Britain announced Friday a resumption of full diplomatic ties with Iran based on "mutual respect." It accelerated an improvement in Western relations with the fundamentalist government in Tehran.

But Secretary of State George P. Shultz said any U.S. settlement with Iran required an end to the Iran-Iraq war, an end to terrorism and the release of Americans believed held by pro-Iranian forces in Lebanon.Iran evidently wants to move toward a more normal position around the world, but "there is no change in the situation as far as the United States and Iran is concerned," Shultz said at a news conference.

The British foreign secretary, Sir Geoffrey Howe, announced the move after meeting with the Iranian foreign minister, Ali Akhbar Velayati. "Both sides have decided to resume full diplomatic relations on the basis of reciprocity and mutual respect," Howe said.

Velayati, referring to negotiations under way in Geneva between British and Iranian representatives, said some details remained to be worked out. Howe said the ties would be repaired "in due course."

In London, Iranian charge d'affaires Mohammad Basti said: "Full diplomatic relations are to be restored and we hope it will be at ambassadorial level."

Britain pulled its diplomats out of Tehran last year after one of its envoys was beaten and kidnapped in apparent reprisal for the arrest in Manchester of an Iranian consul on shoplifting charges.

The diplomat, Edward Chaplin, was released after 24 hours.