The Guardian has learned that an announcement will be made in the next month to establish a US interests section - a halfway house to setting up a full embassy. The move will see US diplomats stationed in the country.
The news of the shift by Bush who has pursued a hawkish approach to Iran throughout his tenure comes at a critical time in US-Iranian relations. After weeks that have seen tensions rise with Israel conducting war games and Tehran carrying out long-range missile tests, a thaw appears to be under way.
The White House announced yesterday that William Burns, a senior state department official, is to be sent to Switzerland on Saturday to hear Tehran's response to a European offer aimed at resolving the nuclear standoff.
Burns is to sit at the table with Iranian officials despite Bush repeatedly ruling out direct talks on the nuclear issue until Iran suspends its uranium enrichment programme, which is a possible first step on the way to a nuclear weapon capability.
A frequent complaint of the Iranians is that they want to deal directly with the Americans instead of its surrogates, Britain, France and Germany.
Bush has taken a hard line with Iran throughout the last seven years but, in the dying days of his administration, it is believed he is keen to have a positive legacy that he can point to.
The return of US diplomats to Iran is dependent on agreement by Tehran. But President Mahmoud Ahmadinejad indicated earlier this week that he was not against the opening of a US mission. Iran would consider favourably any request aimed at boosting relations between the two countries, he said.
US interests in the country at present are looked after by the Swiss embassy. The British government restored its embassy in Tehran after Labour's 1997 general election victory as part of a policy of constructive diplomacy with countries that had previously been branded rogue states.
The creation of a US interest section would see diplomats stationed in Tehran for the first time since the hostage crisis that began when hundreds of students, as part of the Iranian revolution that led to fall of the Shah, stormed the US embassy in 1979 and held the occupants until 1981.
The special interests section would be similar to the one in Havana, Cuba. The US broke off relations with Cuba in 1961 after Castro's takeover but US diplomats returned in 1977.
The special interests section carries out all the functions of an embassy. It is, in terms of protocol, part of the Swiss embassy but otherwise is staffed by Americans and independent of the Swiss.
There has been an intense debate within the Bush administration over Iran, with the vice-president, Dick Cheney, in favour of a military strike against Iranian nuclear plants and the state department in favour of diplomacy.
The state department has been pressing the White House for the last two years to re-establish diplomatic relations with Tehran by setting up an interest section.
The state department is keen that the move should not be interpreted as a sign of weakness.
Sending Burns, who left Washington last night, to Geneva and the establishment of an interests section undercuts one of the main planks of foreign policy advocated by the Democratic presidential candidate, Barack Obama, who argues for direct negotiations with Iran.
The White House has been working in tandem over the last month with Obama's Republican rival, John McCain.
The US has had to rely on British diplomats based in Tehran, as well as other diplomats, for information about the inner workings of Iranian politics. Having its own staff would give them access to students, dissidents and others. The staff would also process visa applications, at present handled by a small office in Dubai, which is difficult for Iranians to get to.
Ahmadinejad told a reporter earlier this week, in response to a question about a possible US interests section: "We will receive favourably any action which will help to reinforce relations between the peoples." He added: "We have not received any official request but we think that the development of relations between the two peoples is something correct."
That sentiment was echoed last month by secretary of state, Condoleezza Rice, who told reporters: "We want more Iranians visiting the United States ... We are determined to reach out to the Iranian people."
Iran has an interests section in Washington, which would make it harder for Tehran to deny the Americans a similar arrangement.
Rice set up a group to study the feasibility of re-establishing a presence after the idea cropped up repeatedly in discussions among Washington thinktanks.
Asked last month about the idea, she would not confirm or deny it.
But she indicated that the present arrangement where there is an American visa office for Iranians in Dubai was inadequate.
"We know that it's difficult for Iranians sometimes to get to Dubai," she said.
© 2008 The Guardian