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VIENNA (Reuters) - Iran and six powers failed on Monday for a second time this year to resolve their 12-year stand-off over Tehran's nuclear ambitions, and gave themselves seven more months to clinch 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, trying to win relief from crippling international economic sanctions by patching up relations with the West, said the gap between the sides had narrowed at the latest round of talks in Vienna.
"It is true that we could not reach an agreement but we can still say that big steps have been taken," he told state television.
U.S. Secretary of State John Kerry gave a more guarded 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 in the Austrian capital.
The cost of failure could be high. Iran's regional foes Israel and Saudi Arabia fear a weak deal that fails to curtail Tehran's potential to produce a nuclear weapon. A collapse of the talks would spur Iran to become a threshold nuclear weapon state, something arch-foe Israel has said it would never allow.
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 the financial and trade sanctions which have badly damaged its economy, including access to some frozen oil revenues abroad.
Monday marked the second time a self-imposed deadline for a final settlement has passed without any deal. British Foreign Secretary Philip Hammond told reporters that the target date had been extended to June 30, 2015.
"We remain convinced that, based on the progress made and on the new ideas which continue to be explored, there is a credible path through which a comprehensive solution can be reached," Iranian Foreign Minister Mohammad Javad Zarif and European Union envoy Catherine Ashton, who coordinates the negotiations on behalf of the global powers, said in a joint statement.
"We intend to build on the current momentum in order to complete these negotiations within the shortest possible time."
Tehran dismisses Western fears that its nuclear programme might have military aims, saying it is for peaceful energy only. However, the six powers - the United States, France, Germany, Russia, China and Britain - want to curb its uranium enrichment further to lengthen the time Iran would need to build a bomb.
"I am certain that we will reach the final accord, if not today, then tomorrow," said Rouhani, who discussed the nuclear issue with Russian President Vladimir Putin by phone on Monday.
A soft-spoken pragmatist, Rouhani won election by a landslide last year on promises to work to end Iran's international isolation.
But he made clear that Tehran was taking a firm line at the talks. "There is no question the nuclear technology and facilities of the Islamic Republic of Iran will remain active and today the negotiating sides know that pressure and sanctions against Iran were futile," he said.
Rouhani faces heavy pressure from hardline conservatives at home who have already blocked his drive to ease restrictions on Iranians' individual freedom.
The U.S. administration of President Barack Obama must also overcome strong domestic misgivings.
Three influential Republican senators said the extension should be coupled with increased sanctions and a requirement that any final agreement be sent to Congress for approval.
The three - John McCain, Lindsey Graham and Kelly Ayotte - said in a statement that a "bad deal" with Iran would start a nuclear arms race in the Middle East.
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."
But Kerry defended the decision not to abandon the talks. "We would be fools," he said, raising his voice, "to walk away from a situation where the breakout time (for Iran to develop a nuclear weapon) has already been expanded rather than narrowed, and the world is safer because this program is in place."
In Washington, White House spokesman Josh Earnest said imposing fresh sanctions now could be counterproductive.
Hammond said there was a clear target to reach a "headline agreement" of substance within the next three months and talks would resume in December, he said.
It is unclear where next month's meeting will take place, he said, noting that during the extension period, Tehran will be able to continue to access around $700 million per month in sanctions relief under an interim agreement reached a year ago.
Zarif told reporters: "Hard decisions need to be made, but I believe we can reach a solution ... We don't need to waste our time with this manufactured crisis."
One senior Western diplomat expressed pessimism. "It's been 10 years that proposals and ideas have been put forward," he said. "The Iranians are not moving."
Additional reporting by Parisa Hafezi, Jonathan Allen, John Irish, Vladimir Soldatkin, Patricia Zengerle and Will Dunham; Editing by Giles Elgood and David Stamp/Mark Heinrich