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Ayatollah Khatami is not regarded as a high-profile figure, so it was not clear how much weight his words carried.

At Friday prayers at Tehran university, Ayatollah Ahmad Khatami referred to the demonstrators as rioters and declared, “I want the judiciary to punish leading rioters firmly and without showing any mercy to teach everyone a lesson.” Reuters quoted him as saying demonstrators should be tried for waging war against God. The punishment for such offenses under Islamic law is death, Reuters said.

The authorities have repeatedly dismissed the opposition complaints. In remarks quoted on the official IRNA news agency on Friday , Abbas-Ali Kadkhodaei, a spokesman for the 12-member Guardian Council charged with vetting elections, said the panel had “almost finished reviewing defeated candidates’ election complaints” which the council said earlier numbered in excess of 600.“The reviews showed that the election was the healthiest since the revolution,” Mr. Kadkhodaei said. “There were no major violations in the election.”

on Friday, at a meeting of foreign ministers from the Group of Eight in Trieste, Italy, a joint statement said they “deployed post-electoral violence which led to the loss of lives of Iranian civilians” and urged Iran to respect human rights, including freedom of expression.” Along with Japan and Russia, the G-8 includes the United States, Canada, France, Germany, Italy and Britain.It called on Iran to “guarantee that the will of the Iranian people is reflected in the electoral process” but it said the door must remain open to dialogue with Tehran in its contentious nuclear program, news reports said.

The joint statement was a compromise between some European countries seeking a hard line, and Russia, whose foreign minister, Sergey V. Lavrov, was quoted as telling a news conference in Trieste that while Moscow wanted to express its “most serious concern” over use of force in Iran, “we will not interfere in Iran’s internal affairs.”

In another indication of the depth of divisions that remain, a senior cleric, Grand Ayatollah Nasser Makarem-Shirazi, called for “national conciliation.” “Definitively, something must be done to ensure that there are no embers burning under the ashes, and that hostilities, antagonism and rivalries are transformed into amity and cooperation among all parties,” he said in comments posted on the state-run Press TV Web site.

Israeli military officials, speaking on the condition of anonymity under army rules, said that Palestinian forces would now be able to operate 24 hours a day in the cities of Ramallah, Qalqilya, Bethlehem and Jericho, and would have to coordinate less with Israeli forces in the area, implying that the forces would reduce their own nighttime raids on those cities.

Israeli forces have been carrying out arrest raids almost nightly. On Wednesday night, for example, seven Palestinian suspects were arrested, and on Monday night six were arrested, including three from Qalqilya.

Military officials emphasized that the army would continue to operate in all the West Bank, but one said that the army would now enter the four cities only “in case of an urgent security need, and in accordance with security assessments.”

Two recent deadly shootouts in Qalqilya between Palestinian forces and armed Palestinian militants of the Islamic group Hamas have been mentioned as evidence of a new determination on the part of the Palestinian security apparatus. Four police officers, four militants and a bystander were killed in the clashes that occurred during attempts to arrest the gunmen.

In addition to removing the checkpoints, Israel says it has agreed to issue more V.I.P. cards for Palestinian businessmen, to ease their passage over the crossings into Israel.

But, he added, "I am not saying that now the CIA has done this. There are different groups. It could be the [work of another] intelligence service; it could be the CIA; it could be the terrorists. Anyway, there are people who employ these types of methods."

Until a few years ago the simplest way to get rich quick was through foreign-currency trades. Easy, if you could get greenbacks at the subsidized import rate of 1,750 rials to the dollar and resell them at the market rate of 8,000 to the dollar. You needed only the right connections for an import license. "I estimate that, over a period of ten years, Iran lost $3 billion to $5 billion annually from this kind of exchange-rate fraud," says Saeed Laylaz, an economist, now with Iran's biggest carmaker. "And the lion's share of that went to about 50 families."

