WASHINGTON, March 17 (Reuters) - Following is the full text of Secretary of State Madeleine Albright's speech to the American-Iranian Council on Friday on the relaxation of U.S. sanctions against Iran:

"Thank you very much, Professor Amirahmadi, Ambassador Pelletreau, Excellencies from the diplomatic corps, distinguished colleagues, guests and friends.

Today's conference reflects a coming together of a real pantheon of organizations, not just the American-Iranian Council, but also the Asia Society, the Middle East Institute and the Georgetown School of Foreign Service. The wealth of expertise in this room is enormous and it is testimony to Iran's importance.

As this audience well knows, Iran is one of the world's oldest continuing civilizations. It has one of the globe's richest and most diverse cultures. Its territory covers half the coastline of the gulf on one side of the Straits of Hormuz through which much of the world's petroleum commerce moves. It borders the Caspian Sea, the Caucasus and Central and South Asia, where a great deal of the world's illegal narcotics are produced, several major terrorist groups are based and huge reserves of oil and gas are just beginning to be tapped. And it is currently chairing the Organization of the Islamic Conference.

There is no question that Iran's future direction will play a pivotal role in the economic and security affairs of what much of the world reasonably considers the center of the world. And so I welcome this opportunity to come to discuss relations between the United States and Iran.

It is appropriate, I hope, to do so in anticipation both of the Iranian new year and the start of spring. And I want to begin by wishing all Iranian-Americans a happy new year.

Eid-e-shuma-Mubarak.

I extend the same wishes to the Iranian people overseas.

Spring is the season of hope and renewal, of planting the seeds for new crops, and my hope is that both in Iran and the United States we can plant the seeds now for a new and better relationship in years to come.

And that is precisely the prospect that I would like to discuss with you today. President Clinton, especially, asked me to come to this group to have this discussion with you.

It is no secret that for two decades most Americans have viewed Iran primarily through the prism of the U.S. embassy takeover in 1979, accompanied, as it was, by the taking of hostages, hateful rhetoric and the burning of the U.S. flag. Through the years, this grim view was reinforced by the Iranians government's repression at home and its support for terrorism aboard, by its assistance to groups violently opposed to the Middle East peace process and by its effort to develop a nuclear weapons capability.

America's response has been a policy of isolation and containment. We took Iranian leaders at their word that they viewed America as an enemy, and in response we had to treat Iran as a threat.

However, after the election of President Khatami in 1997, we began to adjust the lens through which we viewed Iran. Although Iran's objectionable external policies remained fairly constant, the political and social dynamics inside Iran were quite clearly beginning to change.

In response, President Clinton and I welcomed the new Iranian president's call for a dialogue between our peoples. We encouraged academic, cultural and athletic contacts. We updated our advisory to Americans wishing to travel to Iran. We reiterated our willingness to engage in officially authorized discussions with Iran regarding each other's principal concerns and said we would monitor future developments in that country closely, which is what we have done.

Now we have concluded the time is right to broaden our perspective even further, because the trends that were becoming evident inside Iran are plainly gathering steam. The country's young are spearheading a movement aimed at a more open society and a more flexible approach to the world. Iran's women have made themselves among the most politically active and empowered in the region. Budding entrepreneurs are eager to establish winning connections overseas.

Respected clerics speak increasingly about the compatibility of reverence and freedom, modernity and Islam.

An increasingly competent press is emerging despite attempts to muzzle it. And Iran has experienced not one, but three, increasingly democratic rounds of elections in as many years. Not surprisingly, these developments have been stubbornly opposed in some quarters and the process they have set in motion is far from complete. Harsh punishments are still meted for various kinds of dissent. Religious persecution continues against the Baha'i and also against some Iranians who have converted to Christianity.

And governments around the world, including our own, have expressed concern about the need to ensure the process for 13 Iranian Jews who were detained for more then a year without official charge and are now scheduled for trial next month. We look to the procedures and the results of this trial as one of the barometers of U.S.-Iran relations.

