The U.S. cease-fire with an Iranian exile group it considers a terrorist organization allows the Mujahedeen Khalq to defend itself from Iranian-sponsored attacks and keep its artillery and other weapons, U.S. military officials said Tuesday.

The cease-fire signed April 15 appears to be a way for the United States to increase pressure on Iran, which Washington has accused of meddling in Iraq after the collapse of Saddam Hussein's regime.

But it represents a conundrum of sorts for the United States, which has classified the Iraq-based group as a terrorist organization. The United States went to war against Iraq in part to dismantle what it said were terrorist networks supported by Saddam's regime.

U.S. officials had said they were working out a capitulation by the left-leaning group, also known as the People's Mujahedeen. But on Tuesday, a U.S. military official said the deal doesn't require the group's fighters to surrender to coalition forces — at least for now.

It allows the Mujahedeen Khalq to use military force against what the United States says are Iranian infiltrators entering Iraq, such as the Badr Brigade, the official said, speaking on condition of anonymity.

The Independent newspaper of Britain has reported that armed members of the Badr Brigade had crossed into Iraq from Iran and were holding sway in Baqubah, a town 25 miles northeast of Baghdad. The brigade is the military wing of the Iran-based anti-Saddam group the Supreme Council for Islamic Revolution in Iraq.

The U.S. official said the Mujahedeen Khalq also "reserves the right of self-defense against the Iranian regime's attacks."

The National Council of Resistance of Iran, an umbrella group that includes the Mujahedeen, says members of Iran's Revolutionary Guard have crossed into Iraq and fought Mujahedeen fighters in recent weeks.

A top official in the council, Mohammad Mohaddessin, praised the agreement and said anything short of allowing Mujahedeen fighters to defend themselves would have only benefited the Tehran regime.

"It would only be natural that the Mujahedeen ... would be able to keep their weapons against such a common enemy," he said in a telephone interview from Paris.

When asked how the United States could make deals with groups classified as terrorists, the U.S. military official said the cease-fire was a battlefield agreement that coalition commanders were entitled to negotiate.

"Like all other parties in Iraq we will use U.S. influence and power to establish and maintain a secure and stable environment," the official said.

Mohaddessin said the agreement showed that the Mujahedeen should not be considered a terrorist group. He said he expected the Mujahedeen would negotiate another "agreement of mutual understanding" with the United States about the eventual status of their forces in Iraq in the near future.

U.S. officials have charged that Shiite Muslim-controlled Iran was sending operatives into neighboring Iraq to destabilize the country further and promote an Iranian-style theocracy among Iraq's predominantly Shiite population.

Defense Secretary Donald H. Rumsfeld has ruled out a theocracy for Iraq. On Monday, in an interview with the Qatar-based satellite channel Al-Jazeera, he said Iran's meddling was problematic.

"That type of external influence I don't think is helpful," he said. "I don't know anyone who does think it's helpful except the few people from Iran that run that country, a small clique of clerics."

Shiites make up over 60 percent of Iraq's population, and there are concerns that free elections might produce an Islamic-oriented government with close ties to the historically anti-American Shiite clerics who have governed Iran since the 1979 revolution.

Iran has denied meddling in Iraq. On Monday, Foreign Minister Kamal Kharrazi said Tehran wants to see an Iraqi government that is chosen by the people.

"For us the most important thing is that the Iraqi people independently choose their leadership and that the new government depends on the will of all the ethnic strata of Iraq," Kharrazi said while visiting Azerbaijan.

The U.S. military official outlined the scope of the cease-fire deal, which he said was signed by a coalition forces commander and Mahdi Baraie of the Mujahedeen Khalq to "ensure a complete cessation of hostilities."

Under the agreement, the official said, the Mujahedeen agreed to "not fire upon or commit any hostile act toward any coalition forces; not destroy or damage any government or private property, for example public infrastructure, oil pumping, refining, storage, or transportation facilities, and ... place all towed artillery and air defense artillery in a passive travel mode."

In return, coalition forces agreed to not damage any of the group's vehicles or equipment and not fire upon or commit any hostile act toward its forces.

"Additionally the agreement does not surrender or capitulate troops under the command of the (Mujahedeen Khalq) commander," the official said.

During the 1970s, the Mujahedeen Khalq, or "People's Holy Warriors," which blends Islamism and Marxism, was accused in attacks that killed several U.S. military personnel and civilians working on defense projects in Iran.

It reportedly backed the takeover of the U.S. Embassy in Tehran in 1979, but later broke with Iran's government. The group has denied involvement in the killing of U.S. servicemen and says it didn't support the embassy takeover.