On the eve of observances marking the 20th anniversary of the takeover of the U.S. Embassy in Tehran, Iran's supreme leader today condemned as traitors the growing number of Iranians who advocate improved ties with the United States.

The strong attack from Ayatollah Ali Khamenei, an appointed cleric who is the ultimate power in Iran, underlined the tense rivalry between the purist revolutionary establishment he represents and Iranians who believe the time has come to liberalize, institute the rule of law and come to terms with the "Great Satan."

Speaking to a group of conservative students gathered at his residence, Khamenei said that those who seek better relations with the United States are either "traitors" or "simpletons" who forget how U.S. military and political support sustained Shah Mohammad Reza Pahlavi for years until he was toppled by the Islamic revolution in 1979.

Khamenei derided them as "abject and vile mercenary pen holders, who think that relations between America and a country like Iran can be normalized."

"Struggling against arrogance is part of the essence of our revolution, and today the manifestation of arrogance is the American government," he said. "If our nation stops its struggle against arrogance, it means it will accept meddling by foreigners and it will accept being debased."

Khamenei spoke as conservative organizations urged Iranians to turn out in force Thursday to commemorate the embassy takeover--Struggle Against World Arrogance Day, it is called here. The observance is seen by conservatives as an important way to counter the impression that the revolutionary cause has slipped in popular appeal, particularly as jockeying begins for a crucial round of parliamentary elections in February.

Some of those pushing for reforms, including the idea of U.S.-Iranian ties, are the very student revolutionaries who seized the U.S. Embassy here two decades ago, but who over the last 20 years have grown middle-aged and increasingly moderate.

President Mohammed Khatemi, a reform-minded leader elected overwhelmingly in May 1997, also has called for better relations between Iran and the West, along with other liberalizing steps. But his program has provoked a conservative backlash that has included the stifling of liberal newspapers and a newly vigorous campaign of arrests and prosecutions.

Just today, for example, three students who published what they said was intended as a political parody in an obscure campus paper were sentenced to as long as three years in prison for what were deemed to be insults against the beliefs of Iran's Shiite Muslim majority. A fourth was acquitted.

Orchestrated by an ad hoc group of students loyal to the ideas of Ayatollah Ruhollah Khomeini, the late revolutionary icon, the 444-day embassy seizure was a seminal event that cemented Khomeini's authority and cast the United States as the country's nemesis, a role that Khamenei insisted Washington is still playing.

But even as he spoke, some of those involved in the hostage-taking held a quiet rally at Tehran University, saying it is time Iran stops burning flags and starts thinking about how to improve relations wherever possible.

"The occupiers of the embassy, they were representatives of the nation and the nation supported them," said Hashem Sayed Aghadjori, one of the hostage-takers and currently a history professor at Tehran University. But today, he added, "there is a group in Iran that believes the unity of people is only possible when we have an enemy outside of Iran. . . . We should have relations with America based on respect."

Standing in front of the university mosque, an autumn chill in the air and the trees fringed with brown, the rallying students showed that the country's reform movement has remained active despite a police crackdown last summer against student activists on the same campus. The police action triggered several days of rioting, which ended when Khamenei and Khatemi jointly called for calm and engineered a massive demonstration in support of the government.

CAPTION: Supporters of reformist Iranian President Mohammed Khatemi, whose portrait is held by the woman at right, demonstrate at Tehran University during a rally marking the 20th anniversary of the takeover of the U.S. Embassy.