Japan's oil development talks with Iran face a serious challenge from the United States. President George W. Bush's administration, which suspects Tehran of trying to develop nuclear weapons, is strongly opposed to Japan's pursuit of a development project in the Azadegan oil field of southwest Iran.

There is good reason to doubt Tehran's claim that its nuclear intentions are not related to weapons development. An investigation by the International Atomic Energy Agency has found that Iran is building uranium-enrichment facilities behind the scenes as well as an experimental heavy-water reactor.

According to informed sources, the Bush administration has urged Japan not to sign an oil-field development contract, saying it would be highly "inappropriate" for Japanese companies to make a huge investment in a country with Iran's ambitions of nuclear development.

Securing stable long-term oil supplies, of course, is the central objective of Japan's energy strategy. But it is equally essential to maintain the political and security alliance with the U.S. At first glance, it may seem difficult to get the oil project under way without hurting the alliance relationship. But this is not an either-or case. There must be room for compromise.

Japan stands out as a U.S. ally that maintains friendly relations with Iran. The U.S. severed diplomatic ties with Tehran following the 1978-79 Iranian Revolution, but to date Japan-Iran ties have remained largely intact. Tokyo can and should take advantage of this favorable diplomatic position to find a breakthrough.

The Azadegan oil field, situated close to the Iraqi border, is one of the largest in the Middle East, with confirmed reserves of 26 billion barrels. During the visit to Japan by Iranian President Mohammad Khatami in 2000, the two countries agreed that Japanese companies would have a preferential right to develop the oil field, which was discovered in 1999.

The Japanese partners in the Azadegan project include Japan Petroleum Exploration Corp., Inpex Corp. and Tomen Corp. The consortium formed after Japan's Arabian Oil Co. lost its concessions in the Khafji oil field in 2000. The government has since regarded Azadegan as the next most important oil field to be developed under the Rising Sun flag. If it takes off, the $2.5 billion project will produce an estimated 300,000 barrels of oil a day over an estimated 20 years.

Iran's nuclear program is not the only reason the Bush administration is opposed to the oil project. The president's national security adviser, Ms. Condoleezza Rice, in a meeting with Mr. Ryozo Kato, the Japanese ambassador to the U.S., gave three reasons: First, Iran supports Islamic militant groups. Second, Iran is suspected of having harbored leaders of the al-Qaeda terrorist organization. Third, the country has been linked to Shiite terrorist groups in Iraq.

Iran, along with North Korea and prewar Iraq under deposed President Saddam Hussein, is part of President Bush's "axis of evil." An opinion poll taken last month by The Washington Post found 56 percent of Americans in favor of military action to prevent Iran from developing nuclear weapons.

Prime Minister Junichiro Koizumi appears to be taking a cautious stance. "We have to consider various matters, such as the situation in Iran, concerns over nuclear nonproliferation and nuclear programs, and Japan's position," he said. "We'll study these things carefully." The Azadegan issue, however, provides an opportunity for proactive diplomacy.

First, Japan should urge Iran to sign as soon as possible an additional protocol to the Nuclear Nonproliferation Treaty, thereby ensuring transparency in its nuclear development program. The disarmament and nonproliferation talks set for Saturday in Tehran will be the right place to persuade Tehran not to go nuclear.

Second, Japan should not easily give up on the Azadegan project under U.S. pressure. If it does, China -- which also maintains friendly ties with Iran -- might well win a contract. Dubbed the "world's factory," China is trying to secure oil resources around the world. In 2002 it replaced Japan as the world's second-largest oil-consuming country.

Diplomacy is the best way of dealing with Iran, where the reformist Khatami regime is fighting an uphill battle against conservative hardliners. Instead of trying to "contain" Iran with strong measures, Japan should take the lead in seeking a peaceful solution to the nuclear issue. Economic cooperation, not strong-arm intervention, is a desirable incentive for internal reform.