(Recasts with new quotes, details)
By Sue Pleming
WASHINGTON, March 18 (Reuters) - The Obama administration, in a sign of thawing ties with Iran, is likely soon to relax restrictions on contacts between U.S. diplomats and Iranian officials, said a source close to the matter.
But the source, who asked not to be named because a review of U.S. policy on Iran is not complete, said the Bush administration's idea to open a low-level diplomatic outpost in Tehran was for now "off the table."
The plan is to make small but significant gestures to Tehran, including an invitation to a conference on Afghanistan this month, and to allow U.S. diplomats to see Iranian officials without first seeking approval, as has been the case for nearly 30 years.
"These contacts could be across the board," said the source, adding that the review was not final and that President Barack Obama still had to sign off on it.
Diplomatic sources and analysts said the idea of low to mid-level contacts without first being authorized had been discussed for a while and that this was broadly seen as a first step towards higher-level engagement.
The United States cut off diplomatic ties with Tehran during the 1979-1981 hostage crisis, in which a group of militant Iranian students held 52 U.S. diplomats hostage at the American Embassy for 444 days.
Last year, the State Department's point person on Iran met with his counterpart as part of multilateral talks with Tehran over its nuclear program. That meeting was approved after much debate within the Bush administration.
There were also contacts between the U.S. ambassador to Iraq and his Iranian counterpart and discussions with Iran over Afghanistan.
NO DIPLOMATIC OUTPOST YET
The Bush administration had been considering opening up a U.S. interests section in Tehran, much as it has in Cuba, but decided to leave this decision up to the next administration.
Having an interest section would stop well short of full diplomatic relations but it would involve sending U.S. diplomats to Tehran for the first time in 30 years.
Diplomats and the source close to the discussions on the issue, said the Obama administration's policy review on Iran, which is expected to be complete in the coming weeks, no longer had this option on the table.
The Obama administration would like to lay the groundwork for such a move first and any decision on that was unlikely at least until after Iran's June elections.
U.S. Secretary of State Hillary Clinton made her first public overture to Iran earlier this month by inviting Tehran to attend an international conference in the Hague on future strategy towards Afghanistan.
State Department spokesman Robert Wood said no bilateral talks were planned between Clinton and her counterpart from Tehran if he was at the conference.
"I will not rule out the fact that there could be some kind of a, you know, a greeting of some type, but there's no plan, as far as I know, for there to be a meeting between the two delegations," Wood told reporters.
Former U.S. Secretary of State Condoleezza Rice attended several conferences aimed at stabilizing Iraq, where Iran was also invited. Rice exchanged pleasantries with Iran's foreign minister at those events but never had substantive talks.
Wood said the Obama administration was in the midst of a full review of its strategy towards Iran and he could not give details of how engagement with Iran might ultimately unfold.
"Before we engage in a real dialogue with Iran on a number of these issues, we need to finish our review. And I think that's only fair," said Wood.
(Editing by Cynthia Osterman)