Iran-US: Reversing A Thaw?

"People here have come to realize that Israel is too big an obstacle to aim for full diplomatic relations with the US," says another diplomat. "Khatami has really hardened his vocabulary against Israel - calling it a 'racist terrorist state' - and if Iran really wanted full ties, they wouldn't be doing that. Now they are aiming only for functional ties."

Where Iran tackles terrorism

Iran still ranks first in the State Department's lineup of state sponsors of terrorism for killing a handful of opponents abroad - a tactic also openly employed by Israel, analysts note - and supporting groups Washington deems to be terrorists.

Khatami told the UN General Assembly Sept. 21 - in the most unequivocal declaration of its kind to date - that Iran deplored terrorism in every form and would do everything to fight it.

Secretary of State Madeleine Albright is reported to be against taking the MKO off the terrorist list because it would send the "wrong message" at a delicate time.

And diplomats say the MKO terrorist listing is no surprise. The group claimed responsibility for a June bomb blast at an Islamic court in Tehran that killed three people. The MKO also said it assassinated the former prisons director and two others in a Tehran bazaar last month.

"They have carried out more terrorist attacks in the last 12 months than in the year before, when they were put on the list," says another Western diplomat. Because of his moderate policies, "Khatami is bad news for the MKO, and maybe they now feel the pressure to show that they are 'doing something.' "

The MKO has few supporters inside Iran, diplomats say, because they fought alongside Iraqi forces against Iran during the Iran-Iraq war of the 1980s. Controlled by Baghdad intelligence, MKO guerrillas carry out cross-border raids from Iraq. Iran counters with sporadic airstrikes.

According to the State Department, MKO violence began in the 1970s against the pro-West regime of Shah Muhammad Reza Pahlavi.

"Its history is studded with anti-Western activity," notes one State Department terrorism report. "Terrorist attacks" killed several US military personnel and civilians then, and the MKO supported the 1979 takeover of the US embassy in Tehran.

The MKO played a key role in the revolution, then broke with its leader, Ayatollah Khomeini. Some 200 prominent clerics of the new regime were assassinated in bomb attacks that the MKO said were the result of "people's justice."

Despite the scuffle over the MKO, the main planks of US policy remain unchanged: unilateral sanctions on Iran, laws to punish foreign investors, plans to bypass Iran with alternative oil and gas pipelines, and a "dual containment" strategy that also applies to Iraq.

US Congress-financed Radio Free Iran is due to begin beaming transmissions from the Czech Republic - a move Tehran dismisses as a cold-war tactic. House Speaker Newt Gingrich has since 1995 annually shepherded through about $20 million earmarked for "encouraging greater democracy" in Iran, a move seen in Iran as a bid to destabilize the government.

"If the Newt Gingrichs of this world dominate American foreign policy," says a senior Western diplomat, "it is difficult to imagine how there can be detente."

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