TEHRAN -- Iranian President Ali Akbar Hashemi Rafsanjani, using personal diplomacy and carefully straddling the fence between Iraq and the allied powers in the Persian Gulf War, appears to have strengthened his hand at home and abroad with the peace initiative he introduced earlier this week, according to diplomats here.

With his offer Monday to deal with the United States and meet Iraqi President Saddam Hussein -- Iran's two archenemies -- he has outflanked Islamic fundamentalists here who previously criticized him for not vigorously opposing the influx of hundreds of thousands of Western, non-Muslim troops in Saudi Arabia.

Upstaged by Rafsanjani's proclaimed willingness in the cause of peace to do business with the United States -- the ultimate taboo since the late ayatollah Ruhollah Khomeini founded the Islamic republic in 1979 -- Iran's normally vocal radicals have in recent days been silent.

President Bush and Secretary of State James A. Baker III indirectly helped Rafsanjani by choosing this week to reiterate American desires to remove most U.S. forces from the gulf once the war ends and to recognize an Iranian role in postwar security arrangements.

Those statements, whether by intent or mere coincidence, answered two top concerns voiced by Iran ever since the Aug. 2 Iraqi invasion of Kuwait and the subsequent buildup of U.S. forces in the region. Still weak from its own 1980-88 war with Iraq, Tehran has made no secret of its suspicions about Washington's intentions in the gulf.

The positions now being expressed by Iran and the United States suggest they are a step closer to dealing directly with each other on postwar security arrangements, according to diplomats.

On the domestic economic front, Rafsanjani's peace initiative also appears to be paying off. Diplomats say Rafsanjani appears to have gained the upper hand in revolutionary Iran's turbulent domestic politics. They now credit him with effective domination of the key policy-making National Security Council, long a maze of competing and shifting power centers.

According to these diplomats, such mastery should help Rafsanjani outmaneuver radicals who, in the name of economic autonomy, have thwarted his efforts to do business with the West and repair more than a decade of damage and neglect to the economy.

Windfall profits from higher oil prices since Iraq invaded Kuwait have provided Iran with enough foreign exchange to be able to start modernizing its badly neglected and war-damaged oil industry.

As Rafsanjani positions himself to open the economy to the West and bring Iran out of its self-imposed isolation, key foreign countries have been sending top envoys to this former diplomatic backwater.

In a gesture given front-page headlines here, French President Francois Mitterrand and Rafsanjani talked on the telephone Wednesday, the first such top-level discussions between Iran and a major Western power.

Mitterrand was quoted by Iran's national news agency as saying Iran could play a "decisive role" in postwar peace arrangements and expressing hope that their conversation would prove a "starting point" for future cooperation.

Two days of talks here with Soviet Deputy Foreign Minister Alexander Belonogov -- and a visit last week by the French Foreign Ministry's top civil servant -- were heralded in an editorial in Thursday's Tehran Times, a pro-Rafsanjani newspaper, as suggesting that "Iran, the Soviet Union and France share many identical views" that could form the basis for diplomatic efforts to end the war.

Even if overstated, the newspaper editorial must have made sweet reading for Iranians who have not forgotten that Moscow and Paris were Baghdad's principal sources of arms during their own war with Iraq.

All three countries have their own reasons for accentuating their common views and burying their differences.

France, along with other major European powers, is taking an active role in peace efforts to assure that postwar arrangements in the region are not dominated by the United States. France also is interested in helping shape the postwar agenda because of its large Arab minority and its close ties with Arab North Africa, particularly Algeria, which is publicly sympathetic to Iraq's position in the war.

Despite their past differences, both France and Iran share a concern about ending Iraq's occupation of Kuwait and preventing the United States from enjoying undisputed diplomatic mastery and economic advantage in the gulf, according to diplomats.

Moscow's interest in Iran, observers say, is dictated by a desire to show it still is capable of active diplomacy and to shake off the Kremlin's current image as a paralyzed giant dutifully following Washington's lead. The Soviet Union has a natural interest in improving relations with its southern neighbor, with which it shares a 1,600-mile border. Moscow also stands to gain economically by helping Tehran rebuild its badly depleted armed forces.