Step by step, Iran and the United States are cautiously finding ways to edge closer together after two decades of mutual hostility and suspicion.

The latest move comes from Iran, which is to permit U.S. companies to take part in the country's biggest trade fair.American business, prominent in Iran under the pro-Western shah, suffered in the aftermath of his overthrow during the 1979 revolution.

Washington severed diplomatic relations with Tehran in 1980 after militants stormed the U.S. Embassy and seized Americans hostage.

Since June 1995, when President Bill Clinton imposed oil and trade sanctions against Iran, U.S. firms have been effectively frozen out of trade with the Islamic republic.

With the world's second largest gas reserves and third largest oil exports, the stakes in Iran are high.

European, Japanese and other Asian companies have stepped in to sign up deals for which U.S. firms would otherwise bid.

The cost to American firms in terms of lost business opportunities and jobs has been high, as the U.S. oil field service and supply industry noted last week.

Now U.S. companies are to be allowed to take part in this year's Tehran International Trade Fair, a nine-day event due to begin on Oct. 1.

But the United States would not be officially invited, Deputy Commerce Minister Mojtaba Khosrowtaj was quoted as saying in remarks published in the newspaper Tehran Times on Sunday.

"Iran will invite all world nations except the United States and Israel to participate in the 24th Tehran International Trade Fair," the newspaper quoted Khosrowtaj as saying.

"However, the American companies will be allowed to participate in the fair if they intend to do it of their own (accord)."

Khosrowtaj said he expected a large number of countries to participate in the fair "in view of . . . Khatami's initiative to open up dialogues between civilizations," the newspaper said.

Relations have been improving since the election last May of President Mohammad Khatami, a Shi'ite Moslem clergyman seen as a moderate in the context of Iranian politics.