One of the families benefiting from the foreign trade system was the Asgaroladis, an old Jewish clan of bazaar traders, who converted to Islam several generations ago. Asadollah Asgaroladi exports pistachios, cumin, dried fruit, shrimp and caviar, and imports sugar and home appliances; his fortune is estimated by Iranian bankers to be some $400 million. Asgaroladi had a little help from his older brother, Habibollah, who, as minister of commerce in the 1980s, was in charge of distributing lucrative foreign-trade licenses. (He was also a counterparty to commodities trader and then-fugitive Marc Rich, who helped Iran bypass U.S.-backed sanctions.)

According to the intelligence minister, the US and some western countries were aiming to achieve unrest in Iran's elections atmosphere. When asked by a reporter about the arrest of foreign spies working under the guise of reporters, Mohseni-Ejei said, "Anybody who embarks on espionage activity in the country will be arrested. A foreign reporter has so far been nabbed and another one has been questioned and his things were confiscated." The Iranian government has arrested a reporter working for the Newsweek and another one working for the Washington Times.

Meanwhile, Iran's interior minister took aim at the U.S. saying rioters were being funded by the CIA and the exiled opposition group the People's Mujahedeen.

Iran has accused the United States and its close ally Britain in particular of stoking trouble, with Foreign Minister Manouchehr Mottaki announcing on Wednesday that Tehran may downgrade ties with London.

Ahmadinejad told US President Barack Obama on Thursday to stop "interfering" in Iran's affairs. "I hope you (Obama) will avoid interfering in Iran's affairs and express regret in a way that the Iranian people are informed of it," Ahmadinejad was quoted as saying.

Less than four months before Germany's general election, last night's outcome augured well for Merkel's hopes of ditching her grand coalition in favour of a centre-right alliance with the small Free Democrats, who made the biggest gains, from six to more than 10%.

Next door in Austria, the chancellor and leader of the Social Democrats, Werner Faymann, led his party to its worst ever election result, just over 23%.In both countries, the Christian democrats won comfortably, but Merkel's Christian Democrats and her Bavarian CSU allies were six points down, on 38%.

France's president, Nicolas Sarkozy, claimed triumph with 28% for his UMP party to the Socialists 17%, the first time a sitting French president has won a European election since the vote began 30 years ago.

In Italy, the centre-right government of Silvio Berlusconi also did well, despite his marital breakdown and scandals over parties at his Sardinian villa, while in Spain the Socialist government of José Luis Rodríguez Zapatero also lost the election to conservatives.

In Germany, France, Italy, Spain, Poland, Austria, Bulgaria, Hungary and the Czech Republic, the centre right won the elections, with stunning defeats for the left in certain cases.

Following on from the triumph of Geert Wilders, the anti-Islam campaigner, who came second with 17% in the Netherlands on Thursday, the hard-right and neo­fascists chalked up further victories .

The anti-Gypsy extremists in Hungary, Jobbik, took three of the country's 22 seats; in Austria two far-right parties mustered 18%, and extreme Slovak nationalists gained their first seat in the European parliament.

Anti-Brussels candidates and Eurosceptics also won more seats in Denmark, Finland, Austria, and the Czech Republic.

With the jobless numbers soaring amid the worst economic crisis in the lifetimes of European voters, the centre left is clearly failing to benefit politically in circumstances that might be expected to boost its support.

Estimates of the new balance of power in the 736-seat assembly suggest that the centre right will have around 270 seats to the socialists' 160, a much wider margin than predicted.

Hans-Gert Pöttering, the outgoing president, or speaker, of the European parliament, stressed that Europeans "want" the parliament, but conceded that that desire would not be reflected in the turnout.

The damning popular verdict on that assertion, however, was the lowest turnout in 30 years. It was estimated at around 43%, compared with 45% last time, and 62% in Europe's first election in 1979.

"I announce that ... those who committed the bombing are neither Shiite nor Sunni. They are Americans and Israelis" who want to stoke sectarian conflict in the country, Iranian Interior Minister Sadeq Mahsouli said on the ministry's Web site. Jalal Sayyah, a senior security official in Zahedan, said 145 people were injured in the bombing and three suspects have been detained. "Hire of the terrorists by the US was verified based on investigation," Sayyah told The Associated Press.

