* Diplomats: Iranian "pragmatists" want deal with West
* Iran's IAEA envoy says unaware of suspension proposal
UNITED NATIONS, Aug 26 (Reuters) - Iranian leaders received and rejected in May a proposal from domestic "pragmatists" to halt Iran's nuclear enrichment program to resolve its feud with the West and avoid new U.N. sanctions, Western diplomats said.
Iran has repeatedly rejected international demands that it freeze its uranium enrichment program, which Western powers suspect is a facade for nuclear weapons development -- a charge Iran denies. Tehran has been hit with three rounds of U.N. sanctions for pressing ahead with enrichment.
Speaking on condition of anonymity, several diplomats said the proposal came from "pragmatists" inside Iran and called for a temporary suspension of "limited scope and duration." Tehran says its atomic program will produce electricity, not bombs.
They said the proposal, made before Iran's June 12 presidential election but after U.S. President Barack Obama's offer in March of direct talks with Tehran, was ultimately rejected by Supreme Leader Ayatollah Ali Khamenei.
The diplomats did not identify who came up with the idea. One diplomat said it came from people close to conservative Iranian politician Mohsen Rezai, a failed presidential candidate and secretary of the country's Expediency Council.
Hardline Iranian President Mahmoud Ahmadinejad, who won an election opposition politicians say was rigged, criticized his rival candidates in May for wanting what he described as a policy of "detente" with the West. Ahmadinejad says he won the election fairly.
Iran's Ambassador to the International Atomic Energy Agency in Vienna, Ali Asghar Soltanieh, said he was not aware of any proposal to suspend enrichment.
"I have not heard such a thing," he told Reuters. "As far as I know, on this issue nobody is in favor of suspension. There is one solid voice on the nuclear issue."
A senior Western diplomat said the proposal showed that within Iran's labyrinthine political system there are voices that are "pragmatic" and want to end their country's isolation and avoid further U.N. sanctions by suspending enrichment.
"Iran is not homogenous," he said. "Splits have become more apparent since the election. Many Iranians don't believe that the path they're taking is the right one."
Another diplomat said the proposal of a suspension appeared to be intended to take advantage of Obama's desire to reach out to Iran and "to achieve a diplomatic victory in the form of a (nuclear) deal with the West."
Britain's U.N. Ambassador and incoming chief of the MI6 spy agency, John Sawers, did not comment on the veracity of the reported proposal but said there were clearly divisions in Iran. He said Khamenei was more "interventionist and asserting himself more" with Ahmadinejad than with his predecessors.
The United States, Britain, France, Germany, Russia and China have offered Iran a package of economic and political incentives, including the sale of civilian nuclear technology, if it freezes its enrichment program and clears up questions U.N. inspectors have about its past nuclear activities.
French President Nicolas Sarkozy warned Iran on Wednesday that it would have to face tougher sanctions if it did not change its position on enrichment.
Tehran has yet to respond to the offer and the four Western nations intend to use a Sept. 2 meeting of all six powers to try to persuade Russia and China to back a fourth round of sanctions against Iran -- this time targeting its energy sector and not only its nuclear and missile industries.
Diplomats say Moscow and Beijing, which have strong trade links to Iran, oppose sanctions on Iran's energy sector.
Earlier this week diplomatic sources told Reuters in Vienna that Iran has not expanded the number of centrifuges enriching uranium at its Natanz nuclear site since the end of May after increasing capacity steadily over the previous three years.
The reason for the slowdown was unclear. The IAEA is due to issue a report on Iran later this week that will influence the discussions on whether Tehran should face harsher sanctions. (Additional reporting by Sylvia Westall and Mark Heinrich in Vienna; editing by Mohammad Zargham)
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