He was referring to a plan attributed to some of the neo-conservatives in the Pentagon to create an Iranian anti-Islamic Republic "front" made of Monarchists led by Prince Reza Palavi and MKO, an Islamist-Marxist group based in Iraq, supported, financed and trained by the now toppled Saddam Hoseyn.

"Emboldened by victory in Iraq, some neo conservatives at the Pentagon are trying to muster support both from MKO fighters and from Reza Pahlavi", the London-based "Financial Times" wrote on 8 May.

After having bombed out several of the MKO bases in Iraq, American commanders in Iraq signed a ceasefire with the Organisation, allowing them to keep their light weapons and uniforms. They then called on the MKO members to identify Iranian agents infiltrated into Iraq by Tehran.

The deal with the MKO, previously designated by the US and Britain as a terrorist organisation, has alarmed State Department diplomats and the British Foreign Office.

"As far as I’m aware, the report is utterly baseless, for the simple fact that both Washington and the neo-cons at the Enterprise Institue knows well the terrorist nature of the MKO and have no illusions about it", Mr. Fatemi, a senior professor at the American University of Paris said, referring to the influential American think tank that is close to the American ruling Republicans.

The MKO has fought the clerics ruling Iran since the early 1980s when the two sides fell out in the power struggle that followed the Islamic revolution of 1979. Before that, the group, with a potent mix of Marxism and Islam, killed US military personnel and civilians in Tehran and backed the 1979 takeover of the US embassy there.

Hard line Iranian newspapers have used the issue to stir up anti-American sentiment. One paper claimed MKO troops in US uniforms were policing the border with Iraq.

Iranian analysts think that American commanders of the field who have no political background, have sent reports to Pentagon about MKO’s military preparedness, its rigid discipline and the number of female soldiers and officers, many of them tank drivers, artillery commanders and that this report has prompted some neo-coms at the Pentagon to blend the MKO’s military might with the increasing popularity of Prince Pahlavi and the constitutionalist monarchists.

"This the most poisonous gift one can give to Mr. Pahlavi", commented Mr. Parivz Mardani, an Iranian journalist In Bonn (Germany), adding: "The changing present Iranian regime can be fulfilled with the a popular movement, not by the Mojahedeen's army. The Prince has enough support and popularity inside and outside Iran an does not need to coalesce with an unpopular group like  the MKO", he pointed out, speaking to IPS. 

"The neo-cons are working very hard to put Iran on the Bush agenda before he focuses completely on the economy ahead of the [2004] presidential election", the Financial Times said.

More important for the moment is the support he enjoys inside the office of Douglas Feith, under- Secretary of defence for policy, according to administration insiders.

In Congress, the monarchists have also found an audience. Draft legislation sponsored by Sam Brownback, Republican senator for Kansas, would channel tens of millions of dollars to royalist television and radio stations that beam calls for insurrection from Los Angeles to audiences in Iran.

Mr Pahlavi, who has advocated a referendum in Iran on the return of the monarchy and says he is committed to democracy, arouses mixed passions in his homeland as well as among the exiled community concentrated in California.

Analysts say supporters of Reza Pahlavi, the Virginia-based son of the last Shah of Iran, see a role model in Ahmad Chalabi, head of the Iraqi National Congress who is backed by powerful figures in the Pentagon as a future leader in Baghdad committed to a secular, pro-western democracy.

The American Enterprise Institute, a conservative think-tank that hosted an Iran conference this week, is home to several analysts pushing both the Pahlavi cause and Mr Chalabi.

Exiled Iranian monarchists are developing an alliance in Washington with influential neo-conservatives as well as Pentagon officials and Israeli lobby groups.

"How do you think constitutionalist Monarchists, or any other Iranian organisation, that are secular and struggle for real democracy in Iran can work with a group that is fascist, Marxist and also islamist, forcing its female members to wear hejab, or islamic dress, an organisation that has killed Iranian soldiers, that helped Iraq combating Iran", Mr. Fatemi, the editor of the Paris-based "Iran va Jahan" (Iran and the World) internet publication added.

Like most of Iranians, Mr. Fatemi also reiterated that the MKO are so hated in Iran that if coming to choose between them and the present Mullahrchy, they would prefer the ayatollahs.

Mr Pahlavi and Mr Chalabi share similar backers in Washington, but the exiled heir to the Peacock Throne is at a far earlier stage in terms of winning funding from the Bush administration and influencing policy towards Iran, one of several areas where the Pentagon and State Department are fiercely divided.

Like Mr Chalabi, the exiled prince has courted support from Israeli lobby groups in Washington, such as the rightwing Jewish Institute for National Security Affairs whose board he has addressed.

Reuel Marc Gerecht, who advocates threatening the clerics in Tehran by military means, says nostalgia for the Shah's son has grown inside Iran.

The veto by the powerful, conservatives-controlled Council of the Guardians followed the rejection of a bill to stop stringent vetting of candidates in parliamentary elections. ENDS US MKO MONARCHISTS 11503