Iran set to free Britons

By Edmund Blair and Parisa Hafezi

TEHRAN (Reuters) - Fifteen British military personnel are to be freed by Iran on Thursday after President Mahmoud Ahmadinejad said he would forgive them despite Britain's failure to acknowledge they had strayed into Iranian territory.

Ahmadinejad told a news conference broadcast round the world on Wednesday Britain was not "brave enough" to admit it had made a mistake in the standoff, which began when Tehran seized the 15 in the Shatt al-Arab waterway between Iraq and Iran on March 23.

The two-week standoff between Britain and Iran had raised international tensions and rattled world financial markets, but Ahmadinejad's announcement prompted a drop in oil prices from recent highs. U.S. stock futures and the dollar rose in relief.

"Under the influence of the Muslim Prophet, (Iran) forgives these 15 people and gives their freedom to the British people as a gift," Ahmadinejad told the news conference.

An adviser to Ahmadinejad said the sailors and marines would be handed over to the British embassy on Thursday and would then leave for London, Iran's Mehr News Agency reported. The group, now under the supervision of Iran's Foreign Ministry, were expected to arrive in Britain at about 1100 GMT on Thursday.

British Prime Minister Tony Blair welcomed the release of the 15 and said Britain bore the Iranian people no ill will.

"Throughout we have taken a measured approach, firm but calm, not negotiating but not confronting either," Blair told reporters. "To the Iranian people I would simply say this: we bear you no ill will."

Britain's ambassador Geoffrey Adams had met the 15, British media quoted the Foreign Office in London as saying.

The dispute centered on where the Britons were when they were seized. Britain says they were in Iraqi waters on a routine U.N. mission. Tehran says they strayed into its territorial waters.

After his announcement, a smiling Ahmadinejad met several of the sailors and marines, dressed in smart suits, shaking hands with them and exchanging a few words through an interpreter.

"We are very grateful for your forgiveness," one of the sailors told Ahmadinejad. "I would like to thank yourself and the Iranian people."

JOY

U.S. President George W. Bush welcomed the news, as did European Union president Germany.

In Britain, relatives of the 15 expressed their joy. "It is brilliant news. I am very happy with it," Nick Summers, brother of Nathan Summers, one of the captives, told Sky News.

British newspapers also welcomed the end of the standoff but questioned how it came about.

"They're coming home," read the headline in the Daily Telegraph, adding: "But was a secret deal struck to secure the release of 15 British prisoners?"

The Daily Mirror carried the headline "Freedom!" but said: "Now the questions: Were they in Iranian waters? What deals were done? And has this been a diplomatic triumph for Blair or a humiliation for Britain?"

Before making his announcement, Ahmadinejad awarded a medal to the naval commander who captured the 15 and criticized Britain, making it look as if he might not free the Britons.

Iranian and British officials had negotiated to find a diplomatic solution to a standoff that had added to international tension over Iran's disputed nuclear program, the subject of U.N. Security Council sanctions.

Ahmadinejad said he was willing to consider re-establishing ties with the United States if that country "changed its behavior", but did not expand on his remark.

He defended Iran's right to develop nuclear technology and threatened to retaliate for sanctions imposed on Iranian banks.

The United States, which has accused Tehran of having a secret program to build atomic weapons, said if Iran wanted to change relations with Washington it would have to halt uranium enrichment. Iran says its program is only for electricity.

Iran's official news agency IRNA said Blair's adviser Nigel Sheinwald had spoken to Ali Larijani, secretary of Iran's Supreme National Security Council, on Tuesday night, breaking high-level diplomatic ice.

The Shatt al-Arab waterway, where British and Iranian naval vessels operate daily, remains an area of potential conflict because the border between Iran and Iraq is poorly defined.

(Additional reporting by Deborah Haynes)