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    WASHINGTON—The Obama administration is moving to remove an Iranian opposition group from the State Department's terrorism list, say officials briefed on the talks, in an action that could further poison Washington's relations with Tehran at a time of renewed diplomatic efforts to curtail Iran's nuclear program.

    The exile organization, the Mujahedin-e Khalq, or MeK, was originally named as a terrorist entity 15 years ago for its alleged role in assassinating U.S. citizens in the years before the 1979 Islamic revolution in Iran and for allying with Iraqi strongman Saddam Hussein against Tehran.

    The MeK has engaged in an aggressive legal and lobbying campaign in Washington over the past two years to win its removal from the State Department's list. The terrorism designation, which has been in place since 1997, freezes the MeK's assets inside the U.S. and prevents the exile group from fundraising.

    Senior U.S. officials said on Monday that Secretary of State Hillary Clinton has yet to make any final decision on the MeK's status. But they said the State Department was looking favorably at delisting MeK if it continued cooperating by vacating a former paramilitary base inside Iraq, called Camp Ashraf, which the group had used to stage cross-border strikes into Iran.

    The group has already renounced terrorism, which was the main earlier sticking point. Residents have resisted leaving the camp because they feared retribution if they were returned to Iran and political irrelevancy abroad.

    The U.S. officials said Mrs. Clinton would make her final decision on the MeK's status no less than 60 days after the last MeK member is relocated from Camp Ashraf to a new transit facility near Baghdad International Airport. The U.S. is working with the United Nations to resettle Camp Ashraf residents in third countries. Roughly 1,200 people remain at the camp from an earlier population of over 3,000.

    "The MeK's cooperation in the successful and peaceful closure of Camp Ashraf…will be a key factor in her decision regarding the MeK's [foreign-terrorist organization] status," said State Department spokeswoman Victoria Nuland on Monday.

    Western and Iranian diplomats are concerned that the MeK issue could draw serious recriminations from Tehran, which has been fixated on neutralizing the group. Many of Iran's top leaders, including Supreme Leader Ayatollah Ali Khamenei, were targets of MeK attacks during the 1980s.

    Iran has regularly accused Western countries of hypocrisy for providing shelter to MeK members while criticizing Tehran's support for militant groups, such as Hezbollah in Lebanon and Hamas in the Palestinian territories. "We believe that despite the claims that others make about fighting terrorism, they [Western nations] provide the most support for terrorist groups," Iran's foreign ministry spokesman, Ramin Mehmanparast, said last week. "In Europe, the MeK has already been removed from the list of terrorist organizations and they are completely safe to continue their activities."

    U.S. officials said that the moves weren't related to coming nuclear talks, but are tied to the MeK's legal challenge to its designation in a Washington appeals court.

    A judge ordered the State Department to review the MeK's status nearly two years ago, and congressional rules maintain the process should take only 180 days.

    "There is a great deal of animosity among Iranian officialdom toward the MeK. But our delisting has to be done by the facts and the law," said a senior U.S. official. "Any move to delist should not be seen as a sign of our support."

    Other officials briefed on the MeK issue said Mrs. Clinton purposefully tied the closing of Camp Ashraf to the designation issue to defuse a thorny diplomatic issue between Washington and Baghdad. The U.S. military had provided security at the camp before pulling its forces from Iraq last year. Baghdad now controls the camp and has threatened to return MeK members to Iran if it isn't swiftly closed.

    These officials stressed that Mrs. Clinton could still rule against delisting the MeK due to other information gathered on its role in terrorism. But they acknowledged it would be difficult politically for Mrs. Clinton to maintain the designation after publicly stating the importance of the Camp Ashraf issue.

    "The secretary's statement was clear that there's a relationship between delisting and closing Ashraf. It is also true that we are making progress," said an official briefed on the deliberations. "To make that assertion on your own that the MeK will be removed is a realistic one. But in policy making you never know for sure what will happen."

    The MeK's status has become an explosive political issue inside Washington and a major irritant in U.S.-Iranian relations.The group, despite its history of terrorism and anti-Americanism, reoriented itselfAfter Saddam Hussein's 2003 fall and the capturing of Camp Ashraf by U.S. forces, the MeK renounced violence and turned over its weapons. And it has cooperated with the U.S. and U.N. in gathering intelligence on Iran's nuclear program.

    This ideological shift by the MeK has been accompanied by an intensive lobbying campaign on Capitol Hill. A number of former senior U.S. officials said they were offered payments to speak on behalf of the MeK, including James Jones, President Barack Obama's former national security adviser, and James Woolsey, the former head of the Central Intelligence Agency.

    Mr. Jones confirmed last year that he received a fee, but declined to specify how much. Mr. Woolsey said he waives his usual speaker's fee.

    The Treasury Department has an continuing inquiry into payments made to MeK advocates, for possible violation of sanctions that prohibit financial dealings with terrorist groups. It is unclear how any delisting would affect that probe.

    The deliberations over the MeK's status come as the five permanent members of the U.N. Security Council, plus Germany, are gathering in Baghdad next week for negotiations with Iran aimed at curbing its nuclear program. Officials from the U.N.'s International Atomic Energy Agency met Monday with Iranian officials in Vienna and pressed for greater access to the country's nuclear facilities. Diplomats and Iran analysts worry that any moves to delist the MeK could result in Iran driving up its demands at the negotiating table. Tehran denies it is seeking nuclear weapons, but also says it needs advanced weapons systems to guard against the U.S. and other hostile states. The MeK issue will likely be perceived in Tehran as another American-led effort to topple Iran's theocratic government, these analysts said.

    "In the cynical, conspiratorial world view of the Iranian regime, delisting the MeK will be interpreted in Tehran as validation that Washington's underlying goal is regime change, not behavior change," said Karim Sadjadpour of Washington's Carnegie Endowment for International Peace.

    Critics of the MeK allege that the organization has no major support inside Iran and that its leaders, who are based outside Paris, run the group like a cult. They also worry that any perceived U.S. support for it could undercut the Iranian opposition, known as the Green Movement, which pushed for democratic change during 2009 street protests.

    Still, the organization has large support on Capitol Hill. And some lawmakers are seeking to use the possible delisting of the organization to begin providing U.S. financial support. Congress took similar steps in the 1990s to provide funding to Iraq's opposition and, in particular, the exiled politician, Ahmad Chalabi.

    "If there's a coalition against the mullahs, then we should fund that coalition, and the MeK should be a part of it," said Rep. Dana Rohrabacher (R., Calif.). He cautioned that for now, he wasn't advocating directly funding MeK. "The MeK has the resources to resist and fight the mullah dictatorship. They don't need our money, they just need us to get out of the way and take the shackles off."

    —Farnaz Fassihi contributed to this article.