Former President Mohammad Khatami, who pushed for detente with the West when in office from 1997 to 2005, said on Sunday he would run in Iran's June presidential election.

The announcement sets up a choice for voters between Khatami and President Mahmoud Ahmadinejad, whose first four-year term have witnessed a sharp deterioration in ties with the West as tensions over Iran's nuclear work have mounted.

"Here I am announcing that I will seriously take part as a candidate for the election," Khatami told a meeting of pro- reform politicians.

The election is being keenly watched abroad because US President Barack Obama has offered a new US approach to engage Iran, the world's fourth largest oil producer, saying he would extend a hand of peace if Tehran would "unclench its fist".

Some analysts say Washington may wait until the June result before spelling out any offer in detail. Iran, meanwhile, has set tough conditions for opening any dialogue, a move seen as a bid to buy time in part because of the pending election.

The foes have not had diplomatic ties since shortly after Iran's 1979 Islamic revolution.

The vote will not determine policy in the Islamic Republic where Supreme Leader Ayatollah Ali Khamenei has the final say. But the president can influence how Iran acts as Khamenei tends to look for consensus among the political elite, analysts say.

"People feel the need for change because of Ahmadinejad's foreign policy and economic policies. Therefore we think people will vote for Khatami, for change," said Mohammad Ali Abtahi, a vice president under Khatami and close political ally.

"With Khatami running, the election will be polarised."

Ahmadinejad has faced mounting criticism over his economic management and surging inflation, which climbed to almost 30 percent last year. Reformists, in particular, say his fiery foreign policy speeches have further isolated Iran.

The West accuses Iran of seeking to build nuclear weapons, a charge Tehran denies, insisting its aim is to make electricity. But Tehran's failure to convince world powers about its intentions has led to three rounds of UN sanctions.

Khatami worked for detente abroad and for political and social change at home while president. But hardliners in charge of major levers of power in the Islamic Republic blocked many of his reforms, costing Khatami some key supporters.

Ahmadinejad, who an aide told Reuters in January would run again, came to office pledging to share out Iran's oil wealth more fairly and a return to Islamic revolutionary values. -Reuters