Updated

The United States is pursuing a two-track strategy with Iran that reflects the high stakes in any engagement with a nation President George W. Bush accuses of bankrolling terrorism and secretly building a nuclear bomb.

Monday's talks in Baghdad are one element. Discussion between the U.S. and Iranian ambassadors is only supposed to cover Iraq, where they have competing and overlapping interests.

Then there are the U.S. Navy's exercises in the Persian Gulf last week and tough talk from Bush about new U.N. penalties against Tehran.

"In the American mind, the two tracks sort of complement each other," with the muscle-flexing and threats serving to push Iran to the bargaining table, said Ray Takeyh, an Iran specialist at the Council on Foreign Relations.

"Iran only sees one track" and thinks it is a trap, Takeyh said. He does not hold out much hope the diplomats will get beyond talking points on Monday.

"The coercive track is undermining and negating the diplomatic track and preventing any sort of meaningful discussions," Takeyh said.

Still, any direct talks are rare. Even fleeting encounters at larger gatherings or diplomatic dinners are scrutinized for clues to the future of a troubled relationship.

The Baghdad talks are the first of their kind and a small sign that Washington thinks rapprochement is possible after nearly three decades of animosity. Iran, angry over the blunt show of U.S. military power off its coast, almost refused to come.

Bush agreed to the dialogue in hopes it could do some good inside Iraq and perhaps beyond. Despite ambivalence within the Bush administration, U.S. diplomats hope this kind of limited conversation can build confidence on both sides and lead to something more substantive.

Diplomats hope for a full airing of views Monday and perhaps an agreement to meet again. Cancellation of the talks, even for reasons that sound plausible, would spell failure.

"The ball really is in their court," State Department spokesman Tom Casey said Friday.

There is plenty to talk about, even within the confines both sides have laid out.

The United States accuses Iran of supplying Iraqi Shiite militias with deadly roadside bombs that kill American troops in Iraq and of political meddling in Shiite-led Iraq.

Iran accuses the United States of improperly seizing five Iranians in Iraq this spring. The U.S. military is holding the five. Iran says they are diplomats; Washington contends they are intelligence agents.

The United States also has complained about the detention or arrest of several Iranian-Americans in Iran in recent weeks. Casey said that issue is not on the U.S. agenda for Monday.

Iran contended on Saturday it had uncovered spy rings operating inside the country that were organized by the United States and its Western allies. The White House said it does not confirm or deny allegations about intelligence matters. However it might affect the talks, the allegation reflects a toughening of Iran's stand.

The United States wants to keep the window for the talks small, for fear Iran would use the opportunity to try to bargain over its disputed nuclear program.

That was the rationale the administration used for resisting for months any discussion with Iran about Iraq despite entreaties from Congress, allies and the bipartisan Iraq Study Group.

The current outreach represents a softening of that hard-line, but progress toward better relations is halting.

U.S. and Iranian diplomats met briefly in March on the sidelines of an international conference on Iraq. But Secretary of State Condoleezza Rice and Iranian Foreign Minister Manouchehr Mottaki balked at the expected next step, passing up serious talks during a similar gathering this month.

A year ago this week, the United States made its most dramatic overture to Iran in years.

Rice said she would participate in international negotiations with Iran over its nuclear program, on condition Iran halt disputed nuclear work that could produce either nuclear energy or a weapon. Iran called the condition an affront to its rights and sovereignty; the offer has gone nowhere.

The U.S. cut off diplomatic ties with Iran over the 1979 storming of the U.S. Embassy in Tehran. U.S. diplomats were held hostage for more than a year.

Since then, name-calling, accusations and finger-jabbing lectures by U.S. and Iranian leaders largely have defined the relationship.

"Eventually the U.S. and Iran will have to engage across the board on a whole range of issues if they are to make progress," said Robert J. Einhorn, a senior adviser at the Center for Strategic and International Studies and former assistant secretary of state for nonproliferation.

"The Iraq issue is one on which many people have assumed some commonality of interest because at a certain level the Iranians want stability," just as Americans do, although for different reasons, Einhorn said.