Sir Jeremy Greenstock

Sir Jeremy Greenstock told BBC Radio 4 Iran was a "big neighbour" and "capable of doing damage to Iraq".

He said Iran had feared the US and UK had a "hidden agenda of aggression".

But, speaking after his first visit to Tehran since taking his new post, he said Iran was now "more relaxed about where this [the occupation] is going".

The US and Britain's relations with Iran's leaders have long been under strain.

'No hidden agenda'

President Bush has previously described Iran as part of an "axis of evil" along with North Korea and Iraq.

Sir Jeremy told the Today programme the Iranian leadership had wanted to be certain the US and UK "had no hidden agenda of aggression towards Iran".

He said: "They want to make sure the US and UK in Iraq are not going to go down routes they wouldn't be able to deal with in the long term...

Iran is beginning to play it more positively Sir Jeremy Greenstock

"Clearly they would like a better relationship with the United States, and the United States would like a better relationship with Iran."

The setting of a date for the handing over of sovereignty to an administration formed by Iraqis had reassured Tehran.

Sir Jeremy said: "They want a stable, prosperous and good neighbour and I think they see the prospect of that... Iran is beginning to play it more positively."

Fears among politicians in the West that Iran's clerical regime wanted to install a "clone" of its own religious form of government in Baghdad appeared unfounded.

Iran wanted co-operation with the occupying coalition on oil, electricity and commercial operations and wanted access for its pilgrims to Shia holy sites in Iraq.