Sayyah did not say whether the terrorists belonged to a specific group. In 2007, Jundallah, or God's Brigade, killed 11 members of Iran's elite Revolutionary Guards in Zahedan.

"It has been confirmed that those behind the terrorist act in Zahedan were hired by America and the arrogance's other hands," Sayyah told the semi-official Fars News Agency.

A bomb attack in Zahedan in early 2007 which killed 18 Revolutionary Guards was claimed by Jundollah (God's Soldiers), an insurgent group that says it is fighting for the rights of Iran's Sunni minority but which Tehran says is part of al Qaeda.

Defense analyst Paul Beaver said it was "highly unlikely" that the U.S. administration of President Barack Obama, who is seeking to engage Tehran diplomatically after three decades of mutual mistrust, would support Sunni insurgents in Iran.

In April, Iran's intelligence minister said it had arrested a group of people linked to Israel who were planning bombings ahead of the June 12 election, in which hardline President Mahmoud Ahmadinejad is seeking a second four-year term.

The explosion, which some officials and media suggested was a suicide bombing, took place on a religious holiday in the mainly Shi'ite Muslim country. More than 80 people were wounded.

"The terrorists, who were equipped by America in one of our neighboring countries, carried out this criminal act in their efforts to create religious conflict and fear and to influence the presidential election," Sayyah told state radio.

"The Iranian nation has repeatedly announced that it does not want nuclear weapons ... keeping nuclear arms would create a big danger and trouble and even if they pay us we do not want it," he said. Khamenei said the United States had occupied two Muslim countries, Iraq and Afghanistan, under the pretext of fighting terrorism. "The terrorists kill one, two or ten people ... but you kill 100 or 150 people," he said, referring to a rising civilian death toll as foreign and Afghan troops battle Taliban insurgents.

Last night's estimate of 15% represented a big increase on the 6% he took in the last general election in 2006, despite fielding a list of unknowns for seats in the European parliament.

The Christian Democrats of prime ­minister Jan Peter Balkenende won the election, according to the television exit poll, but dropped 4 points and lost two seats. Its coalition partner, the Labour party, took 4 seats, like Wilders, but dropped 10 points and forfeited three seats.

Wilders will take further encouragement from a mock election staged among 15,000 pupils in 140 schools in the Netherlands this week which gave him more than 19% support, ahead of all other parties.

Turnout in the Netherlands was around 40%, similar to five years ago and half the level of the general election in 2006.

In a letter to Khamenei, published by the semi-official Mehr news agency, Rafsanjani said tens of millions of Iranians had witnessed "mis-statements and fabrications" during the debate."I am expecting you to resolve this position in order to extinguish the fire, whose smoke can be seen in the atmosphere, and to foil dangerous plots to take action," said Rafsanjani.

His comments were echoed by 14 high-ranking clerics from the holy city of Qom, who expressed "deep concern and regret" that Iran's image had been harmed in the debate."Accusing those who were not present at that debate and could not defend themselves is against our religion," they said in a statement also published by Mehr.

Meanwhile, central Tehran saw chaotic scenes for a second day when supporters of Mousavi – many of them young women – flocked in their tens of thousands to another demonstration, shouting anti-Ahmadinejad slogans and waving the green ribbons, banners and posters that have become the symbol of his campaign. A "human chain" rally on Monday night was likened by many to the events that shook Tehran before the 1979 Islamic revolution.

Previous Mousavi rallies had to be cancelled at the last minute because permission to use large venues was suddenly withdrawn by the authorities. On Sunday a rally at Karaj outside Tehran could not be held because the electricity supply to the public address system failed.

Last night, in the last of six televised debates, Ahmadinejad clashed over the economy with the other conservative candidate, a former Revolutionary Guards commander, Mohsen Rezaei.Ahmadinejad insisted that over the last four years he had slashed inflation to 15%, but Rezaei, an economist, said the true figure was 25%.

