Iran agreed to curb its nuclear programme for the next six months in exchange for limited sanctions relief, in a preliminary accord meant to lay the foundations for a more permanent, comprehensive agreement later this year.
The deal was reached in marathon talks in Geneva that ended before dawn after long tractions between Iran and the five permanent members of the UN Security Council plus Germany.
Tehran's arch-foe Israel slammed the deal as a "historic mistake" that left open the capability for the Islamic republic to develop a nuclear arsenal.
But the six powers involved hailed it as a key first step that for now warded off the prospect of military escalation — a geopolitical breakthrough that would have been unthinkable only months ago.
UN Secretary General Ban Ki-moon said the deal "could turn out to be the beginnings of a historic agreement" for the Middle East.
Tehran boasted at home that the accord recognized its "right" to enrich uranium — which it says is for peaceful purposes — but Western leaders said the deal made no such reference.
Under the deal, Tehran will limit uranium enrichment -- the area that raises most suspicions over Iran's alleged nuclear weapons drive -- to low levels that can only be used for civilian energy purposes.
It will neutralize its stockpile of uranium enriched to higher 20-percent purity -- very close to weapons-grade -- within six months, US Secretary of State John Kerry said in Geneva after clinching the deal.
Iran will not add to its stockpile of low-enriched uranium, nor install more centrifuges or commission the Arak heavy-water reactor, which could produce plutonium fissile material.
In exchange, the Islamic republic will receive some $7 billion in sanctions relief and the powers promised to impose no new embargo measures for six months if Tehran sticks to the accord.
But the vast raft of international sanctions that have badly hobbled the Iranian economy will remain untouched.
The interim sanctions relief was "limited, temporary, targeted, and reversible," the White House said, stressing that "the vast bulk of our sanctions, including the oil, finance, and banking sanctions architecture" will stay in place.
Hassan Rouhani, whose election as Iran's president in June raised hopes of a thaw with the West, insisted "Iran's right to uranium enrichment on its soil was accepted in this nuclear deal by world powers".
But Kerry was adamant: "This first step does not say that Iran has the right of enrichment, no matter what interpretative comments are made."
British Foreign Secretary William Hague told the BBC that a final, comprehensive accord — if reached — would grant Iran a "right" to peaceful nuclear energy.
"The (interim deal) document does not resolve the argument about whether there is such a thing as the right to enrich," Hague told the BBC.
"What it says is that, as part of a comprehensive solution . . . Iran would be able to enjoy its basic rights to nuclear energy for peaceful purposes, and that would involve what we call a mutually-defined enrichment programme limited to practical needs."
Russia said it was a win-win deal, while Iran's other ally China said the document would support stability in the Middle East.
But President Vladimir Putin also echoed Obama's note of caution: tougher battles surely lie ahead.
"A breakthrough step has been made, but only the first on a long and difficult path."
France called Sunday's deal "an important step in the right direction."
The next six months will see Iran and the United States, China, Russia, France, Britain and Germany negotiating the more comprehensive deal.
"This is going to challenge all of the feelings, and conceptions and ideologies and emotions that have been pent up in the US, in the West and in Israel and elsewhere for decades," he said.
Sanctions have 'begun to crack'
The deal was reached at the third round of talks between the P5+1 and Iran since Rouhani replaced the more hawkish Mahmoud Ahmadinejad in August.
Iranians, many of whom see the nuclear programme as a source of national pride, are impatient to see a lifting of sanctions that have more than halved Iran's vital oil exports since mid-2012.
"The structure of the sanctions against Iran has begun to crack," Rouhani claimed after the signing .
Supreme leader Ali Ayatollah Khamenei, who last week described Israel as a doomed "rabid dog", hailed the deal as an "achievement".
The Jewish state virulently criticized the agreement, with Prime Minister Benjamin Netanyahu telling his cabinet that "what was achieved . . . in Geneva is not a historic agreement but rather a historic mistake".
Many in Israel believe Iran's only goal is to develop a nuclear arsenal with which to threaten their country, and want the Islamic republic's nuclear facilities dismantled for good.
However, the deal extends the "breakout" time needed by Iran to develop nuclear weapons and thus "will make our partners in the region safer," Kerry said.
"It will make our ally Israel safer."
Many hardliners in the United States charged that Obama was being too soft on Iran.
"Unfortunately, some members of Congress believe further US-mandated sanctions would improve the United States' negotiating position in the next round of talks," said Daryl Kimball of the Arms Control Association.