Iran and Egypt have agreed to restore full diplomatic relations, a senior Iranian official has said.
The street name honoured Sadat's assassin
Vice-President Mohammad Ali Abtahi said ties would resume in a few days, but Egypt said no decision had been taken.
The move comes after Tehran council renamed a street bearing the name of the assassin of Egypt's President Anwar Sadat - a key Egyptian demand.
Tehran severed ties with Cairo in 1980 in protest at Egypt's peace treaty with Israel signed two years earlier.
Relations between the two countries reached a low point in the 1980s, but have been steadily improving since.
Mr Abtahi said a decision to work towards restoring full diplomatic ties was taken at a meeting last month between Iranian President Mohammad Khatami and Egyptian President Hosni Mubarak, the first between the two countries' heads of state since the 1979 Iranian revolution.
"By working together Iran and Egypt can become an influential power in world issues," the vice-president told Reuters news agency.
"The two countries have decided to restore ties. It's a definite move and right now they are making the preparations," he added.
But Egyptian Foreign Minister Ahmed Maher said he had nothing to announce.
"When a decision is taken, it will be announced," he said. "There is no
official announcement from anywhere."
Tehran city council agreed to rename Khaled Eslamboli Avenue following a request on Monday from the foreign ministry.
Eslamboli was executed in Egypt for his role in the assassination of Sadat by Muslim militants at a military parade in Cairo in 1981.
Iran cut ties with Egypt after it recognised Israel
The street has been renamed Intifada Avenue - after the Palestinian uprising against Israel - the Iranian news agency Irna reported.
Mr Asefi told the council the name change was "a step in the direction of detente and building confidence in international relations".
He also welcomed comments by Egyptian Foreign Minister Ahmed Maher on Monday in which he said the peace deal with Israel was "merely a thing of the past".
Relations between Egypt and Iran - which does not recognise Israel - were particularly bad during the 1980s, when Egypt supported Iraq in its war against Iran.
Low level contacts continued and trade links improved during the 1990s.