The Clinton administration is closely watching the signals coming out of Tehran. On Sunday President Khatami said he would like to have a dialogue with the "great people of the United States", as he called them. But he criticised American politicians, saying they were behind the times.

Nevertheless his remarks were regarded as the most interesting olive branch to emerge from Tehran in many years.

In his response yesterday President Clinton offered a small but noticeable softening in the standard American position.

He said Iran was entitled to its opinion about the Middle East peace process as long as it did not seek to undermine it.

Hitherto Iran's opposition to the peace process has been one of the three issues Washington has intoned like a mantra to justify its hard-line stance towards Tehran.

The others are Iran's support for terrorism and its efforts to develop nuclear and chemical weapons.

The US administration has for some time been rethinking its policy of containing Iran.

Even before the election of Mr Khatami in May there were voices in Washington arguing the policy had done little to improve Iran's behaviour and much to damage America's relations with its allies in Europe and Japan, who have never hidden their reservations about the policy.

But the Iranian presidential election - a powerful expression of the desire ofordinary Iranians for change - has added an important new factor into a complex equation. It has, at the very least, produced a new and more propitious climate.

But the road to a new relationship between Washington and Tehran will be long and hard.

For one thing there are tremendous psychological problems to be overcome.

When two countries demonise one another for almost two decades, they build up a legacy of hostility, mistrust and bitterness which is difficult to dissipate.

Foreign policy on both sides is also hostage to domestic politics.