAEA's alarm and testing a bomb would mean taking a huge risk of being attacked, something Iran's Supreme Leader Ali Khamenei has so far assiduously avoided," Allison, director of Harvard University's Belfer Center for Science and International Affairs, said in an article for the Scientific American.
Cranking up pressure on Iran, the U.S. Senate on Monday extended sanctions on its oil sector to cover dealings with the National Iranian Oil Co and National Iranian Tanker Co to close a potential loophole that could have allowed Tehran to continue selling some of its petroleum using its own fleet.
As if the diplomatic challenges in Baghdad were not daunting enough, the weather threatened to play havoc with the talks.
As delegations prepared to head for Iraq, Baghdad airport was closed on Tuesday after a sandstorm blanketed the Iraqi capital in choking dust, reducing visibility and grounding flights from neighbouring Jordan and the United Arab Emirates.
Iraq's transport ministry said the sandstorm could last through Friday, risking further disruptions to air traffic.
Jalili arrived on Monday night in Baghdad while Western delegations were scheduled to arrive on Wednesday morning.
Additional reporting by Marcus George in Dubai, Roberta Rampton in Washington, Maayan Lubell in Jerusalem, Justyna Pawlak and Patrick Markey in Baghdad; Writing by Mark Heinrich; Editing by Ralph Boulton