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TEHRAN (Reuters) - Former President Mohammad Khatami, who pushed for detente with the West when in office from 1997 to 2005, said on Sunday he would run in Iran's June presidential election.
The announcement sets up a choice for voters between Khatami and President Mahmoud Ahmadinejad, whose first four-year term have witnessed a sharp deterioration in ties with the West as tensions over Iran's nuclear work have mounted.
"Here I am announcing that I will seriously take part as a candidate for the election," Khatami told a meeting of pro- reform politicians.
The election is being keenly watched abroad because U.S. President Barack Obama has offered a new U.S. approach to engage Iran, the world's fourth largest oil producer, saying he would extend a hand of peace if Tehran would "unclench its fist."
Some analysts say Washington may wait until the June result before spelling out any offer in detail. Iran, meanwhile, has set tough conditions for opening any dialogue, a move seen as a bid to buy time in part because of the pending election.
The foes have not had diplomatic ties since shortly after Iran's 1979 Islamic revolution.
The vote will not determine policy in the Islamic Republic where Supreme Leader Ayatollah Ali Khamenei has the final say. But the president can influence how Iran acts as Khamenei tends to look for consensus among the political elite, analysts say.
"People feel the need for change because of Ahmadinejad's foreign policy and economic policies. Therefore we think people will vote for Khatami, for change," said Mohammad Ali Abtahi, a vice president under Khatami and close political ally.
"With Khatami running, the election will be polarised."
Ahmadinejad has faced mounting criticism over his economic management and surging inflation, which climbed to almost 30 percent last year. Reformists, in particular, say his fiery foreign policy speeches have further isolated Iran.
The West accuses Iran of seeking to build nuclear weapons, a charge Tehran denies, insisting its aim is to make electricity. But Tehran's failure to convince world powers about its intentions has led to three rounds of U.N. sanctions.
Khatami worked for detente abroad and for political and social change at home while president. But hardliners in charge of major levers of power in the Islamic Republic blocked many of his reforms, costing Khatami some key supporters.
Ahmadinejad came to office pledging to share out Iran's oil wealth more fairly and a return to Islamic revolutionary values.
Both also differ markedly in appearance. Khatami is a cleric who wears a black turban signifying he is a descendent of the Muslim Prophet Mohammad. Ahmadinejad, Iran's first non-cleric president in more than quarter of a century, is mostly seen in trademark zip-up jackets said to be worth no more than $25 each.
"I have always insisted on the formation of civil organisations," Khatami said, echoing a slogan from his first term when he pushed for creation of a civil society.
"The Iranian nation's historical demand is to have freedom, independence and justice and I will work for that," he said.
Although many of Khatami's reform plans were blocked, such as a law to ease press restrictions, the media did become more vibrant during Khatami's term -- even if many newspapers were banned -- and some social strictures did loosen.
But some of Khatami's main supporters became disillusioned by the end of his presidency, saying he should have done more to push through change. Students, who were once the vanguard of change, accused him of making big promises he didn't keep.
Analysts say the result could hinge on whether Ahmadinejad retains support of Khamenei, who has publicly praised the president and whose words could sway millions of loyalists.
Ahmadinejad may also be able to call on the backing of Iranians in poorer and particularly rural areas where the impact of his spending has been most obvious, analysts say, although they add that his largesse is why prices have climbed so fast.
Iranian presidents can serve two consecutive four-year terms but must then step down. They can run again at a later date.
Writing by Edmund Blair; Editing by Angus MacSwan