* As sanctions bite, Iran says it's eager for swift deal
* Israel urges powers not to relax sanctions prematurely
* Talks seen as biggest chance in years to resolve stand-off
* Atmosphere brighter since moderate Iran president elected
* U.S. and Iranian negotiators hold bilateral talks
By Louis Charbonneau and Fredrik Dahl
GENEVA, Oct 15 (Reuters) - Iran outlined a proposal to world powers on Tuesday on resolving a decade-old standoff over its nuclear programme, but both sides at the Geneva talks warned it was too early to say if a breakthrough was within reach.
With Iran indicating a new willingness to engage with its adversaries, the chief U.S. negotiator at the talks held a rare bilateral discussion with Tehran's delegates, described by a senior U.S. official as "useful".
The Islamic Republic began negotiations in earnest with the United States, Russia, China, France, Britain and Germany two months after President Hassan Rouhani took office, promising conciliation over confrontation in relations with the world.
After years of defiance, Iran appeared keen for a negotiated settlement to win relief from sanctions that have crippled its economy, erased 60 percent of its daily oil export revenue and caused a steep devaluation of its rial currency.
But it has given no public indication on how much it is willing to meet the six nations' demands that it scales back its nuclear activities. The West suspects Iran is working to reach the capability to make an atom bomb while Tehran says the programme is peaceful.
A spokesman for the European Union's foreign policy chief Catherine Ashton, who oversees diplomacy with Iran on behalf of the powers, called the Iranian presentation "very useful" but said there was still "an awful lot of work to be done".
"There is still a long way to go," spokesman Michael Mann told reporters after the first of two days of talks in Geneva. The world powers, he said, wanted Iran to provide more details of its proposal on Wednesday.
In Washington, the White House warned against expecting diplomacy to yield quick results, saying discussions were complex and technical.
The talks between Iranian Deputy Foreign Minister Abbas Araqchi and U.S. Undersecretary of State Wendy Sherman were the third bilateral contact between the two nations since Rouhani's election in June. They followed a telephone call between Rouhani and President Barack Obama last month, the highest level U.S.-Iranian contact since Iran's Islamic Revolution in 1979.
Araqchi said after Iran presented its proposal that it was capable of achieving a breakthrough in the deadlock following years of on-and-off negotiations. But he later said it was not possible to tell whether progress was being made. "It's too soon to judge," he told Reuters.
Iran has for years demanded the West lift the sanctions on its oil and banking sector and recognise its right to enrich uranium before it makes any concessions on the work.
Araqchi was quoted as saying by the ISNA news agency that Iran had reiterated these demands in the new proposal, but he added that details were "confidential".
Western diplomats have complained in the past that Tehran has refused to offer sufficient nuclear concessions to warrant a deal. But both sides signalled that the atmosphere, at least, in Tuesday's initial session of talks was positive.
"They went well," Araqchi said. "We had a very constructive, very good exchange of views, very serious. It was, I can say, very businesslike."
On Monday, U.S. officials held out the prospect of quick sanctions relief if Tehran acted swiftly to allay concerns about the nuclear programme, but made it clear Iran would have to move first.
At the core of the dispute are Iranian efforts to enrich uranium to 20 percent fissile purity, a technological advance that brings it close to producing weapons-grade fuel.
Iran has previously rejected Western demands that it abandon such work as an initial step to build confidence in return for modest sanctions relief.
A U.S. administration official said any potential cutback of sanctions would be "targeted, proportional to what Iran puts on the table. No one should expect a breakthrough overnight".
Israel, Iran's arch-enemy and widely assumed to harbour the Middle East's only nuclear arsenal, has lobbied Western powers not to dilute sanctions before Iran has tackled core concerns - enrichment and lack of transparency - about its nuclear goals.
Israel's air force, in an effort to show its ability to launch long-range strikes, carried out major drills over the Mediterranean last week and on Monday.
Israel's security cabinet urged the powers to demand a complete rollback of Iran's enrichment programme - something some Western diplomats say may no longer be realistic given its size and identification by the Iranian leadership with national pride and sovereignty.
Since 2006, Iran has rebuffed U.N. Security Council demands that it shelve enrichment and has continued to expand its nuclear fuel programme, bringing ever stiffer sanctions.