(Reuters) - A former Iranian negotiator on Friday dismissed as "diamonds for peanuts" a proposal by world powers that Tehran halt higher-grade uranium enrichment and close an underground nuclear site in exchange for reactor fuel and civil aviation parts.

Hossein Mousavian, now a visiting scholar at Princeton University in the United States, said he did not believe Iran would accept the offer when the two sides hold a new round of discussions in Moscow on June 18-19.

It will be the third meeting since diplomacy restarted in April after a 15-month hiatus.

"I do not expect too much," said Mousavian, a senior member of Iran´s nuclear negotiating team in 2003-05.

If the major powers are not ready to move on the critical issues of gradually removing sanctions on Iran and recognizing its right to refine uranium, "I´m afraid the Moscow talks also would fail," he told Reuters in a telephone interview.

Mousavian held his post before conservative President Mahmoud Ahmadinejad took over from his reformist predecessor Mohammad Khatami in 2005. Western envoys who know Mousavian say that at the time he appeared to be genuinely interested in reaching a deal with the West.

The six powers - the United States, France, Germany, Britain, China and Russia - want to make sure Iran does not develop nuclear bombs. The Islamic Republic wants a lifting of sanctions and recognition of what it says are its rights to peaceful nuclear energy, including enriching uranium.

European Union officials said on Monday that Iran had agreed to discuss a proposal to curb its production of higher-grade uranium at the meeting in the Russian capital, an apparent attempt to reduce tensions ahead of the talks.

The development followed more than two weeks of wrangling between Iranian diplomats and Western negotiators over preparations for the closely watched round of negotiations.

Mousavian said Iran was ready for a "big deal" on the decade-old nuclear dispute, but political constraints in the United States ahead of November´s presidential election and other factors meant the other side was not.

"President Obama has very limited room to maneuver in an election year," Mousavian said. Barack Obama´s Republican opponents have attempted to paint him as soft on enemies of the United States.

"DELIBERATELY UNGENEROUS"

In the immediate term, the powers want Tehran to cease enriching uranium to 20 percent fissile concentration, because such production represents a major technological advance en route to making weapons- grade material.

They put forward a proposal on how to achieve this at a round of talks in Baghdad in May, in which Tehran would stop production, close the Fordow underground facility where such work is done, and ship its stockpile out of the country.

In return, they offered to supply the Islamic state with fuel for a medical research reactor in Tehran, which requires 20-percent uranium, and to ease sanctions against the sale of commercial aircraft parts to Iran.

No agreement was reached in Baghdad but the seven countries agreed to continue discussions in Moscow.

"I believe this is diamonds for peanuts," Mousavian said, adding that Iran already had fuel rods. "Therefore this is not something great to offer Iran."

The International Crisis Group think-tank said the powers´ offer "was deliberately ungenerous" and likely to have been meant as an opening bid in what they regarded as a longer process of negotiations.

But a U.S. nuclear expert, David Albright, said Mousavian´s comments showed the "difficulty of negotiating" with Iran.

The agreement sought by the powers in Moscow would be a small but important step which does not solve the Iran nuclear issue, said Albright, of the Institute for Science and International Security (ISIS) think tank.

"Iran should expect only a small incentive in return ... the fact of the matter is that these actions are equivalent to peanuts for peanuts," Albright said in an email.

Mousavian said, however, that Iran was ready for confidence-building measures regarding its enrichment of uranium to 20 percent, which it started in 2010 and has since expanded.

He said his own proposal was that Iran would agree to eliminate such material from its stockpile, either by converting it to fuel, exporting it or lowering its enrichment concentration to 3.5 percent - the level usually required for power plants. (Editing by Rosalind Russell) (© Thomson Reuters 2012. 06/15/12)