Moreover, in the fall of 1998, several prominent writers and publishers were murdered, apparently by rogue elements in Iran's security forces. And just the past weekend a prominent editor and adviser to President Khatami was gravely wounded in an assassination attempt.

s in any diverse society, there are many currents whirling about in Iran. Some are driving the country forward, others are holding it back. Despite the trend toward democracy, control over the military, judiciary, courts and police remains in un-elected hands and the elements of its foreign policy about which we are most concerned have not improved.

But the momentum in the direction of internal reform, freedom and openness is growing stronger. More and more Iranians are unafraid to agree with President's Khatami's assessment of 15 months ago, and I quote, 'Freedom and diversity of thought do not threaten the society's security,' he said. 'Rather, limiting freedom does so. Criticizing the government and state organizations at any level is not detrimental to the system; on the contrary, it is necessary,' unquote.

The democratic winds in Iran are so refreshing, and many of the ideas espoused by its leaders so encouraging, there is a risk we will assume too much. In truth, it is too early to know precisely where the democratic trends will lead.

Certainly, the primary impetus for change is not ideology, but pragmatism. Iranians want a better life -- they want broader social freedom, greater government accountability and wider prosperity. Despite reviving oil prices, Iran's economy remains hobbled by inefficiency, corruption and excessive state control. Due in part to demographic factors, unemployment is higher and per capita income lower than 20 years ago.

The bottom line is that Iran is evolving on its own terms and will continue to do so. Iranian democracy, if it blossoms further, is sure to have its own distinctive features consistent with the country's traditions and culture. And like any dramatic political and social evolution, it will go forward at its own speed on a timetable Iranians set for themselves.

The question we face is how to respond to all this. On the people to people level, the answer is not hard to discern. Americans should continue to reach out. We have much to learn from Iranians, and Iranians from us. We should work to expand and broaden our exchanges. We should engage Iranian academics and leaders of civil society on issues of mutual interest, and, of course, we should strive even more energetically to develop our soccer skills.

The challenge of how to respond to Iran on the official level is more complex, and it requires a discussion not only of our present perceptions and future hopes, but also of the somewhat tumultuous past. At their best, our relations with Iran have been by marked by warm bonds of personal friendship. Over the years, thousands of American teachers, health care workers, Peace Corps volunteers, and others have contributed their energy and goodwill to improving the lives and well-being of the Iranian people. As is evident in this room, Iranians have enriched the United States as well. Nearly a million Iranian-Americans have made our country their home. Many other Iranians have studied here before returning to apply their knowledge in their native lands.

In fact, some were among my best students when I taught at Georgetown School of Foreign Service. It's not surprising, then, that there is much common ground between our two peoples. Both are idealistic, proud, family-oriented, spiritually-aware and fiercely opposed to foreign domination.

But that common ground has sometimes been shaken by other factors. In 1953, the United States played a significant role in orchestrating the overthrow of Iran's popular prime minister, Mohammed Mossadegh. The Eisenhower administration believed its actions were justified for strategic reasons, but the coup was clearly a setback for Iran's political development and it is easy to see now why many Iranians continue to resent this intervention by America in their internal affairs.

Moreover, during the next quarter century, the United States and the West gave sustained backing to the Shah's regime. Although it did much to develop the country economically, the Shah's government also brutally repressed political dissent.

As President Clinton has said, the United States must bear its fair share of responsibility for the problems that have arisen in U.S.-Iranian relations. Even in more recent years, aspects of U.S. policy toward Iraq during its conflict with Iran appear now to have been regrettably shortsighted, especially in light of our subsequent experiences with Saddam Hussein.

