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The journalist, Roxana Saberi, had been in jail since January, yet an appeals court on Monday rejected her eight-year sentence, a month after Iran’s president, Mahmoud Ahmadinejad, wrote a letter urging the court to be fair in its review.

American officials said Iran’s handling of the Saberi case underlined a deepening divide within its leadership about how to respond to President Obama’s recent overtures. It also reflects domestic politics a month before Mr. Ahmadinejad faces a critical election, according to analysts.

“Those who are trying to engage the U.S. won out,” said a senior administration official, who spoke on condition of anonymity because he was not authorized to speak publicly. “There wasn’t going to be any major new administration initiative toward Iran without this case resolved.”

Iran's Judiciary spokesman Alireza Jamshidi said Monday that journalist Roxana Saberi's sentence was commuted as a gesture of "Islamic mercy" because she expressed regret and cooperated with authorities.

Some Iranian sources also tell CNN her release is a gesture to President Obama who publicly insisted Saberi had not been spying for the United States.

When she was first arrested earlier this year, Saberi told her father she had been caught buying wine, illegal in Islamic Iran. The Iranian Foreign Ministry then said she had been working without a valid journalist permit, and finally in a one-day closed door trial, she was accused, and convicted of spying for the United States. "Without press credentials and under the name of being a reporter, she was carrying out espionage activities," Hassan Haddad, a deputy public prosecutor, told the Iranian Students News Agency on April 9. Her sentence -- eight years in Iran's notorious Evin Prison.

Asked about Mr Obama's comments, Iranian Foreign Ministry spokesman Hassan Qashqavi told a news conference: "It is an international norm that one should respect the rulings issued by the court. "I recommend that as long as you have not studied the contents of the case one should not just express his views... I'm sure some American officials have also studied law."

The journalist originally faced the less serious accusation of buying alcohol, and later of working as a reporter without a valid press card. Then, in a period of less than two weeks, the charge of spying was introduced, and she was tried and sentenced behind closed doors by the Revolutionary Court in Tehran.

Ms Saberi's father, Reza, said his daughter was tricked into making a confession - being told by investigators she would be set free if she co-operated.