In the Clinton administration's first comprehensive reply to cautious overtures from a moderate president of Iran, Secretary of State Madeleine Albright invited the Iranians on Wednesday to join the United States in drawing up "a road map leading to normal relations."

Nearly 20 years after the 1979 Iranian Revolution ruptured relations with Washington and installed a fundamentalist Islamic government in Tehran, Albright said that it was time to find ways to bridge the gap between the two nations.Albright, long regarded as one of the administration's harshest critics of Iran, changed course Wednesday night in a speech in New York at the Asia Society. She hailed President Mohammad Khatami, who took office last summer, as a man who "deserves respect because he is the choice of the Iranian people."

She went on to list steps Iran has taken in recent months that have been viewed favorably in Washington, including giving public support to Yasser Arafat rather than more radical leaders or groups as the voice of Palestinians in the Middle East.

But Iranian radio, which reflects official policy, rejected her offer Thursday, saying "Washington's mere announcement that it is prepared to establish ties with Iran is inadequate. Washington (must) show goodwill as well."

Before relations can be restored, the United States must first "renounce violence against Iran" by ending its support for an Iranian opposition guerrilla group based in Iraq, free frozen Iranian assets and "apologize to the Iranian nation for its wrong policies in the past 50 years," the radio commentary said.

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Albright noted that Khatami had denounced terrorism and condemned the killing of civilians in Israel in January. She also mentioned Iran's record in fighting drugs and its efforts to help bring peace to Afghanistan.

But Albright said that progress where it existed "must be balanced against the reality" of serious obstacles in such areas as terrorism and Iran's attempts to acquire weapons of mass destruction, including chemical and nuclear arms. Without progress on such issues, economic sanctions will remain in place, as will American opposition to the development of Iranian oil and gas pipelines, American officials said.

She also lamented "inflammatory and unacceptable" Iranian denunciations of Israel, which Tehran does not recognize. And she asked for more progress in ending serious abuses of human rights. She did not cite the case of Salman Rushdie, the Indian-born British writer on whom the late Ayatollah Ruhollah Khomeini pronounced a death sentence for blasphemy in 1989 because of his novel "The Satanic Verses," in which Muslims found derogatory references to their faith and its founder.

Albright spoke against a backdrop of deep and unsettling changes in Asia that administration officials said played a part in her opening to Iran. Nuclear tests in India and Pakistan have abruptly changed the atmosphere across the region, sparking concerns that Iran as well as Iraq could renew hopes of developing nuclear arms. At the moment the United States has no leverage in Iran and is losing support for its policy of continued sanctions in Iraq.

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