Iran and six world powers have started talks aimed at defusing the long-running escalating crisis over Tehran's nuclear programme, an official said.
The P5+1 powers - the United States, Russia, China, Britain, France and Germany - hope to persuade Iran in Wednesday's negotiations to suspend some of the most worrying parts of its activities but Tehran wants to see sanctions eased in return.
Iran is represented by Saeed Jalili, the lead negotiator, while the delegation from the six world powers is led by Catherine Ashton, the European Union foreign policy head.
The talks come a day after the head of the UN nuclear watchdog visited Iran and said he expected to sign a deal with Tehran on investigating suspected weapons activities connected to the country's nuclear programme.
Yukiya Amano, director-general of the International Atomic Energy Agency (IAEA), said on Tuesday in Vienna, the Austrian capital, that he reached an agreement with Iranian officials but failed to seal the deal because of "remaining, unspecified differences".
The last round of talks was held in April in Istanbul, Turkey, with officials describing the negotiations as "constructive".
News agencies quoted diplomats from the P5+1 and Iranian media as saying the meeting in the fortress-like Green Zone of the Iraqi capital would likely go into a second, unscheduled day.
Jalili said he hoped the talks would be the start of a "new era" in relations, Iranian media reported.
"We sense that the West has realised that the time for using its pressure strategy is over," Jalili was quoted as saying by the Fars and Mehr news agencies.
Michael Mann, a spokesman for the EU, said Ashton had put a new set of proposals on the table for Iran to consider.
"Our proposals are really to persuade Iran to come into line with its obligations. We hope they're going to come back positively and react to those positively. Obviously the ball is in their court now," he said from Baghdad.
"We have a number of things that we want them to do. Obviously the enrichment of uranium to 20 per cent is one of the major things the international community is worried about."
Although Iran maintains its nuclear programme is intended to produce energy, the West fears a nuclear-armed Iran would destabilise the already volatile Middle East.
It also fears the decision will derail 60 years of international efforts to prevent the spread of atomic weapons, leading to a regional arms race.
Israel, Washington's closest ally in the region, feels its very existence would be under threat and has refused to rule out a pre-emptive strike on Iran's nuclear facilities.
At the Istanbul talks, the P5+1 and Iran managed to find enough common ground to come to Baghdad, with both sides hailing what they said was a fresh approach from the other.
But the Baghdad meeting will put these renewed efforts at rapprochement to the test as they seek to set the parameters of what will be a lengthy and arduous process of compromise requiring hitherto unseen amounts of patience and trust.
One key way for Iran to win the confidence of the P5+1 will be a suspension of 20-per cent enrichment, while another would be Iran shipping its stockpiles of enriched uranium abroad.
Meanwhile, Mahmoud Ahmadinejad, the Iranian president, will visit China in June for a security summit and discuss the nuclear programme with Hu Jintao, his Chinese counterpart, a senior diplomat said on Wednesday, criticising new sanctions aimed at Iran.
The summit is likely to be overshadowed by the presence of Ahmadinejad, whose country is at the centre of a standoff with the West over the nuclear programme.
"Certainly, during his meeting with President Hu, the Iran nuclear issue will be an important talking point," the diplomat said.
The visit to China takes on particular significance as China is a veto-wielding permanent member of the Security Council and has resisted US demands for sanctions on Iran.
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