The fourth candidate, reformist cleric Mehdi Karoubi, dismissed as "psychological warfare" rumours that he might withdraw from the race to boost Mousavi's chances.

Ahmadinejad remained defiant towards the outside world, especially over the nuclear issue that has done so much to isolate Iran.At a campaign event in the Caspian Sea province of Mazenderan he said: "Let the world know that if the Iranian nation should re-elect this small servant, he would go forward in the world arena with the nation's authority and would not withdraw an iota from the nation's rights."

Hundreds of regular and riot police were on the streets as civil unrest continued for the second straight day. But it was non-uniformed activists, on foot and on motorcycles, who appeared to be behind the most violent incidents.

CNN reporters in Tehran witnessed men, dressed in plain clothes, combing through streets and alleys for anti-Ahmadinejad protesters. Armed with clubs, metal batons and baseball bats, they chased protesters, in some cases beating them.

I turn to you, our Palestinian neighbors, led by the Palestinian Authority, and I say: Let’s begin negotiations immediately without preconditions.Israel is obligated by its international commitments and expects all parties to keep their commitments. We want to live with you in peace, as good neighbors.

I do not want war.  No one in Israel wants war.

Territorial withdrawals have not lessened the hatred, and to our regret, Palestinian moderates are not yet ready to say the simple words: Israel is the nation-state of the Jewish people, and it will stay that way.

to our regret, this is not the case with the Palestinians. The closer we get to an agreement with them, the further they retreat and raise demands that are inconsistent with a true desire to end the conflict. Many good people have told us that withdrawal from territories is the key to peace with the Palestinians. Well, we withdrew. But the fact is that every withdrawal was met with massive waves of terror, by suicide bombers and thousands of missiles. We tried to withdraw with an agreement and without an agreement.  We tried a partial withdrawal and a full withdrawal.  In 2000 and again last year, Israel proposed an almost total withdrawal in exchange for an end to the conflict, and twice our offers were rejected. We evacuated every last inch of the Gaza strip, we uprooted tens of settlements and evicted thousands of Israelis from their homes, and in response, we received a hail of missiles on our cities, towns and children.  The claim that territorial withdrawals will bring peace with the Palestinians, or at least advance peace, has up till now not stood the test of reality.

But we must also tell the truth in its entirety: within this homeland lives a large Palestinian community. We do not want to rule over them, we do not want to govern their lives, we do not want to impose either our flag or our culture on them.

The Palestinian leadership must arise and say: “Enough of this conflict. We recognize the right of the Jewish people to a state of their own in this land, and we are prepared to live beside you in true peace.”  I am yearning for that moment, for when Palestinian leaders say those words to our people and to their people, then a path will be opened to resolving all the problems between our peoples, no matter how complex they may be.

Therefore, a fundamental prerequisite for ending the conflict is a public, binding and unequivocal Palestinian recognition of Israel as the nation state of the Jewish people.  To vest this declaration with practical meaning, there must also be a clear understanding that the Palestinian refugee problem will be resolved outside Israel’s borders.  For it is clear that any demand for resettling Palestinian refugees within Israel undermines Israel’s continued existence as the state of the Jewish people.

Tiny Israel successfully absorbed tens of thousands of Jewish refugees who left their homes and belongings in Arab countries.  Therefore, justice and logic demand that the Palestinian refugee problem be solved outside Israel’s borders.

the connection between the Jewish people and the Land of Israel has lasted for more than 3500 years.  Judea and Samaria, the places where Abraham, Isaac, and Jacob, David and Solomon, and Isaiah and Jeremiah lived, are not alien to us.  This is the land of our forefathers. The right of the Jewish people to a state in the land of Israel does not derive from the catastrophes that have plagued our people. True, for 2000 years the Jewish people suffered expulsions, pogroms, blood libels, and massacres which culminated in a Holocaust - a suffering which has no parallel in human history.  There are those who say that if the Holocaust had not occurred, the state of Israel would never have been established.  But I say that if the state of Israel would have been established earlier, the Holocaust would not have occured. 

