In the ongoing game of gradual diplomatic détente between the United States and Iran, Washington smacked the ball firmly into Iran's court last Friday with Secretary of State Madeleine Albright's announcement of a lifting of U.S sanctions on key Iranian non-oil exports. Iran's cool response to the Albright overture, however, begs the question: is Iran ready, or even interested, in playing the game?

Iran's two top leaders – Supreme Leader Ayatollah Ali Khamenei and President Mohammad Khatami – both ignored Albright's call in their annual Iranian new year speeches on Monday, instead focusing on domestic issues, in particular the recent violent attack on a key reformist and the country's deteriorating economy. Meanwhile, in comments made shortly after Albright's speech, Iran's Ambassador to the United Nations Hadi Nejad Hosseinian was guarded about the US overture.

"The hawkish statements made in the Congress, as well as those by senior American officials, coupled with mixed positions and messages by the United States, fail to generate sufficient trust for Iran to become convinced that the benefits of the US proposed dialogue would outweigh its possible costs," Nejad Hosseinian said. He pointed to continued US sanctions on Iran's oil industry, adding that the US offer of dialogue had been proposed in "a domineering and insolent spirit."

Nejad-Hosseinian's response dampened much of the enthusiasm generated by the Albright speech. Still, analysts in Tehran say that Albright's speech was significant, specifically her apologetic references to past US policies that have hampered efforts to improve relations. The secretary of state specifically referred to the 1953 CIA-orchestrated coup d'etat of a nationalist Prime Minister and Washington's support for Iraq during the bloody 1980-88 Iran-Iraq war.

"I think those references will resonate well in Tehran," said Hadi Semati, a Tehran University political scientist. "It was an important statement."

Silence can often speak louder than words in Iran, and the fact that Khamenei, whose speeches are regularly laced with anti-US rhetoric, avoided the subject in his new year speech is being interpreted as a good sign by advocates of improved Iran-US ties. Semati said, however, that domestic issues remain Iran's top priority right now. While relations with the US are considered important, they do not appear to be a priority. Thus, Iran may not immediately seize the détente opportunity. A more likely scenario would have Iran striving to support the warming trend without committing to face-to-face bilateral talks in the near future.

Khamenei's New Year address underscored the Iranian leadership's preoccupation with internal developments. He focused on the economy and domestic politics, noting that Iran's "own weaknesses" led to a climate of student unrest and threats to national security in the previous year.

President Khatami, the reformist president -- who launched the Washington-Tehran détente with a CNN interview two years ago in which he called for people-to-people exchanges -- also focused on the economy and domestic politics in his new year speech. Khatami defended his political and social liberalization program and vowed to press on despite a violent attack on a key pro-Khatami reformist newspaper editor, Saeed Hajarian, that has left him fighting for his life in a Tehran hospital. In addition, Khatami expressed concern about some of the powerful hard-line forces opposing Iran's nascent democracy movement. [For background see the Eurasia Insight archive].

Given the domestic dilemmas, Iran observers say that it may be awhile before Teheran can focus on improving US relations. The newly elected reformist Parliament expected to take office this summer will certainly offer a more welcoming climate to improved ties. But the new MP's may not want to tackle such a politically charged issue during the first few months of their term. Hard-liners in the government, who still can play an important spoiler role, are extremely sensitive on the issue of improving US-Iran ties.

Iran's conservative establishment also views Washington's overture with suspicion, especially those in the financial community, including the country's powerful merchants and the heads of partially state-owned financial conglomerates. They fear that the entry of American companies into their markets could potentially break their monopolies and reduce profits in European trade.

Average Iranians overwhelmingly support better ties with the United States. Indeed, if a referendum were to be held, it is likely that improved ties could garner even more votes than the wildly popular Khatami did. For many Iranians suffering under a long recession, improved ties with the U.S offers hope of an improved economy. Others view it as a return to normalcy after years of revolutionary fervor.

Now with the ball in Iran's court, Washington should expect a soft return. Still, it is a positive development that Iran will continue to play the game.