AMERICAN forces in Iraq have signed a ceasefire agreement with an Iranian opposition group that the United States lists as a terrorist organisation, a surprise move that has greatly concerned officials in Britain and Tehran.

The decision to cease hostilities with the People’s Mujahidin (MKO), an armed group of secular Iranian dissidents that has been fighting Tehran’s fundamentalist regime from inside Iraq for more than 20 years, is the first accord between the US and a listed terrorist organisation.

The move by America is at odds with the Bush Administration’s pledge to fight terrorist groups worldwide, but is viewed by US officials as a pragmatic step that will deliver military and political benefits in the region.

The MKO was formed in the 1960s and was expelled from Iran after the Islamic revolution in 1979. It formed an alliance with Saddam Hussein, who backed the group.

Only two weeks ago, US forces in northern Iraq bombed the MKO’s main base along the Iranian border, killing scores of fighters and destroying tanks and artillery.

It had a history of violence against Americans. It supported the takeover of the US Embassy in Tehran in 1979 and killed several US military and civilian officials in the 1970s. But the group developed a significant following in Congress for its opposition to Iranian fundamentalism.

Last November 150 US congressmen signed a petition urging the Bush Administration to remove the organisation, which is led by a woman and has an estimated 10,000 members in Iraq, from the US terrorist list.

• Rival religious and ethnic groups said they had reached agreement on setting up a US-backed government in the northern Iraqi city of Mosul.

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