(Updates with Indian reaction, paragraphs 8-10; Bush comment, final paragraphs)

By Carol Giacomo, Diplomatic Correspondent

WASHINGTON, Nov 16 (Reuters) - The U.S. Senate approved long-stalled legislation on Thursday that is a key step toward U.S.-India nuclear cooperation for the first time in three decades.

The vote was 85 to 12 after the Republican-led Senate defeated a handful of amendments that India said would kill the deal, including a requirement that New Delhi end military cooperation with Iran. That amendment failed 59 to 38.

Several more critical approvals -- by Congress, the International Atomic Energy Agency and the 45-nation Nuclear Suppliers Group -- are needed before the agreement can take effect.

But the Senate action put India closer to being able to purchase U.S. nuclear fuel, reactors and related technology.

Critics offered the amendments in an attempt to allay concerns that the landmark deal would encourage an expanding Indian nuclear weapons arsenal and spur a regional arms race with nuclear rivals Pakistan and China.

Senate leaders, under strong pressure from New Delhi, the White House and well-funded business lobbyists, held the line against what they considered "killer" proposals.

But they accepted by voice vote an amendment requiring President George W. Bush to determine that India is "fully and actively" participating in international efforts to contain Iran's nuclear program before U.S.-India nuclear cooperation could proceed.

India said it was pleased with the Senate approval but noted that more steps remained.

"Of course we are pleased," a top Indian official, closely involved in negotiating the deal, told Reuters.

"The fact that it is done is good. But what this does is every time a step is completed, it shifts our focus onto the next one that needs to be tackled," said the official, who declined to be identified.

The United States has accused Iran of developing nuclear weapons and is pushing the U.N. Security Council to impose sanctions. Tehran says it only aims to produce nuclear energy.

IRAN TIES

Democratic Sen. Barbara Boxer of California urged her colleagues to go further and force India to end military ties with Iran, given U.S. concerns about Tehran's nuclear program, support for "terrorism" and disruptive role in Iraq.

The United States since 1989 has sanctioned Indian individuals or companies a half dozen times for transferring nuclear or chemical-related technology to Iran.

But Republican Sen. Richard Lugar of Indiana, chairman of the Senate Foreign Relations Committee, said the Boxer amendment would kill the nuclear agreement and undercut U.S. efforts to get India to cooperate in curbing proliferation.

"This legislation will allow the United States to engage in peaceful nuclear cooperation while safeguarding U.S. national security and non-proliferation efforts," he told the Senate.

Lugar, a respected advocate of efforts to stem the spread of weapons of mass destruction, called the agreement "the most important strategic diplomatic initiative" undertaken by Bush.

Sen. Joseph Biden of Delaware, who will be committee chairman when Democrats take control of Congress in January and who co-sponsored the bill with Lugar, stressed the need for cooperation with India, one of the "pillars of security in the 21st century."

But Democratic Sen. Byron Dorgan of North Dakota said the agreement would enable India -- which never signed the landmark nuclear Non-proliferation Treaty -- to accelerate nuclear arms production, spurring Pakistan and China to do likewise.

More broadly, Dorgan said, the deal repudiated decades of U.S. policy of "telling the world it's our responsibility and our major goal to stop the spread of nuclear weapons."

"It's a horrible mistake," he said.

The deal, bringing India in line with some key international norms, was reached in principle by Bush and Indian Prime Minister Manmohan Singh in July 2005.

It would require the rising South Asian power to open some civilian nuclear facilities to international inspections, forgo future nuclear tests and cooperate with the United States and other nations on halting the spread of nuclear exports.

Amendments that failed would have required India to stop producing weapons-grade fissile material and undertake non-proliferation obligations similar to the United States, like not helping non-nuclear weapons states acquire weapons capability.

Bush, en route to the Asia Pacific Economic Cooperation summit in Vietnam, praised the law's passage.

"I appreciate the Senate's leadership on this important legislation and look forward to signing this bill into law soon," he said in a statement.

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