However, we have our own list of grievances, and they are serious. The embassy takeover was a disgraceful breach of Iran's international responsibility and a trauma for the hostages and their families and for all of us. And innocent Americans and friends of America have been murdered by terrorist groups that are supported by the Iranian government. In fact, Congress is now considering legislation that would mandate the attachment of Iranian diplomatic and other assets as compensation for acts of terrorism committed against American citizens.

We are working with Congress to find a solution that will satisfy the demands of justice, without setting a precedent that could endanger vital U.S. interests in the treatment of diplomatic or other property or that would destroy prospects for a successful dialogue with Iran.

Indeed, we believe that the best hope for avoiding similar tragedies in the future is to encourage change in Iran's policies and to work in a mutual and balanced way to narrow differences between our two countries. Neither Iran nor we can forget the past. It has scarred us both. But the question both countries now face is whether to allow the past to freeze the future or to find a way to plant the seeds of a new relationship that will enable us to harvest shared advantages in years to come, not more tragedies.

Certainly, in our view, there are no obstacles that wise and competent leadership cannot remove. As some Iranians have pointed out, the United States has cordial relations with a number of countries that are less democratic than Iran. Moreover, we have no intention or desire to interfere in the country's internal affairs.

We recognize that Islam is central to Iran's culture heritage and perceive no inherent conflict between Islam and the United States. Moreover, we see a growing number of areas of common interests. For example, we both have a stake in the future stability and peace in the gulf.

Iran lives in a dangerous neighborhood. We welcome efforts to make it less dangerous and would encourage regional discussions aimed at reducing tensions and building trust.

Both our countries have fought conflicts initiated by Iraq's lawless regime. Both have a stake in preventing further Iraqi aggression.

We also share concerns about instability and illegal narcotics being exported from Afghanistan. Iran is paying a high price for the ongoing conflict there. It has long been host to as many as two million refugees from the Afghan civil war, and thousands of Iranians have been killed in the fight against drug traffickers.

Moreover, Iran is now a world leader in the quantity of illegal drugs annually seized. This is one area where increased U.S.-Iranian cooperation clearly makes sense for both countries.

But there are numerous other areas of potential common interest, such as encouraging stable relations between Armenia and Azerbaijan, regional economic development, the protection of historic cultural sites and preserving the environment.

So the possibility of a more normal and mutually productive relationship is there, but it will not happen unless Iran continues to broaden its perspective of America, just as we continue to broaden our view of Iran.

When we oppose terrorism and proliferation, the norms we uphold are not narrowly American, they are global. These standards are designed to safeguard law-abiding people in all countries and reflect obligations that most nations, including Iran, have voluntarily assumed.

When we strive to support progress towards a Middle East peace, we serve the interest and embrace the aspirations of tens of millions of people, Arab and Israeli alike, of all backgrounds and faiths.

When we talk about human rights, we're not trying to impose our values, we are affirming the principles enshrined in the Universal Declaration of Human Rights, that people everywhere are entitled to basic freedoms, religion, expression and equal protection under the law.

And when we talk about the value of an official dialogue with Iran, we have no secret agenda nor do we attach any conditions. We are motivated solely by a realistic interest in taking this relationship to a higher level so that we may use diplomacy to solve problems and benefit the people of both countries.

In recent months, Iranian leaders have talked about their nation's policy of detente and Foreign Minister Kharrazi said not long ago that Iran is ready to act as an anchor of stability for resolving regional problems and crises.

The United States recognizes Iran's importance in the gulf and we've worked hard in the past to improve difficult relationships with many other countries whether the approach used has been called detente or principled engagement or constructive dialogue or something else. We are open to such a policy now. We want to work together with Iran to bring down what President Khatami refers to as the wall of mistrust. For that to happen, we must be willing to deal directly with each other as two proud and independent nations and address on a mutual basis the issues that have been keeping us apart.

As a step toward bringing down that wall of mistrust, I want today to discuss the question of economic sanctions. The United States imposed sanctions against Iran because of our concerns about proliferation and because the authorities exercising control in Tehran financed and supported terrorist groups, including those violently opposed to the Middle East peace process.

