* Long-stalled nuclear talks set to resume in mid-April
* Newer, higher-grade enrichment may be initial focus
* Iran defied UN call to stop; may be less rigid on '20 pct'
By Fredrik Dahl
VIENNA, March 30 (Reuters) - Getting Iran to stop the higher-level uranium enrichment it started two years ago and has since sharply increased will be a priority when world powers re-enter talks with the Islamic Republic in April, Western diplomats and analysts say.
Tehran took a major step towards making potential atom bomb material after a previous attempt at diplomacy failed, spurning U.N. demands to halt all enrichment and, instead, ramping up uranium processing to 20 percent purity - goading the West to impose crushing sanctions on its banks and oil exports.
That work may provide an initial focus of new talks, expected to get under way in mid-April and seen as a chance to avert the threat of Israeli air strikes on Iran's nuclear sites that could spark a Middle East war.
"We have the impression that the White House is interested in a realistic strategy - focusing on halting 20 percent enrichment of uranium as a first-step confidence-building measure," said Greg Thielmann of the Arms Control Association, a Washington-based research and advocacy group.
Iran says it has a sovereign right to peaceful nuclear technology and has repeatedly rejected U.N. resolutions calling for a suspension of all uranium enrichment.
But it has at times appeared more flexible when it comes to the refinement of uranium to a fissile concentration of 20 percent that it began in early 2010 - much higher than the 3.5 percent it had been processing to previously.
Experts say that initially getting Iran to stop this higher-grade work could open a way to ease the deadlock.
A U.S. think tank, the Institute for Science and International Security (ISIS), said capping Iranian enrichment at 5 percent could form part of an interim deal that would give time for more substantial negotiations.
This and other priority measures would "limit Iran's capability to break out quickly," it said in a report.
The United States, Britain, France, Russia, China and Germany are the six powers involved in diplomacy aimed at resolving the long-running row over Iran's atomic plans.
Diplomats and analysts say the first meeting could be the start of a "sustained" dialogue although they do not expect a quick breakthrough after a gap of more than a year since the last round of talks ended without progress.
"I would regard an outcome of the first session in April that results in a continuing process of talks to be positive, even if there is no meeting of the minds on substance at that point," said Thielmann.
Persuading Iran to cease higher-grade enrichment, the pace of which it has trebled since late last year, may be a crucial point in the talks tentatively set to start on April 13, probably in Istanbul.
Earlier this month, Russia and China joined the four Western powers in expressing "regret" over Iran's expansion of higher-grade enrichment, most of which is now taking place deep inside a mountain to better protect it against Israeli or U.S. attacks.
That activity - which compares with the 3.5 percent level usually required to fuel nuclear power plants - would "indeed be a priority," one Western envoy said.
Other diplomats stressed that an initial focus on 20 percent enrichment should not be seen as "legitimising" lower-level work as the U.N. Security Council has demanded a full suspension. France, in particular, is believed to be concerned about this.
"These are obligations stemming from Security Council resolutions ... you can't pick and choose," one European official said, speaking on condition of anonymity.
Nuclear bombs require uranium enriched to 90 percent, but much of the effort required to get there is already achieved once it reaches 20 percent concentration, shortening the time needed for any nuclear weapons "break-out".
Iran denies Western accusations of a nuclear weapons agenda.
In September, Iranian President Mahmoud Ahmadinejad said Tehran would stop refining uranium to 20 percent if it is guaranteed fuel for a medical research reactor in Tehran - that needs higher grade uranium than that required for power generation - seeking to revive a fuel swap deal that fell apart in 2009.
But that offer may be overtaken by events, as Iran has since made some progress in making its own fuel, said proliferation expert Mark Fitzpatrick of the International Institute for Strategic Studies (IISS), a London-based think tank.
"Persuading Iran to part with its stockpile of 20 percent enriched uranium would be even more difficult," he said.
Western officials believe Iran has not yet decided whether it will "weaponise" enrichment, but rather is seeking the industrial and scientific capacity to do so if needed for military and security contingencies.
It has steadily increased uranium enrichment and now has enough 3.5 and 20 percent material for some four bombs if refined further, Western experts say.
Many analysts believe it may be unrealistic to demand that Iran suspend all enrichment as its leaders have invested so much national and personal prestige in the project.
In return for allowing limited, low-level enrichment, those analysts argue, Iran would need to accept much more intrusive U.N. inspections to make sure there is no military diversion.
Inspections and monitoring of Iran's nuclear programme should be expanded significantly, a former U.S. ambassador to the United Nations told the Senate Foreign Relations Committee.
"This would be a far more important goal of successful negotiations with Iran than to persist in our insistence that Iran suspend or freeze enrichment," Thomas Pickering added, according to a copy of his March 28 address.