FIFA’s decision came after 11th hour talks before Tuesday’s draw for the 2007 Asian Cup finals.
“We have reached an agreement with the Iran football federation that allows Iran to participate in the draw for the Asian Cup,” Blatter told reporters.
“It comes into effect from tomorrow. I put an embargo on it for today but I know you will not respect it. I hope our Iranian friends won’t mind.”
FIFA’s executive committee suspended Iran from all international competitions last month because of government interference in running the game in the country.
A solution had looked beyond both sides with Blatter describing how FIFA had received “alarming phone calls” from the country.
However, emergency talks with the Islamic Republic of Iran Football Federation (IRIFF) involving FIFA and Asian Football Confederation chief Mohamed Bin Hammam yielded a breakthrough.
“I am grateful that the government of Iran understands that we are not interfering in national politics,” Blatter said before Sunday’s Club World Cup final in Yokohama.
“If you are part of the FIFA family then you have to observe FIFA regulations.
“I am also grateful to Mohamed Bin Hammam who acted as the moderator in this case.”
FIFA’s ban came just five months after Iran had taken part in the World Cup in Germany and only a week after they secured their place in next year’s Asian Cup finals.
Iran’s under-23 team were allowed to participate at this month’s Asian Games in Doha as a concession but FIFA’s suspension provoked a furious reaction in soccer-mad Iran.
Kenya was also banned in October for failing to honour agreements and for the chaos in the African nation’s troubled federation.
