In his inaugural address, Khatami stressed that his foreign policy objectives would be based on three principles: wisdom, integrity, and expediency in pursuing peace and security. He also expressed his hope to establish a dialogue between Islam and other civilizations in an effort to achieve detente with the outside world.
In the 1980s and 1990s, relations with Europe had been strained because of Iranian government insistence on its right to eliminate political opponents who seek refuge in Europe. Yet, despite this source of tension, trade with European countries has flourished since 1992. Khatami has indicated an interest in easing tensions and improving commercial ties with European nations. As a step toward meeting those objectives, Khatami made state visits to Italy, the Vatican, and France in 1999.
The Khatami government favors greater cooperation with Arab states in the region as well. In November 1997, Iran hosted the Islamic Conference Summit, and in 1999, Khatami made official visits to Syria and Saudi Arabia. Khatami had pledged particular attention to the improvement of relations with states in the Persian Gulf region.
Relations between the United States and Iran have remained difficult even as Khatami has improved Iran's international profile and has significantly improved relations with many U.S. allies, particularly European nations. After the terrorist attacks on the United States in September 2001, Iran declared its support for the United States in its war in Afghanistan, which borders Iran and whose Taliban government Iran had long opposed. There were some media reports that secret deals had been arranged between the two long-time antagonists under which U.S. forces would be allowed to pursue any combatants fleeing Afghanistan into Iran. Whatever cooperative feelings there may have been in the immediate aftermath of the terrorist attacks were destroyed in 2002, when U.S. President George W. Bush described Iran as part of an "axis of evil," along with Iraq and North Korea. The declaration greatly insulted and infuriated Iranians and dismayed many U.S. allies who considered Iran to have reformed considerably in recent years. It also considerably complicated Khatami's attempts at reforming the country and opening it up to the West as it hardened support for the hardline clerics he has been battling since being elected president in 1997. President Bush's 2003 State of the Union address reiterated that of 2002. He again alleged that Iran was developing weapons of mass destruction and supporting terrorism.
Iran took the position in 2002 and 2003 that Iraq should cooperate with UN resolutions requiring it to disarm itself of weapons of mass destruction, in an effort to avoid war. It was opposed to unilateral U.S. military action in Iraq, and stated it would not participate or allow its territory to be used in any military action against Iraq. War began on 19 March 2003, and after hostilities had ended in April, the struggle for power within Iraq as to the establishment of a new government was in full swing. A large section of Iraq's Shiite majority staged anti-American demonstrations in April, and demanded their new government be formed along the religious lines of Iran; the Tehran-based Supreme Council for the Islamic Revolution in Iraq opposes a U.S. administration in Iraq, but insists it does not seek to establish an Iranian-style theocracy there. The United States warned Iran not to interfere in Iraq after the war, implying Iran would destabilize Iraq while it is in the process of forming a government. Iran noted it was interesting that the Americans arrived to occupy Iraq, yet accused neighboring Iran of meddling in Iraq's affairs. Iran claimed it was up to the Iraqi people to decide their own fate, and that Iranians have no role in Iraq. About 60% of Iraq's 24 million people are Shiites.