Two administration officials familiar with the matter spoke on condition of anonymity to discuss internal administration deliberations on the sensitive subject.
The officials said a decision had been made to leave the decision to the next U.S. president because it could be seen as a reward for Iran's nuclear intransigence, especially when Iran policy has become a key part of the heated campaign between Democrat Barack Obama and Republican John McCain.
Obama has called for unconditional direct talks with the leaders of so-called rogue regimes like Iran and North Korea, assuming that groundwork laid by lower-level officials indicated that the top-level talks would be fruitful.
McCain has ridiculed the suggestion as naive.
Thus, opening an interest section, or de facto embassy, in Tehran could be interpreted as a Republican president helping a Republican nominee by neutralizing a distinction that might make the Democrat appealing. Or, it could be seen as hurting McCain by leaving him to defend a more hard-line position than the current Republican president's.
Either way, the administration concluded that now was not the time.
"There is no desire to inject this into the campaign," the second official said.
The idea's demise represents the end of any marquee efforts to remake the U.S. relationship with its most formidable Mideast adversary before President Bush leaves office. Although Bush once called Iran part of an "axis of evil," along with North Korea and prewar Iraq, and says Iranian President Mahmoud Ahmadinejad is dangerous, he also had allowed a variety of tentative overtures to Tehran.
The best-known effort would have had Secretary of State Condoleezza Rice sit down for negotiations over Iran's disputed nuclear program, with the tantalizing prospect of expanded talks on other subjects. She said she would go anywhere, including Tehran, to have those conversations if Iran met its side of the bargain.
That offer went nowhere, in part because Iran refused to meet the U.S. terms to begin talks.
The diplomatic office would have served several purposes. It would have provided a public face for the U.S. government in a country where suspicion of the United States runs deep, perhaps increasing U.S. influence. It also might have made it easier for Iranians to apply for visas to visit the United States.
The idea of creating an interest section in Iran similar to the one the United States runs in communist Cuba has been around for some years. But it gained new traction in June when veteran diplomats began to look again at the plan with Rice's blessing.