our right to build our sovereign state here, in the land of Israel, arises from one simple fact: this is the homeland of the Jewish people, this is where our identity was forged. 

the simple truth is that the root of the conflict was, and remains, the refusal to recognize the right of the Jewish people to a state of their own, in their historic homeland.   In 1947, when the United Nations proposed the partition plan of a Jewish state and an Arab state, the entire Arab world rejected the resolution. The Jewish community, by contrast, welcomed it by dancing and rejoicing. The Arabs rejected any Jewish state, in any borders. Those who think that the continued enmity toward Israel is a product of our presence in Judea, Samaria and Gaza, is confusing cause and consequence. The attacks against us began in the 1920s, escalated into a comprehensive attack in 1948 with the declaration of Israel’s independence, continued with the fedayeen attacks in the 1950s, and climaxed in 1967, on the eve of the six-day war, in an attempt to tighten a noose around the neck of the State of Israel.  All this occurred during the fifty years before a single Israeli soldier ever set foot in Judea and Samaria .

In my vision of peace, in this small land of ours, two peoples live freely, side-by-side, in amity and mutual respect.  Each will have its own flag, its own national anthem, its own government.  Neither will threaten the security or survival of the other.

This policy must take into account the international situation that has recently developed.  We must recognize this reality and at the same time stand firmly on those principles essential for Israel.

Palestinians must clearly and unambiguously recognize Israel as the state of the Jewish people.  The second principle is: demilitarization. The territory under Palestinian control must be demilitarized with ironclad security provisions for Israel.  Without these two conditions, there is a real danger that an armed Palestinian state would emerge that would become another terrorist base against the Jewish state, such as the one in Gaza. 

In order to achieve peace, we must ensure that Palestinians will not be able to import missiles into their territory, to field an army, to close their airspace to us, or to make pacts with the likes of Hezbollah and Iran.

It is impossible to expect us to agree in advance to the principle of a Palestinian state without assurances that this state will be demilitarized.

Therefore, today we ask our friends in the international community, led by the United States, for what is critical to the security of Israel:  Clear commitments that in a future peace agreement, the territory controlled by the Palestinians will be demilitarized: namely, without an army, without control of its airspace, and with effective security measures to prevent weapons smuggling into the territory – real monitoring, and not what occurs in Gaza today.  And obviously, the Palestinians will not be able to forge military pacts.

Without this, sooner or later, these territories will become another Hamastan. And that we cannot accept.

Regarding the remaining important issues that will be discussed as part of the final settlement, my positions are known: Israel needs defensible borders, and Jerusalem must remain the united capital of Israel

The territorial question will be discussed as part of the final peace agreement.  In the meantime, we have no intention of building new settlements or of expropriating additional land for existing settlements. But there is a need to enable the residents to live normal lives, to allow mothers and fathers to raise their children like families elsewhere.  The settlers are neither the enemies of the people nor the enemies of peace.  Rather, they are an integral part of our people, a principled, pioneering and Zionist public.

Unity among us is essential and will help us achieve reconciliation with our neighbors.

If the Palestinians turn toward peace – in fighting terror, in strengthening governance and the rule of law, in educating their children for peace and in stopping incitement against Israel - we will do our part in making every effort to facilitate freedom of movement and access, and to enable them to develop their economy.  All of this will help us advance a peace treaty between us. 

Above all else, the Palestinians must decide between the path of peace and the path of Hamas. The Palestinian Authority will have to establish the rule of law in Gaza and overcome Hamas.  Israel will not sit at the negotiating table with terrorists who seek their destruction.   Hamas will not even allow the Red Cross to visit our kidnapped soldier Gilad Shalit

If we receive this guarantee regarding demilitirization and Israel’s security needs, and if the Palestinians recognize Israel as the State of the Jewish people, then we will be ready in a future peace agreement to reach a solution where a demilitarized Palestinian state exists alongside the Jewish state.