(Edits)

By Dean Yates and Ross Colvin

BAGHDAD, April 29 (Reuters) - Iraq's foreign minister said on Sunday there was a "high possibility" Iran and the United States would hold bilateral talks at a high-powered conference in Egypt this week that will seek ways to stabilise Iraq.

Hoshiyar Zebari said such talks between the two arch foes might not be at the ministerial level, but that it would be an important step.

"I think it's important, it would be a major breakthrough and any reduction in tensions will positively impact the situation in Iraq," Zebari told Reuters in an interview without saying what he thought they might discuss.

"We don't want Iraq to be a battleground for settling scores on other agendas at our cost. Really, this has been harming us, damaging us a lot."

The U.S. State Department has said Secretary of State Condoleezza Rice would take part in the ministerial meeting on May 3-4 in the Egyptian resort of Sharm el-Sheikh and is open to direct talks with Iran over Iraq.

Zebari said he expected Iranian Foreign Minister Manouchehr Mottaki to attend the meeting, saying any level lower than this would "not be helpful, would not be welcome".

U.S. officials accuse Iran of supplying weapons and training to Shi'ite militias in Iraq, a charge Tehran denies.

Iran and the United States are also at loggerheads over Tehran's nuclear programme.

The office of Iraqi Prime Minister Nuri al-Maliki confirmed Iran would attend the meeting of major powers and countries from the region in Egypt, after weeks of speculation Tehran might skip the event.

Zebari, who visited Tehran last week to try to persuade Iran to take part, said one reason Iran had been reluctant up to now was because of its anger over the detention by U.S. forces of five Iranians in northern Iraq in January.

He said Iraq's neighbours had begun to realise how important it was to stabilise Iraq, which is being ripped apart by sectarian violence that has killed tens of thousands of Iraqis since the U.S.-led invasion in 2003.

"From my contacts, my trips, there is a gathering sense of the danger of Iraq failing, of chaos spilling across the region, sectarianism getting out of Iraq's borders, civil war, the disintegration of Iraq," Zebari said.

"There is a greater sense of these dangers by the region."

RARE OPPORTUNITY

The conference in Egypt is a follow-up to a gathering of senior officials in Baghdad in March, where Maliki urged them to help end the sectarian violence.

That meeting provided a rare opportunity for the United States and its adversaries Iran and Syria to sit at the same table. Washington accuses Syria of not doing enough to stop the flow of foreign fighters into Iraq. Damascus will attend the meeting in Egypt.

Zebari said Iraq was doing all it could to push for the release of the five Iranians who were captured by U.S. forces in the Kurdish city of Arbil in January.

Washington says the five are linked with Revolutionary Guard networks that provide explosives and arms to sectarian forces inside Iraq to attack U.S. troops. Tehran says they are diplomats.

Zebari said the meeting would not be a "talk shop", but would set up working groups to address the issues of security and Iraqi refugees forced to flee the violence. (Additional reporting by Mussab Al-Khairalla)

AlertNet news is provided by