IRAN - Sept 4 - Iran 'Accepts Two-State Answer' In Mideast.

Pres Muhammad Khatami, says Iran will accept a Palestinian state "ready to live alongside Israel" if the elected Hamas government freely adopted such an outcome. In an interview with the FT, Khatami, a reformist, distanced himself from the hardline statements expressed by Mahmoud Ahmadi-Nejad, his fundamentalist successor, who has called the Holocaust a myth and said Israel should be removed from the map by the Palestinians. Khatami, a theologian and the most senior Iranian politician to visit the US since the 1979 Islamic revolution, is on a 12-day, private speaking tour. He addressed the annual convention of the Islamic Society of North America near Chicago, where 13,000 mostly American Muslims greeted him with a standing ovation. Criticising the Bush administration's approach to the "war on terror", Khatami said the US was fanning conflicts and inflaming sentiments. On the nuclear issue, he reiterated Iran's rejection of US demands for Iran to suspend uranium enrichment as a precondition for talks. But asked if Iran could accept a two-state solution to the Israeli-Palestinian conflict, Khatami appeared more conciliatory. Although now a private citizen, he stressed his words represented Iran's policy. "I think Hamas itself, which has come to power today in a democratic process, is ready to live alongside Israel if its rights are met and it is dealt with like a democratic state and as the Palestinian government, and pressures are removed from Hamas", he said. "Of course whatever Palestinians think is respected by us", he said. Iran's officially stated policy is that all Palestinians must decide their future through a referendum. Khatami is the most senior Iranian politician to accept the possibility of a two-state solution. Iran's policy toward Israel had not fundamentally changed since Ahmadi-Nejad was elected, Khatami said. Referring to the role of the Supreme Leader, he noted that Iranian presidents in general were "not deciding about fundamental and general policies at all" although their interpretation, tactics and words might be different. Khatami spoke of the Holocaust as fact and said Iran wanted "sustainable peace" in the Middle East for Jews, Muslims and Christians. In his eight years as president, Khatami ultimately failed to overcome opposition by regime hardliners to his domestic political reforms. Now, on the international stage, his main mission is to avert what many Iranians fear is a looming military confrontation with the US, and promote dialogue and reconciliation among the major religions. How his message will be digested by the Bush administration remains unclear. The State Department ignored the protests of neoconservatives and hardline pro-Israel lobbyists by granting him a visa, but US officials are under instruction not to meet him and walked out of the Islamic Society's Chicago convention before he spoke. Nonetheless, the State Department impressed the Iranian delegation by providing elaborate security. Khatami says the "wall of mistrust" between the US and Iran has grown under the Bush administration, warning of the dangers of another Middle East war. "As miscalculations about Iraq have created problems for the US, the Iraqi nation and the region, if the same miscalculation is repeated about Iran, the damages for everyone will definitely be much more than Iraq", he said. Khatami - who will also address an Alliance of Civilisations conference at the UN this week - denounces Pres Bush's description of the enemy as Islamic fascists. He then turns the table on the western powers, accusing them of uprooting fascism from the national level but transferring it to the international arena. "Today at the international level we see a kind of fascism, apartheid, unilateralism and a kind of totalitarianism [by the west] according to which nations are distributed, their interests are distributed and wars are created". Asked if the moment was right to apologise to the US diplomats held hostage in Tehran for 444 days in the aftermath of the revolution, Khatami repeated that he "regretted" what happened. He said he appreciated an invitation by Jimmy Carter - president during that crisis - to meet in Atlanta, but said his schedule was already full. He said he hoped they might work together later on international peace and reconciliation issues "if the grounds are prepared".