Arab role needed to solve Iran nuclear issue - ElBaradei

VIENNA (Reuters) - The stand-off over the disputed Iranian nuclear programme cannot be resolved without the engagement of Iran's Arab neighbours, U.N. atomic watchdog chief Mohamed ElBaradei said on Monday.

He said a U.S. policy turnabout towards direct talks with Iran has boosted chances of a peaceful solution but the involvement of Arab states was crucial. Arabs have historically mistrusted Iran but are split over how to deal with it.

"I find it surprising that the Arab countries are not engaged in dialogue between Iran and the West. The neighbours so far have been sitting on the fence. Any solution to the Iranian issue has to engage the neighbours," ElBaradei said.

Middle East analysts say Gulf Arab states had little love for ex-U.S. President George W. Bush's hawkish, no-negotiations stance on Iran, fearing it could lead to a ruinous regional war.

But now they worry that any U.S. rapprochement with Iran could ultimately produce a nuclear-armed, non-Arab, Shi'ite Muslim superpower in their back yard and squeeze Sunni Muslim Arabs between two non-Arab nuclear power hubs, Iran and Israel.

Any collective Arab action on Iran, however, appears mired in chronic divisions over other issues including a 2002 Saudi-sponsored peace offer to Israel, opposed by some hardline or militant Arabs backed by Iran.

ElBaradei also said a Middle East security structure drawing in Iran, all Arabs and Israel, believed to have the region's only nuclear arsenal, would be an indispensable part of any Middle East peace arrangement.

A lack of security guarantees, he said, lay at the heart of Iran's motivation to pursue what would be virtual nuclear weapons status, since uranium enrichment can be used either for electricity generation or for material to detonate atom bombs.

Iran says its nuclear programme is to generate electricity.

"Iran could be a positive force in the region; it could also be a source of conflict and confrontation," ElBaradei told a foreign policy forum gathered in Austria's parliament.

The 66-year-old Egyptian, who won the Nobel Peace Prize along with the Vienna-based agency in 2005, will leave office in November after 12 years at the IAEA helm.