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Turkey's new Islamic-led government initialed a multibillion-dollar natural gas deal with Iran on Sunday, insisting it does not defy U.S. measures that seek to block foreign investment here.

The 22-year agreement calls for oil- and gas-rich Iran to sell 140 billion cubic feet of gas a year to Turkey beginning in 1998. The total value of the gas imported by Turkey through a pipeline will reach $20 billion.The deal comes just days after President Clinton signed a law that authorizes the U.S. government to penalize American and foreign companies that invest more than $40 million a year in the oil and gas sectors in Iran and Libya. Washington accuses the two countries of sponsoring terrorism.

Washington's allies in Europe and elsewhere have condemned the law, and Turkey's action poses a direct challenge to U.S. attempts to further isolate Iran. Trade between Iran and Turkey totaled nearly $1 billion last year.

Turkish officials say the new deal does not violate the sanctions.

"The sanctions ban investments in Iran. We're not going to invest in Iran. This is only a trade agreement," Abdullah Gul, the Turkish government spokesman, told reporters. "The two countries will build their own sides of the gas pipeline."The formal signing of the agreement is scheduled for Monday by Turkey's visiting Prime Minister, Necmettin Erbakan, and Iranian President Hashemi Rafsanjani.

The Clinton administration has sought to persuade Turkey, a U.S. ally and member of NATO, not to go ahead with the gas deal. The case will put the Americans in an awkward position and test U.S. willingness to impose punitive measures on countries such as Turkey.

Washington values Turkey's geopolitical position at the crossroads of the Middle East, Europe and Asia. It also values Turkey's secular tradition, which is now being challenged by Erbakan's pro-Islamic government.

Erbakan, who came to power in June, leads a coalition that is the first strongly Islamic government in Turkey since the modern state was founded after World War I.

The U.S. sanctions law does not require the automatic imposition of penalties. Clinton will have the flexibility to choose from measures ranging from a stern warning to blocking international loans and support for Turkey at the International Monetary Fund.

Turkish officials have said that the 680-mile Turkish end of the pipeline will cost $1.2 billion. The 170-mile Iranian section will cost $300 million.

Mustafa Murathan, director of Turkey's state-owned oil and gas company, BOTAS, said Sunday that Turkey could help finance the Iranian side of the project.

"But that's still not violating the U.S. embargo," Murathan told The Associated Press.

"We can give Iran the pipes in exchange for oil we're buying or as an advance for the gas we'll buy. We don't have to give cash credit. We'll just help them with materials, if they need such help, in a barter deal," he said. "We don't want to violate U.S. sanctions, and we won't."

Erbakan told Rafsanjani that Turkey will not allow any country to interfere in the expansion of Turkey's links with Iran and will not allow any Iranian dissident groups to operate in Turkey, Rafsanjani's office said in a statement.