"At least the proposal was not flatly rejected", as it was when European Union negotiators Britain, Germany and France presented a package of benefits last August to win guarantees that Iran would not seek nuclear weapons, a Western diplomat said.

"The possibility that there will be negotiations in the future looks likely but the sticking point is going to be: will Iran turn off its centrifuges (which make enriched uranium) before sitting at the table? And they're not there yet," the diplomat added.

US President George W. Bush on Tuesday welcomed Iran's "positive" initial reaction and said: "We will see if the Iranians take our offer seriously. The choice is theirs to make."

"I have said the United States will come and sit down at the table with them, so long as they are willing to suspend their enrichment in a verifiable way," Bush said in Laredo, Texas.

Iran gave a cautious reception Tuesday to the joint proposal from Britain, China, France, Germany, Russia and the United States which offers a range of benefits, such as the United States offering to lift some of its trade sanctions against Tehran and the six countries helping Tehran acquire light-water nuclear reactors.

Lifting sanctions would allow sales to Iran of items such as agricultural technology plus commercial aircraft to replace the country's dilapidated fleet.

The incentives offer, which European Union foreign policy chief Javier Solana presented in Tehran Tuesday, is accompanied by a threat of UN Security Council penalties if Iran fails to meet the condition for talks, namely halting uranium enrichment that can make nuclear reactor fuel but also nuclear bomb material.

"There are positive steps in the proposal, and there are also some ambiguities that should be cleared up," Iran's top national security official, Ali Larijani, said on state television.

Western officials have said Iran is expected to reply within a matter of weeks.

A senior European diplomat in Vienna, who like others asked not to be named, said: "I think it's a very good and positive reply but also a very clever one because it opens the way for a dialogue."

There is however "a big difficulty how to get into dialogue and negotiation, given the preconditions which are there," the diplomat said.

Iran refuses to suspend enrichment work, having only started in April to produce enriched uranium from a small-scale centrifuge cascade of 164-machines it has built at a facility in Natanz.

Iran insists that it has a right to peaceful nuclear fuel work under the Non-Proliferation Treaty.

Iran says this is especially true since it is still doing research that is not a proliferation threat, rather than industrial-scale enrichment that would involve tens of thousands of centrifuges and could produce enough highly enriched uranium for a nuclear bomb within weeks.

"The trick will be for the two sides to get into negotiations without giving up too much of positions of principle. A formula must be found," the European diplomat said.

Diplomats said the dynamic has changed as the United States last week offered to talk directly to Iran, a major concession after 27 years of an American stand off with Tehran since the Islamic regime took over.

Non-proliferation analyst Mark Fitzpatrick, from the International Institute for Strategic Studies (IISS) think tank in London, said he thought "there is a way that each side can get into talks, meeting its bottom line, without losing face."

This was for the Iranians to say, and for the United States to accept, that "they are taking a pause in running their centrifuges anyway for technical reasons," Fitzpatrick said.

Iranian officials have indicated Tehran may be willing to limit itself to research-scale work but the US position is that even one centrifuge spinning is one too many, fearing that Iran will acquire the "break-out" capability for making nuclear weapons.

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