By Louis Charbonneau and Fredrik Dahl
VIENNA (Reuters) - Iran and six powers failed on Monday for a second time this year to resolve their 12-year dispute over Tehran's nuclear ambitions, and gave themselves seven more months to overcome the deadlock that prevented them from clinching an historic deal.
Western officials said they were aiming to secure an agreement on the substance of a final accord by March but that more time would be needed to reach a consensus on the all-important technical details.
Iranian President Hassan Rouhani said "many gaps were narrowed and our positions with the other side got closer" at the Vienna talks, state TV quoted him as saying.
U.S. Secretary of State John Kerry gave a more sombre assessment, saying "real and substantial progress had been made but adding that "some significant points of disagreement" remained.
"These talks are not going to get easier just because we extend them. They're tough. They've been tough. And they're going to stay tough," he told reporters.
Under an interim deal reached by the six powers and Iran a year ago in Geneva, Tehran halted higher level uranium enrichment in exchange for a limited easing of international sanctions which have badly hurt its economy, including access to some frozen oil revenues abroad.
Monday marked the second self-imposed deadline for a final settlement to have passed without any deal. "We have had to conclude it is not possible to get to an agreement by the deadline that was set," British Foreign Secretary Philip Hammond told reporters, adding that the target date had been extended to June 30, 2015.
Tehran has repeatedly dismissed Western fears that its nuclear programme might have military aims, saying it is entirely peaceful. However, the six powers - the United States, France, Germany, Russia, China and Britain - want to cut back Iran's uranium enrichment programme to lengthen the time it would need to build a bomb.
Hammond said the expectation was that Iran would continue to refrain from sensitive atomic activity. There was a clear target to reach a "headline agreement" of substance within the next three months and talks would resume next month, he said.
It is unclear where next month's talks will take place, he said, noting that during the extension period, Tehran will be able to continue to access around $700 million (445.95 million pounds) per month in sanctions relief. A source close to the talks said Vienna and Oman were possible venues for next month's discussions.
An Iranian official confirmed the extension, as did Russian Foreign Minister Sergei Lavrov, who echoed Kerry's comments about "substantial progress".
A report by the International Atomic Energy Agency, the U.N. nuclear watchdog, showed that Iran had reduced its stockpile of low-enriched uranium gas and taken other action to comply with last year's interim agreement with world powers.
SCEPTICISM
No details about the "substantial progress" were immediately available. One senior Western diplomat expressed pessimism about the prospects for an agreement in seven months time.
"It's been 10 years that proposals and ideas have been put forward," he said on condition of anonymity. "There's nothing left. It's essentially a side issue now. The Iranians are not moving. It is a political choice."
The Vienna talks have aimed for a deal that could transform the Middle East, open the door to ending economic sanctions on Iran and start to bring a nation of 76 million people in from the cold after decades of hostility with the West.
The cost of failure could be high, and Iran's regional foes Israel and Saudi Arabia are watching nervously. Both fear a weak deal that fails to curtail Tehran's nuclear ambitions, while a collapse of the negotiations would encourage Iran to become a threshold nuclear weapon state, something Israel has said it would never allow.
As it appeared likely that no agreement was in the offing, Israeli Prime Minister Benjamin Netanyahu said: "No deal is better than a bad deal."
The main sticking points in the talks are the scope of Iran's enrichment programme, the pace of lifting sanctions that have crippled Iran's economy and the duration of any deal.
So far, Western officials said Tehran has refused to budge on its demand to continue to operate most of its enrichment centrifuges currently in operation. Tehran blames the West for making excessive demands on the Islamic Republic.
Several Western officials have questioned the value of extending the talks again, saying there is little reason to expect the Iranians will show the flexibility needed to end the impasse in the weeks and months ahead. They have also questioned the Iranian leadership's desire to compromise.
(Additional reporting by Jonathan Allen, John Irish and Parisa Hafezi; Editing by Giles Elgood)