Iran wants to greatly expand its economic and military ties with Iraq, including setting up an Iranian national bank branch in Baghdad, a move which could bring Tehran further into conflict with the United States.
Iranian Ambassador to Baghdad Hassan Kazemi Qumi said Iran is prepared to offer Iraqi forces training, equipment and advisers for what he called "the security fight".
In the economic area, Qumi told the New York Times that Iran was ready to assume major responsibility for the reconstruction of Iraq, an area of notable failure on the part of the United States since American-led forces overthrew Saddam Hussein in the invasion nearly four years ago.
Qumi, the Times said, acknowledged, for the first time, that two Iranians seized and later released by American forces last month were security officials, as the United States had claimed.
But he said that they were engaged in legitimate discussions with the Iraqi government and should not have been detained.
While providing few details, the paper noted, the United States has said that evidence gleaned in the Baghdad raid, made on an Iraqi Shiite leader's residential compound, proves the Iranians were involved in planning attacks on American and Iraqi forces.
However, Qumi ridiculed the evidence that the American military has said it collected, including maps of Baghdad delineating Sunni, Shiite and mixed neighbourhoods the kind of maps, some American officials have said, that would be useful for militias engaged in ethnic slaughter.
But that is not why the Iranians were in the compound, he said.
"They worked in the security sector in the Islamic Republic, that's clear," Qumi said, referring to Iran. But he said that the Iranians were in Iraq because "the two countries agreed to solve the security problems.
The Iranians twent to meet with the Iraqi side," he said.
Qumi said Iran would soon open a national bank in Iraq, in effect creating a new Iranian financial institution right under the Americans' noses.
A senior Iraqi banking official, Hussein al-Uzri, was quoted by the Times as confirming that that Iran had received a license to open the new bank, which Uzri said would apparently be the first wholly owned subsidiary bank of a foreign country in Iraq.
"This will enhance trade between the two countries," Uzri said.