To date, the political developments in Iran have not caused its military to cease its determined effort to acquire technology, materials and assistance needed to develop nuclear weapons.

Nor have those developments caused Iran's Revolutionary Guard Corps or its Ministry of Intelligence and Security to get out of the terrorism business.

Until these policies change, fully normal ties between our governments will not be possible and our principal sanctions will remain.

The purpose of our sanctions, however, is to spur changes in policy; they are not an end in themselves, nor do they seek to target innocent civilians.

And so for this reason, last year I authorized the sale of spare parts needed to ensure the safety of civilian passenger aircraft previously sold to Iran, aircraft often used by Iranian-Americans transiting to or from that country, and President Clinton eased restrictions on the export of food, medicine and medical equipment to sanctioned countries, including Iran. This means that Iran can purchase products such as corn and wheat from America.

And today, I am announcing a step that will enable Americans to purchase and import carpets and food products, such as dried fruits, nuts and caviar from Iran. This step is a logical extension of the adjustments we made last year. It is also designed to show the millions of Iranians craftsmen, farmers and fishermen who work in these industries and the Iranian people as a whole that the United States bears them no ill will.

Second, the United States will explore ways to remove unnecessary impediments to increase contacts between American and Iranian scholars, professionals, artists, athletes and nongovernmental organizations.

We believe this will serve to deepen bonds of mutual understanding and trust.

Third, the United States is prepared to increase efforts with Iran aimed at eventually concluding a global settlement of outstanding legal claims between our two countries.

This is not simply a matter of unfreezing assets. After the fall of the Shah, the United States and Iran agreed on a process to resolve existing claims through an arbitral tribunal in The Hague. In 1981, the vast majority of Iranian assets seized during the hostage crisis were returned to Iran. Since then, nearly all of the private claims have been resolved through The Hague tribunal process.

Our goal now is to settle the relatively few but very substantial claims that are still outstanding between our two governments at The Hague, and by so doing, to put this issue behind us once and for all.

The points I've made and the concrete measures I've announced today reflect our desire to advance our common interests through improved relations with Iran. They respond to the broader perspective merited by the democratic trends in that country and our hope that these internal changes will gradually produce external effects, and that as Iranians grow more free, they will express their freedom through actions in support of international law and on behalf of stability and peace.

I must emphasize, however, that in adopting a broader view of events in Iran, we're not losing sight of the issues that have long troubled us.

We look toward Iran truly fulfilling its promises to serve as an anchor of stability and to live up in deed, as well as word, to the pledges its leaders have made in such areas as proliferation and opposition to terrorism.

We have no illusions that the United States and Iran will be able to overcome decades of estrangement overnight. We can't build a mature relationship on carpets and grain alone. But the direction of our relations is more important than the pace. The United States is willing either to proceed patiently on a step-by-step basis or to move very rapidly if Iran indicates a desire and commitment to do so.

Next Tuesday will mark the beginning of a new year for Iran and the start of spring for us all. And it is true that for everything under heaven there is a season. Surely, the time has come for America and Iran to enter a new season in which mutual trust may grow and a quality of warmth supplant the long, cold winter of our mutual discontent.

For we must recognize that around the world today the great divide is no longer between east and west or north and south, nor is it between one civilization and another. The great divide today is between people anywhere who are still ensnared by the perceptions and prejudices of the past and those everywhere who have freed themselves to embrace the promise of the future.

This morning, on behalf of the government and the people of the United States, I call upon Iran to join us in writing a new chapter in our shared history. Let us be open about our differences and strive to overcome them. Let us acknowledge our common interests and strive to advance them. Let us think boldly about future possibilities and strive to achieve them, and thereby turn this new year and season of hope into the reality of a safer and better life for our two peoples.

To that mission I pledge my own best efforts this morning and I respectfully solicit the counsel and understanding and support of all.

Thank you very much."

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