Speaking ahead of marathon talks in Rome with Israeli Prime Minister Benjamin Netanyahu, Kerry said US sanctions on Iran could be revoked only once it is clear the country's nuclear programme is peaceful.
"We do welcome the change of rhetoric, the change of tone, the diplomatic opening that the Iranians have offered," Kerry said, adding however: "We are adamant that words are no substitute for actions".
For any discussion over sanctions, he said: "We will need to know that actions are being taken which make it crystal clear, undeniably clear, failsafe to the world that whatever programme is pursued is indeed a peaceful programme."
"No deal is better than a bad deal," he said, adding: "President (Barack) Obama has made it very clear he will pursue a diplomatic initiative, but with eyes wide open".
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Netanyahu agreed with Kerry on Iran saying Iran's nuclear capability was "the foremost security problem that we face", adding: "I think a partial deal that leaves Iran with these capabilities is a bad deal."
Nuclear talks between Iran and western powers are gathering steam after Iranian negotiators last week presented a still-confidential new proposal to the West aimed at ending the stand-off.
The next talks in Geneva are set for November 7-8.
The New York Times reported last week the White House may be considering unblocking some USD 10 million in frozen Iranian assets in the United States to give the Rouhani leadership some access to badly needed foreign exchange reserves.