March 20 (Bloomberg) -- President Barack Obama urged Iran to opt for peace over “terror or arms,” forging diplomatic ties with the world, and an adviser to President Mahmoud Ahmadinejad responded that the U.S. should lift sanctions.

“We have serious differences that have grown over time,” Obama told Iran’s leaders in a video message released by the administration today. “My administration is now committed to diplomacy that addresses the full range of issues before us, and to pursuing constructive ties among the United States, Iran and the international community.”

Obama, who campaigned on a pledge to seek engagement with U.S. foes, said the effort to re-establish relations won’t be “advanced by threats.”

The U.S. and Iran are entangled in a dispute over the Persian Gulf nation’s nuclear program, which the U.S. contends is a cover for developing weapons. Iran denies that the program has military aims, saying it’s trying to produce more electricity for a growing population.

The U.S. broke diplomatic ties with Iran almost three decades ago after Iranian militants held 52 Americans hostage in Tehran for 444 days.

“We welcome the overcoming of the problems between the two nations, the solving of issues that run deep,” Ali Akbar Javanfekr, media adviser to Ahmadinejad, said in a telephone interview. “The good intention should be put into action, otherwise differences will remain as fire under the ashes.”

Lift Economic Sanctions

Javanfekr said Obama must lift the sanctions imposed on Iran for pursuing its nuclear program, and admit past mistakes, such as support for Saddam Hussein’s Iraqi regime during the 1980-88 war with Iran, the 1988 downing of an Iranian airliner by the U.S. Navy in the Strait of Hormuz and support for a 1953 coup d’etat in Tehran to ensure oil supplies to the West.

“There is a need for more than talks,” Javanfekr said. “Obama needs to show that he believes what he is saying.”

Obama timed his message to coincide with the ancient festival of Nowruz, the new year holiday that originated in Iran and has spread to other regions of the world.

“We seek instead engagement that is honest and grounded in mutual respect,” he said.

“On the occasion of your New Year, I want you, the people and leaders of Iran, to understand the future that we seek,” Obama said. “It’s a future with renewed exchanges among our people, and greater opportunities for partnership and commerce” and “greater security and greater peace.”

Iraq Strategy

Iran also has an impact on U.S. strategy in Iraq. The American military accuses Iran of arming militants in Iraq, which has been struggling to overcome sectarian and insurgent violence following the U.S.-led invasion of the country to oust President Saddam Hussein in 2003. U.S. fighter jets shot down an Iranian drone flying over Iraq Feb. 25, the Defense Department said.

The video was being distributed to news outlets in the region in English with Farsi subtitles and made available for broadcast in Iran, according to material the Obama administration provided with a text. It was billed as an unconventional attempt to get the attention of Iranians and their leaders.

Afghanistan Role

In response to Obama’s bid for more regional engagement and openness to improved relations, Iran wants to increase its investment in Afghanistan’s economic development, United Nations and Afghan diplomats said in New York.

“They are interested, and they are motivated,” Kai Eide, head of the UN mission in Afghanistan, said in an interview after his visit to Tehran last week. “Iran is already doing quite a bit and there is the potential for more. They have a key role to play.”

Eide said that Iran, which is building a rail link to the city of Herat in western Afghanistan, might contribute to a network of tracks linking Iran, Afghanistan, Tajikistan to the north, and China. He also said Iran likely would send more “experts” into Afghanistan to boost its capacity to effectively use foreign aid.

“This is happening just when there are new messages from Washington calling on Iran to partner more with us,” Zahir Tanin, Afghanistan’s ambassador to the UN, said. “This is a new dynamic, and Iran answered in the Security Council yesterday that they are ready. The will is there.”

New Chapter

Obama’s message to Iran drew praise in Europe.

“I hope that will open a new chapter in relations with Tehran,” European Union foreign policy chief, Javier Solana, told reporters today in Brussels, where he is attending a summit of EU leaders.

French President Nicolas Sarkozy, also speaking in Brussels, said, “It’s only positive that the American president wants to re-engage to work for peace by telling the Iranian people that it’s a great people, while warning Iranian leaders against obtaining nuclear weapons.

“The policy of sanctions remains on the agenda, but we must discuss at the same time,” Sarkozy added.

Israeli President Shimon Peres issued a holiday message of his own to the Iranian people, the Israeli newspaper Haaretz reported. “The day is not far off when our two nations will restore good neighborly relations and cooperation,” Peres said.

‘Great’ Culture

In his video, Obama praised Iran’s “great and celebrated culture.”

“We know that you are a great civilization, and your accomplishments have earned the respect of the United States and the world,” Obama said.

The U.S. president said he knows it will be difficult to move beyond the conflicts.

“There are those who insist that we be defined by our differences,” Obama said. “But let us remember the words that were written by the poet Saadi, so many years ago: ‘The children of Adam are limbs to each other, having been created of one essence,’” he said, referring to the medieval Persian poet.

“The apology isn’t going to happen,” said Ali Ansari, Director of the Institute for Iranian Studies at the University of St. Andrews, Scotland. “The demand for an apology is simply a way for the Iranians to bide their time.

“Obama is doing as much as he can at the moment,” said Ansari, who also advises European governments at the London- based Chatham House, a consultant on foreign policy. “I don’t think anything is going to happen before the election” of Iran’s next president on June. 12.

Iran’s Ahmadinejad said last month that his country is waiting for the U.S. to show “signs of real change” under the Obama administration, calling it “a necessity” for improving relations between the two countries.

Ahmadinejad, who is critical of the U.S. for what he calls “imperialistic” policies and for seeking to destabilize Iran’s cleric-led regime, has said his government is ready for negotiations based “on mutual respect.”

To contact the reporters on this story: Kim Chipman in Washington at kchipman@bloomberg.net; Ladane Nasseri in Tehran at lnasseri@bloomberg.net.

Last Updated: March 20, 2009 15:34 EDT