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UNITED NATIONS, Aug 26 (Reuters) - Iranian leaders received and rejected in May a proposal from domestic "pragmatists" to halt Iran's nuclear enrichment program to resolve its feud with the West and avoid new U.N. sanctions, Western diplomats said.

Iran has repeatedly rejected international demands that it freeze its uranium enrichment program, which Western powers suspect is a facade for nuclear weapons development -- a charge Iran denies. Tehran has been hit with three rounds of U.N. sanctions for pressing ahead with enrichment.

Speaking on condition of anonymity, several diplomats said the proposal came from "pragmatists" inside Iran and called for a temporary suspension of "limited scope and duration." Tehran says its atomic program will produce electricity, not bombs.

They said the proposal, made before Iran's June 12 presidential election but after U.S. President Barack Obama's offer in March of direct talks with Tehran, was ultimately rejected by Supreme Leader Ayatollah Ali Khamenei.

The diplomats did not identify who came up with the idea. One diplomat said it came from people close to conservative Iranian politician Mohsen Rezai, a failed presidential candidate and secretary of the country's Expediency Council.

Hardline Iranian President Mahmoud Ahmadinejad, who won an election opposition politicians say was rigged, criticized his rival candidates in May for wanting what he described as a policy of... >>>