Iranian nuclear chief suggests Tehran could stop production of 20% enriched uranium and continue lower-level uranium enrichment • Announcement comes after Iran first rejects U.S. demands prior to talks set to begin on Friday in Istanbul • Netanyahu: Iran uses talks in order to try and delay and deceive the West.

Iran´s nuclear chief on Sunday signaled that Tehran´s envoys may bring a compromise offer to talks this week with world powers: Promising to eventually stop producing its most highly enriched uranium, while not totally abandoning its ability to make nuclear fuel.

The proposal outlined late Sunday seeks to directly address one of the main issues in the talks scheduled to begin Friday between Iran and the five permanent Security Council members plus Germany. The U.S. and others have raised serious concerns about Iran´s production and stockpile of uranium enriched to 20 percent, which could be turned into weapons-grade strength in a matter of months. Uranium has to be enriched to more than 90% to be used for a nuclear weapon.

Israel and other Western countries fear Tehran is seeking to develop an atomic weapon, a charge Iran denies.

Fereidoun Abbasi, Iran´s nuclear chief, said Tehran could stop its production of 20% enriched uranium needed for a research reactor, but continue enriching uranium to lower levels for power generation. Abassi told Iranian state television late Sunday that this could take place once Iran has stockpiled enough of the 20% enriched uranium.

His comments came a day after Iran rejected calls by the U.S. to curtail its nuclear program, declaring that it will dictate terms to the West and not the other way around.

Meanwhile, in Israel, officials believe Iran´s newfound willingness to reengage in negotiations is merely a stalling tactic.

“Israel’s policy on Iran has not changed nor has Israel’s policy on what needs to happen in the talks between Iran and the P-5+1," Prime Minister Benjamin Netanyahu said Sunday. "We have seen in the past how Iran uses the talks in order to try and delay and deceive the West.

"Therefore, the demands need to be clear," Netanyahu stressed. "One, stop all enrichment of uranium, both 20% and 3%. Two, move all enriched material out of Iran’s territory; it is possible to give them alternative material for peaceful purposes. Three, dismantle the illegal facility in Qom.

"Naturally, we will monitor the talks to see that Iran does not use them in order to deceive the world and continue with its nuclear program," the prime minister said.

Italian Prime Minister Mario Monti, who is in Israel on an official visit and met with Netanyahu, Foreign Minister Avigdor Lieberman and Finance Minister Yuval Steinitz on Sunday, also expressed concern that Iran was biding for time to develop its nuclear program.

Steinitz told Monti, who also serves as Italy´s finance minister, that Iran´s economy is on the verge of collapse. "Now is the time to continue and tighten sanctions further, and not let up," Steinitz said.

However, Iranian President Mahmoud Ahmadinejad on Sunday continued to stress the importance of the country´s nuclear industry, saying it "is like a locomotive that can push ahead other industries such as the space industry, which brings up tens of other industries as well."

"This is the same clear path we must continue," Ahmadinejad said according to the official IRNA news agency.

The latest round of expected talks comes after Iran´s Supreme Leader Ayatollah Ali Khamenei gave a rare nod of approval last month to U.S. President Barack Obama´s assertion that there was still room for diplomacy. Washington has said it wants to hear further details regarding Khamenei´s pledge that Iran would never seek nuclear armament.

According to a report by The New York Times on Sunday, the U.S. has demanded that Iran shut down its underground uranium enrichment facility in Fordo, near the Shiite Muslim holy city of Qom, agree to enrich uranium only up to the level of 3.5%, and transfer all the uranium it had already enriched to the level of 20% to a third party. However, Iran rejected the West´s demands, saying it will not close its Fordo underground facility nor forego higher-level uranium enrichment.

The demands, which were identical to those first outlined by Netanyahu last month during his visit to Canada, were said to be part of a plan that would enable the U.S. to accept an Iranian civilian nuclear program.

Abbasi, head of Iran´s Atomic Energy Agency, rejected the demands outright. Speaking on Sunday, he said, "The demands are irrational. The Fordo facility was built underground due to sanctions and threats of attack. If they didn´t threaten us and promised not to resort to military action, there would be no need to build underground facilities. They need to change their behavior and language."

Iran announced in a statement that its nuclear reactor in Bushehr, one of the main nuclear installations in the country, will achieve 100% electricity production this summer, Army Radio reported.

Israeli officials, meanwhile, do not believe the planned talks in Istanbul will yield positive results. They believe the U.S. aims to pressure the Iranians to end the military dimensions of their nuclear program, while the Iranians view the talks as a way to get the West to accept their nuclear program.

Israeli officials have avoided issuing any negative responses to the scheduled talks because they know the U.S. and Europe consider them a "last-ditch effort" to solve the crisis.

Defense Minister Ehud Barak reiterated the terms that would constitute a successful end to the crisis. In an interview with CNN to be aired on Monday, parts of which were previously released, Barak said: "We do not oppose negotiations, but the negotiations must have clear aims that will prove Iran has stopped its enrichment activity. It is clear that the latest sanctions have upped the stakes a notch. Expelling Iran from the SWIFT international transaction system and sanctions related to the importing of Iranian crude oil were significant measures, but I don´t believe sanctions and pressure will cause the Iranian leadership to conclude that they need to abandon their military nuclear program."

Israel has said that it does not oppose Iran having a nuclear reactor for research purposes as long as it is under international supervision, like its own reactor at the Soreq facility.

Meanwhile, Iran continued to warn Israel against attacking its nuclear facilities. State-controlled Fars news agency reported on Monday that Chief of Staff of the Iranian Armed Forces Maj. Gen. Hassan Firouzabadi said Tehran would "demolish the illegal Zionist nest" if attacked.

Firouzabadi reportedly threatened to "flatten" strategic sites throughout Israel if his country were attacked and said he was confident that Iran´s deterrence has reduced the threat of military action.