The US State Department officially considers a group of 3,800 Marxist Iranian rebels - who once killed several Americans and was supported by Saddam Hussein - "terrorists."
But the same group, under American guard in an Iraqi camp, was just accorded a new status by the Pentagon: "protected persons" under the Geneva Convention.
This strange twist, analysts say, underscores the divisions in Washington over US strategy in the Middle East and the war against terrorism. It's also a function of the swiftly deteriorating US-Iran dynamic, and a victory for US hawks who favor using the Mujahideen-e Khalq Organization (MKO) or "People's Holy Warriors," as a tool against Iran's clerical regime.
"How is it that [the MKO] get the Geneva Convention, and the people in GuantÃ¡namo Bay don't get it? It's a huge contradiction," says Ali Ansari, a British expert on Iran. "This will be interpreted in Iran as another link in the chain of the US determination to move onto Iran next" in the US war on terror.
For months, Tehran has quietly signaled that it would turn over high-ranking Al Qaeda members in exchange for MKO members now in Iraq. The MKO's new status likely puts an end to any such deal.
The shift also comes as momentum builds in Washington to take some action against the Islamic republic. Wednesday, it was reported that Tehran has broken United Nations inventory seals and may resume work on constructing centrifuges - the machines used for enriching uranium.
Senior European diplomats - who brokered a private deal with Iran last October that included halting suspected nuclear weapons programs, in exchange for Western nuclear power expertise - are expected to secretly meet Iranian counterparts Thursday in London or Paris to see what can be salvaged of their agreement.
"US-Iran relations are drifting into very dangerous waters at the moment," says Mr. Ansari.
Indeed, the Pentagon decision comes amid a string of critical reports about Iran that are causing some US lawmakers to wonder whether the Bush administration's action against Iraq should have been aimed instead at Iran.
But some analysts see the change as related to the US presidential election. "This whole dynamic is tied up with [US] domestic politics...and not about the MKO itself, which is not really a major threat to Iran anymore," says Mohamed Hadi Semati, a political scientist from Tehran University now at the Carnegie Endowment for International Peace in Washington.
"The neocons were losing ground, and this new Iran bashing is seen by them as an opportunity to drum up the theme of terror and the possibility of a collision with Iran - therefore, you need a very decisive leader in the White House," says Mr. Semati. "At the same time, Iran is giving a lot of ammunition to [Bush administration hawks on Iran]."
The Mujahideen is a cultish Marxist group that was ordered to leave Iraq last December by the US-appointed Iraqi leadership, which decried the "black history of this terrorist organization." The expulsion was never carried out.
A website of the National Council of Resistance of Iran - the MKO's political wing - on Sunday quoted its exiled leader Maryam Rajavi as saying the US decision was a "triumph for the Iranian Resistance and the Iranian people."
The MKO, which would like to topple the Islamic regime in Tehran, says they would establish a more democratic, secular government.
The MKO is not known to have conducted any anti-US attacks, according to the US State Department, since assassinating several Americans in the 1970s.
While hosted by Saddam Hussein in Iraq, MKO militants stood shoulder to shoulder with their hosts during the Iran-Iraq war of the 1980s - a choice that permanently damaged their standing among most Iranians.
In Iraq itself, the MKO played important roles in the violent suppression of Kurdish and Shiite uprisings in 1991 and 1999 - actions that still grate with Iraq's new leadership.
US forces bombed MKO camps during the Iraq invasion, then made a cease-fire deal. Last August, the US forced the MKO to close its offices in Washington.
The State Department says it does not plan take the MKO off its terrorism list. But a July 21 memo from Maj. Gen. Geoffrey Miller, the US deputy commander in Iraq, told the MKO the decision "sends a strong signal and is a powerful first step on the road to your final individual disposition," according to a copy quoted by The New York Times.
Militants in the camp signed a statement renouncing violence and terrorism. In the memo, General Miller said he was "writing to congratulate each individual living in Camp Ashraf" of their status.
Tehran, which has demanded either the prosecution of MKO members or their handover to Iran, responded angrily.
"We already knew that America was not serious in fighting terrorism," Foreign Ministry spokesman Hamid Reza Asefi said on Tuesday, adding that the US had now created a new category of "good terrorists." "The American resort to the Geneva Conventions to support the terrorist hypocrites [MKO] is naÃ¯ve and unacceptable."
The changing status of the MKO is little surprise to some experts.
"The [terrorism] designation process is often hijacked for political purposes, and may shift with the wind," says Magnus Ranstorp, head of the Center for the Study of Terrorism and Political Violence at St. Andrews University in Scotland.
"Your enemy's enemy is your friend," says Mr. Ranstorp. "And certainly since the Iraq conflict, the MKO has gravitated toward a more serious category, because of political expediency."
That expediency appears to be part of a growing cascade of anti-Iran sentiment in the US that some say could eventually lead to military action. Among the signals: The Sept. 11 Commission report found that perhaps half of the 9/11 hijackers passed through Iran without having their passports stamped, though they may have crossed without official knowledge.
Some US and Iraqi officials - facing continued bloodshed and chaos in Iraq - accuse Iran of intervening to undermine the US occupation and the new "sovereign" Iraqi leadership.
Questions remain about the true intentions of Iran's nuclear power effort, which the US accuses of being a front for a weapons program. Several senior Al Qaeda members remain - in custody, according to Iranian officials - in Iran.
And Europeans - once supportive of constructive engagement with Iran - have been taken aback by Iranian waffling on nuclear inspections, the rejection of thousands of candidates from elections last February, and the spectacle of British sailors arrested last month.
In Washington earlier this month, Republican senators introduced the "Iran Freedom and Support Act of 2004," a $10 million measure to support pro-democracy groups and broadcasting. Tehran responded that "those who draft such plans lag behind the times, they live in their daydreams."
In a recent Council on Foreign Relations report, several Iran experts have called for a limited re-engagement with Iran. They say that lack of any official contact with Iran for 25 years has harmed US interests.
But British historian Ansari says, "At the moment, I would lay more blame on the Iranians, because they are in a position of strength...and should now seize the initiative and make bold and constructive suggestions." He adds, "they're not doing anything.... they are miscalculating."
Meanwhile, the MKO may have its own model to follow, and use its "protected" status as a springboard. "They are trying desperately to set themselves up as Iran's equivalent of the Iraqi National Congress," says Ansari, referring to the Iraqi opposition group led by former Pentagon favorite Ahmed Chalabi. "The Iranians will be aware that the Americans are trying to keep them as a potential INC."