* Iran foreign minister sees possible breakthrough at next talks
* Says deal could be done "very quickly and simply"
* Calls for sanctions move, hints at fuel swap deal
* Diplomats say signs are good but urge caution
By Marcus George
DUBAI, April 16 (Reuters) - Iran is ready to resolve all nuclear issues in the next round of talks with world powers if the West starts lifting sanctions, its foreign minister said on Monday.
In an interview with the Iranian student news agency ISNA, Ali Akbar Salehi also hinted that Iran could make concessions on its higher-grade uranium enrichment, a key concern of Western powers which suspect Iran is covertly developing a nuclear weapons capability. Tehran denies the accusations.
Both sides said they were content with progress made in Saturday's talks in Istanbul which did not go into detail but, unlike earlier rounds of negotiations, stayed on the subject of Iran's nuclear programme.
"If the West wants to take confidence-building measures it should start in the field of sanctions because this action can speed up the process of negotiations reaching results," Salehi was quoted as saying.
"If there is goodwill, one can pass through this process very easily and we are ready to resolve all issues very quickly and simply and even in the Baghdad meeting," he added, referring to a second round of talks with world powers scheduled to take place in the Iraqi capital on May 23.
It is unclear whether the Iranian foreign minister was suggesting the lifting of sanctions prior to Iran taking steps to reassure the West over its nuclear activities, but Washington has said that would not be acceptable.
"Dialogue is not sufficient for any sanctions relief, one has to get to concrete actions that are significant," said a senior Obama administration official after the talks on Saturday.
"One only begins to look at those issues when there are sufficient concrete steps taken that warrant any changes in our approach to sanctions," the official said.
Denmark, holder of the European Union's rotating presidency, also said sanctions should not be eased until Tehran takes steps to comply with the demands of the major world powers.
"I think it would be very dangerous to create a situation where we say to Iranians we might lift part of the sanctions," Danish Foreign Minister Villy Sovndal told reporters. "They are world champions in making very long negotiations lead nowhere."
Salehi asserted Iran's right to process uranium for peaceful purposes but that there might be room for a compromise on higher-level enrichment.
"Enrichment is Iran's right but we can negotiate on how we obtain uranium with different enrichment levels," he said.
"Making 20 percent (enriched nuclear) fuel is our right as long as it provides for our reactor needs and there is no question about that," he said, but added: "If they guarantee that they will provide us with the different levels of enriched fuel that we need, then that would be another issue."
The comments indicate that Iran may be prepared to consider an updated proposal of a 2009 fuel swap deal that collapsed when the two sides failed to agree on the details of implementation.
The 2009 deal would have seen Tehran export an agreed amount of its lower enriched uranium in return for fuel made from higher grade uranium which is required for the Tehran research reactor (TRR).
Iran says it started enriching uranium to a purity of 20 percent to fuel the reactor but many countries see that as a dangerous step towards the 90 percent enrichment required for an atomic bomb.
A Western diplomat said the Iranian delegation brought up the 2009 deal in Istanbul and described it as a "missed opportunity".
"This talk of the TRR could be a positive sign," he said. "We are ready to put the TRR back on the table, but with adapted quantities because things have moved since that offer."
The 2009 agreement envisaged Iran handing over 1,200 kg of low enriched uranium (LEU) in exchange for a sufficient quantity of higher-grade enriched fuel plates to feed the Tehran reactor.
Western experts estimate Iran's present stockpile of refined uranium is enough for four atomic bombs if processed much further.
While Salehi's comments strike a positive tone, the diplomat said perspective was needed: "There is no mystery, Baghdad will be complicated. It's not about opening talks for the sake of talks but moving towards Iran meetings its obligations."
Many analysts and some diplomats say both sides must compromise for any chance of a long-term settlement: Iran would be allowed to continue limited low-level enrichment if it in return accepts much more intrusive U.N. nuclear inspections.
Another Western diplomat said he believed the Iranians were trying to create momentum in a deal revolving around uranium enriched to 20 percent and Salehi's comments were more than just words.
"It has been quite a long time since the issue has been raised in such terms. I don't know where it could lead ... but it could at least be a good starter for the next meeting," he said.
But Israel, which sees Iran's nuclear plans as an existential threat, has demanded that the Islamic Republic halts all its enrichment, activity which can have both civilian and military purposes.