Israeli Prime Minister Benjamin Netanyahu delivers a statement to the media after meeting U.S. Secretary of State John Kerry at Ben Gurion Airport near Tel Aviv November 8, 2013. Israel rejected out of hand on Friday a mooted deal between world powers and Iran, just as Kerry prepared to join nuclear talks that aim to nail down an interim agreement on the decade-old standoff. REUTERS/Debbie Hill/Pool (ISRAEL - Tags: POLITICS)

By Yeganeh Torbati and Lesley Wroughton

GENEVA (Reuters) - U.S. Secretary of State John Kerry said on Friday important gaps needed to be bridged in high-stakes talks with Iran on curbing its nuclear program and he began talks with Tehran's foreign minister to try to clinch an interim deal.

"I want to emphasize there is not an agreement at this point," Kerry said shortly after arriving in Geneva, tempering expectations of an imminent breakthrough that could reduce the risk of a Middle East war over Iran's nuclear aspirations.

"We hope to try to narrow these differences but I don't think anybody should mistake there are some important gaps that have to be closed," he told reporters.

Iran spelled out a major difference soon afterwards, with a member of its negotiating team, Majid Takt-Ravanchi, telling Mehr news agency that oil and banking sanctions imposed on Tehran should be eased during the first phase of any deal.

The powers have offered Iran access to up to $50 billion in Iranian funds frozen abroad for many years but ruled out any broad dilution of sanctions in the early going of an agreement.

Midway through the second round of negotiations since Iran elected a moderate president who opened doors to a peaceful solution to the nuclear dispute, Kerry joined fellow big power foreign ministers in Geneva to help cement a preliminary accord, with Israel warning they were making an epic mistake.

Diplomats said a breakthrough remained uncertain and would in any case mark only the first step in a long, complex process towards a permanent resolution of international concerns that Iran may be seeking the means to build nuclear bombs.

But they said the arrival of Kerry, British Foreign Secretary William Hague and French and German foreign ministers Laurent Fabius and Guido Westerwelle signaled that the five permanent U.N. Security Council members and Germany may be closer to an elusive pact with Iran than ever before.

Russian Foreign Minister Sergei Lavrov will join the talks on Saturday, diplomats said, signaling the November 7-8 timetable for the talks will be extended into a third day.

Lavrov's deputy was quoted by state-run RIA news agency as saying the sides were loath to leave Geneva "without a positive result (since to do so) would be a serious strategic mistake".

"There are many issues affecting the deep-seated interests of several countries. That is why the level (of the talks) is becoming ministerial. We hope that tomorrow we can achieve a result that will be long-lasting and that the whole world is waiting for," Sergei Ryabkov, Russia's main negotiator, said.

ISRAEL REJECTS MOOTED DEAL

Kerry, who postponed trips to Algeria and Morocco to come to Switzerland, began a trilateral meeting late on Friday with Iranian Foreign Minister Mohammad Javad Zarif and European Union foreign policy chief Catherine Ashton.

A senior U.S. State Department official said Kerry was committed to doing "anything he can" to overcome the chasm with the Islamic Republic. The powers aim to cap Iran's nuclear work to prevent any advance towards a nuclear weapons capability.

The top U.S. diplomat arrived from Tel Aviv where he met Israeli Prime Minister Benjamin Netanyahu, who regards Iran's atomic aspirations as a menace to the Jewish state.

Netanyahu warned Kerry and his European counterparts that Iran would be getting "the deal of the century" if they carried out proposals to grant Tehran limited, temporary relief from sanctions in exchange for a partial suspension of, and pledge not to expand, its enrichment of uranium for nuclear fuel.

"Israel utterly rejects it and what I am saying is shared by many in the region, whether or not they express that publicly," Netanyahu told reporters.

"Israel is not obliged by this agreement and Israel will do everything it needs to do to defend itself and the security of its people," he said before meeting Kerry in Jerusalem.

The White House responded by saying it was "premature" To criticize what was being deliberated in Geneva.

"There is no deal, but there is an opportunity here for a possible diplomatic solution, and that is exactly what we are pursuing," said Josh Earnest, deputy White House spokesman. "So any critique of the deal is premature."

Israel is not the only Middle East country fretting about Iran's nuclear ambitions. Saudi Arabia, Iran's chief rival for regional influence, has made clear to Washington that it does not like the signs of a possible U.S.-Iran rapprochement.

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