The Financial Times reported on Wednesday that US Secretary of State Colin Powell recently told an internal meeting that US President George Bush was looking for an opening with Tehran.

In January 2002, Bush branded Iran along with North Korea and Iraq as part of an "axis of evil".

But hawks in Washington have apparently been resisting talks, which could help establish normal diplomatic ties between the arch-foes, according to US officials and mediators.

The offer, known in diplomatic circles as "Iran's grand bargain", was first communicated to the US State Department through Swiss diplomats in May 2003, reported the FT.

Under the plan, Tehran would address US concerns over nuclear arms, terrorism, as well as co-ordinate policy on Iraq and consider a two-state solution to the Palestinian-Israeli conflict.

In return, Iran would expect a lifting of sanctions, recognition of its security interests, dropping of "regime change" from the official US lexicon and eventual re-establishment of relations.

Switzerland reproached

"They proposed concrete steps on how to work on this. The substance of the agenda was pretty reasonable," said an American familiar with the proposal.

Al-Baradai has also suggested
talks between Iran and the US

The US gave no formal response to the Iranian offer and the Swiss foreign ministry received a rebuke from Washington for "overstepping" its mandate, reported the FT.

Switzerland has looked after US interests in Iran since Washington cut ties with Tehran after the 1979 Islamic revolution.

Washington accuses Tehran of developing nuclear arms, allegations that Iran categorically denies. The US has been pushing to put the issue before the UN Security Council for possible sanctions.

IAEA support

US sources also said UN nuclear watchdog chief Muhammad al-Baradai suggested dialogue between Washington and Tehran as a way of resolving a growing controversy over Iran’s nuclear programme.

Al-Baradai, director-general of the International Atomic Energy Agency, "thinks the Iranians are open to a deal" on the nuclear issue, but it would need to include a move towards normalised ties between the US and Iran.

Al-Baradai raised the idea of a US-Iran dialogue in talks with Deputy Secretary of State Richard Armitage in Washington on Tuesday.

The US official said the Americans were unclear if al-Baradai was communicating a message from Tehran or expressing his own views.

Al-Baradai "said what others have said before, that the Iranians are interested in talking," said the official.