Thursday's move could help clear the way for Tokyo to clinch a deal on a $2 billion contract to develop a giant oilfield.

Resource-poor Japan has been juggling its desire to bag the contract to develop the Azadegan oilfield with pressure from the United States - its main security ally - to back off because of concerns that Tehran is developing nuclear weapons.

Iran says its nuclear programme is for peaceful purposes only.

Iranian Foreign Minister, Kamal Kharazi, told Prime Minister Junichiro Koizumi that Tehran wanted to broaden cooperation with the UN's International Atomic Energy Agency and begin talks on signing an Additional Protocol, allowing snap inspections of nuclear sites, a Japanese Foreign Ministry official said.

Sovereignty under threat

Iran had said on Tuesday it was ready to sign the IAEA's Additional Protocol, but wanted clarification on "the preservation of its sovereignty" under the enhanced inspection programme, a reservation analysts said could delay final agreement.

Speaking to reporters after his meeting with Koizumi, Kharazi declined to discuss details of talks on the contract to develop Azadegan, one of the world's largest untapped oilfields.

A Japanese-backed consortium missed a 30 June deadline and lost exclusive rights to the deal.

"Japan and Iran have been discussing this for a long time and those talks are continuing," Kharazi said.

"We produce and sell energy. If Japan invests in Iran, that will help it secure stable energy supplies," Kharazi added.


"It will happen and the Americans will probably accept it, at the end of the day"

Western diplomat

Japan's trade minister, Takeo Hiranuma, said earlier this week that progress had been made in the talks, but officials have offered no timetable for when a deal might be finalised.

The Japanese Foreign Ministry official said Azadegan had not come up in Kharazi's talks with Koizumi.

The Japanese consortium includes the government-backed Japan Petroleum Exploration Co (JAPEX) and INPEX Corp as well as trading house Tomen Corp.

Atomic activities

Fears that Tehran wants nuclear weapons were stoked by a new IAEA report that showed Iran had repeatedly failed to inform the UN nuclear watchdog of its atomic activities, Western diplomats in Vienna, where the agency is based, said on Wednesday.

Japan, though, has never been comfortable with Washington's inclusion of Iran - Tokyo's third largest oil supplier - as part of an "axis of evil" with Iraq and communist North Korea.

Japanese Foreign Minister, Yoriko Kawaguchi, reiterated on Wednesday that Tokyo viewed the oil deal and the nuclear concerns as separate matters, and some diplomatic experts said that ultimately Tokyo was likely to finalise the contract.

The timing, however, could well be affected by progress towards Tehran's signing the Additional Protocol.

"There is a public presentation issue with regard to how it chimes with the nuclear problem and that obviously has a bearing on when this (the oil deal) can be done," a Western diplomat said.

"I think Japan will go ahead and take the contract, but the way it will be done is to spread over a period of time, and fudged in various ways," he said.

"It will happen and the Americans will probably accept it, at the end of the day."