Obama officials say Iran talks still possible, despite G-8 push for sanctions

Despite questions about the legitimacy of President Mahmoud Ahmadinejad's re-election and his belligerent anti-American rhetoric, the White House remains open to discussions with Iran over its nuclear ambitions.

"It's in the United States' national interest to make sure that we have employed all elements at our disposal, including diplomacy, to prevent Iran from achieving that nuclear capacity," Susan Rice, the U.S. ambassador to the United Nations, said Sunday.

Meanwhile, Italian Prime Minister Silvio Berlusconi said on Monday that the Group of Eight wealthy powers would discuss the situation in Iran and are likely to agree to adopt sanctions when they meet in Italy next week.

Speaking at a news conference to present the July 8-10 summit of G8 leaders, Berlusconi said the situation in Iran would be at the top of the international issues on the table.

Asked if the G8 would adopt sanctions against Iran, Berlusconi said he did not want to announce decisions in advance but, having spoken to his G8 partners on the telephone, "I believe things will go in the direction you have said."

As protesters filled the streets of Iranian cities after the disputed vote, Ahmadinejad accused the West of stoking the unrest, singling out Britain and the United States for allegations of meddling. Iran expelled two British diplomats last week and Britain responded in kind. Iran detained nine British Embassy employees Saturday and released at least four.

The U.S. has not had diplomatic relations with Tehran since the aftermath of the Iranian revolution in 1979. Ahmadinejad has said he would make the U.S. regret its criticism of the postelection crackdown and said the mask has been removed from President Barack Obama's efforts to improve relations.

Rice said Sunday that Ahmadinejad was falling back on his government's usual strategy of blaming the West and the United States in particular for its internal problems.

"This is a profound moment of change. And what Ahmadinejad says to try to change the subject is, frankly, not going to work in the current context, because the people understand that the United States has not been meddling in their internal affairs," she said.

"The legitimacy of the government, while questioned by the people of Iran, is not the critical issue for the U.S. goal of preventing Iran from developing a nuclear capability," Rice said.

Both Rice and David Axelrod, Obama's top adviser, said Ahmadinejad doesn't appear to have the final say over Iran's foreign policy. Axelrod, dismissing Ahmadinejad's harsh language as bloviations, said being open to talks with Iran is not an effort to reward the country.

"We are looking to... sit down and talk to the Iranians and offer them two paths. And one brings them back into the community of nations, and the other has some very stark consequences," Axelrod said.

White House officials pointed to Obama's remarks last week, urging engagement. "My expectation would be ... that you're going to continue to see some multilateral discussions with Iran," Obama said Friday.

Officials in Washington said they want Iranian officials at the negotiating table - which, they say, was not destroyed during the postelection demonstrations in Iran.

"We are also mindful of the fact that the nuclear weapons in Iran and the nuclearization of that whole region is a threat to that country, all countries in the region, and the world. And we have to address that. We can't let that lie," Axelrod said.

Iran frees detained U.K. embassy staff

Meanwhile on Monday, Iran said five out of the nine detained local staff at the British embassy in Tehran had been released, while the other four were being held for questioning, state television reported.

Iranian media said on Sunday several local British embassy staff had been held on accusations of involvement in the street protests that rocked Iran after a disputed June 12 presidential election.

"Out of nine people, five of them have been released and the rest are being interrogated," Foreign Ministry spokesman Hassan Qashqavi told a news conference in comments translated by Iran's English-language Press TV.

A senior officials said Iran has videotape proof that local employees of the British Embassy in Tehran detained for allegedly stirring up post-election unrest were distinctly present at the scene of clashes.

Intelligence Minister Gholam Hossein Mohseini Ejehi said in an interview with state television broadcast late Sunday that the detainees - all Iranian nationals - mingled with demonstrators to encourage unrest.

Ejehi said Iran's judiciary, which is tightly controlled by supreme leader Ayatollah Ali Khamenei, will decide what happens next.

"Some of them who were distinctly present at the scene of clashes and were even videotaped have been cracked down on, and we should wait and see what will happen to them later with the cooperation of the judiciary," he said.

On Sunday, British Foreign Secretary David Miliband demanded the release of all the staff held and said his European Union colleagues had agreed to a "strong, collective response" to any such "harassment and intimidation" against EU missions.

Qashqavi said Miliband and Iranian Foreign Minister Manouchehr Mottaki had spoken on the phone on Sunday evening when Miliband stressed Britain's intention was not to interfere in Iran's internal affairs.

"Mottaki said that if they really prove this in practice... this can be considered as a positive step," Qashqavi said.

Iran has stepped up accusations of Western powers - Britain and the United States in particular - interfering in its internal affairs and fomenting post-election unrest. London and Washington have denied the allegations.

In London, a Foreign Office spokesman said around nine embassy staff were detained and that "several have been released", without giving specific numbers.

Britain and Iran have already expelled two of each other's diplomats since the election, which stirred Iran's most striking display of internal dissent since the 1979 Islamic revolution.

Mottaki was last week quoted as saying Iran was reviewing whether to downgrade ties with Britain. But Qashqavi said closing down any foreign embassy or reducing diplomatic ties was not on Iran's agenda.

Qashqavi also said Iran expected Sweden to pay damages after about 200 protesters, some wearing masks and hurling stones, demonstrated outside the Iranian embassy in Stockholm on Friday.

He blamed an exiled Iranian opposition group as well as communists and monarchists for the incident, in which he said three of "our colleagues" were injured. Stockholm was known for being an "unsafe city for diplomats," Qashqavi added.

On Sunday, several thousand protesters - some chanting Where is my vote? - clashed with riot police near the Ghoba Mosque in north Tehran. It was Iran's first major clash in four days.

Witnesses told The Associated Press that police used tear gas and clubs to break up the crowd, and said some demonstrators suffered broken bones. They alleged that security forces beat an elderly woman, prompting a screaming match with young demonstrators who then fought back.

The reports could not be independently verified because of tight restrictions imposed on journalists in Iran.

North Tehran is a base of support for opposition leader Mir Hossein Mousavi, who has alleged massive fraud in Iran's disputed June 12 presidential election and insists he - not President Mahmoud Ahmadinejad - is the rightful winner.

Witnesses who spoke with the AP said they did not spot Mousavi at the rally. But one of his close assistants addressed the crowd through a loudspeaker and other opposition figures also appeared, including reformist presidential candidate Mahdi Karroubi.

Sunday's clashes erupted at a rally that had been planned to coincide with a memorial held each year for Ayatollah Mohammad Beheshti, who came to be considered a martyr in the Islamic Republic after he was killed in a major anti-regime bombing in 1981.

Iranian authorities say 17 protesters and eight members of the volunteer Basij militia have been killed in two weeks of unrest, and that hundreds of people have been arrested.

"The Paris-based International Federation of Human Rights said its information suggests at least 2,000 arrests have been made - not just (people) arrested and later released, but who are locked up in prison," the group's vice president, Abdol Karim Lahidji, told the AP.

He said his information came from members of human rights groups in Iran and other contacts inside the country.