By Arshad Mohammed and Sue Pleming
Rice said Bush, who will hand over to President-elect Barack Obama on Jan. 20, had made a decision "in principle" to open an interests section in Tehran.
While the Bush administration explored the mechanics of opening such an office, it never approached the Iranian government about opening one, Rice said.
"At this late moment, I think it is probably better that this decision be left to the next administration," she told reporters when asked whether such an outpost could be opened in Tehran before the end of the Bush administration.
Rice likened it to the U.S. interests section in Cuba, another country with which the United States does not have diplomatic relations, saying it would increase contacts with the Iranian people but should not suggest any easing in U.S. opposition to Iran's suspected pursuit of nuclear weapons.
Among other things, Rice said an interests section in Tehran could issue visas to Iranians seeking to travel to the United States and it would give the U.S. government "eyes on the ground" in Iran for the first time in nearly 30 years.
The United States cut diplomatic ties with Tehran during the 1979-1981 hostage crisis, in which a group of militant Iranian students held 52 U.S. diplomats hostage at the American embassy for 444 days.
The Bush administration been loathe to deal directly with the Iranian government, although it has done so on discrete issues such as establishing a government in Afghanistan after the 2001 U.S.-backed military action that toppled the Taliban.
Rice said Bush decided to explore opening an interests section in the context of a "firm" stance against Iran's suspected pursuit of nuclear weapons, its support for militant groups in Lebanon, Gaza and Iraq its internal repression.
Iran denies it is seeking nuclear weapons, saying that its atomic program is designed to produce power so that it can export more of its valuable oil and gas.
A U.S. official who spoke on condition he not be named said the United States held back from opening an office in Tehran partly out of concern that such a move could have undermined U.S. negotiations with Iraq on a pact to end the U.S. presence there.
"We made the calculation, looking at Iraq, that even the perception of reaching out to the Iranian government would not be helpful to those negotiations," said the U.S. official of the talks on a "Status of Forces Agreement" with Iraq.
Washington and Baghdad have since reached agreement on the pact, which paves the way for U.S. troops to withdraw from Iraq by the end of 2011, bringing closer to an end the 2003 U.S.-led invasion that ousted former dictator Saddam Hussein only to usher in years of sectarian bloodshed.
Asked if Iran deserved any credit for the recent decline in violence in Iraq, Rice replied tartly: "I don't think so … I'm sorry to say that the Iranians cause nothing but trouble in the south. And their allies were defeated in Basra.
"The increased security in the south is because the special groups that they trained and equipped were defeated by the Iraqi army," she said. (Editing by Anthony Boadle)
