Turkey said on Thursday planned economic sanctions would only target outlawed Kurdish militants and groups providing them with support in northern Iraq.
The government declined to say what the new measures would include but made clear they would spare Turks and Iraqis not connected to the Kurdistan Workers Party (PKK), which has been launching attacks on Turkey from across the border.
Turkey has sent 100,000 troops to the border for a possible push into northern Iraq against PKK militants, but Iraq and the United States have urged Ankara to refrain from a major operation, fearing it could destabilise the region.
Iraqi Prime Minister Nuri al-Maliki and Turkish counterpart Tayyip Erdogan plan to meet on the sidelines of an Iraqi neighbours conference in Istanbul starting on Friday to discuss the threat posed by the PKK, a government spokesman said.
U.S. Secretary of State Condoleezza Rice will also hold talks in Turkey on Friday.
Ankara seeks immediate action from Washington and Baghdad against the PKK amid rising domestic pressure to act after dozens of Turkish soldiers were killed in recent weeks.
But diplomats say Turkey may hold fire on sanctions and major military action to see what results from the talks with Rice and discussions between Erdogan and U.S. President George W. Bush next Monday in Washington.
"We are aware of the goodwill of the Iraqi government in the fight against terrorism. However goodwill is not enough on its own. Therefore our talks with the United States... will be decisive about what steps to take against the terrorist PKK organisation," Foreign Minister Ali Babacan said.
Erdogan said the sanctions measures, agreed at a cabinet meeting on Wednesday, were not yet in force.
"We are targeting the economic sources of the terrorist organisation and those elements providing support to the terrorist organisation," Babacan told reporters.
NATO-member Turkey knows economic sanctions could end up hurting its own economy as much as that of the semi-autonomous Kurdish region of northern Iraq, which is run by Masoud Barzani.
