Demonstrators protest in front of the White House during a freedom rally outside in Washington Saturday, Oct. 22, 2011. Hundreds of people rallied, demanding that an Iranian opposition group, Mujahedin-e Khalq (MEK), once allied with Iraq's Saddam Hussein, be removed from a U.S. terror list. (AP Photo/Jose Luis Magana) (Jose Luis Magana/AP)

The State Department has decided to remove the Iranian exile group Mujaheddin-e Khalq from the U.S. government’s terrorist list, officials said Friday, ending a decade-long fight over a controversial organization that had become a favorite cause of prominent U.S. politicians and lobbyists.

The decision, detailed in classified documents prepared for submission to Congress, is a victory for U.S. allies of the onetime militant group, known as the MEK, which is fiercely opposed to Iran’s clerical regime. But the move could further complicate U.S. diplomatic engagement with Tehran, which bore the brunt of the MEK’s campaign of bombings and assassinations in the 1970s and ’80s.

The action comes two weeks before a court-ordered deadline to resolve the MEK’s status and just six days after the dissident group vacated its former enclave in eastern Iraq, averting a feared confrontation with Iraqis who want the exiles out of the country. More than 3,000 MEK members have remained in Iraq since the U.S.-led invasion in 2003, unwanted by their host country and fearful of imprisonment or worse if they return to Iran.

State Department officials declined to comment on the decision, but spokeswoman Victoria Nuland confirmed that the department “was in the process of sending a classified communication” to Congress about the MEK’s status. Two senior Obama administration officials privy to sensitive policy discussions confirmed the department’s intention to rescind the MEK’s terrorist label, a rare step that is used to reward organizations that renounce violence and embrace political engagement.

The State Department’s list of foreign terrorist organizations currently comprises 52 groups. U.S. citizens are banned from offering aid or advice to groups on the list.

Despite those restrictions, a large number of political heavyweights have spoken publicly on the MEK’s behalf, including former Republican presidential candidates Rudy Giuliani and Newt Gingrich and former Democratic National Committee chairmen Howard Dean and Edward G. Rendell. Powerful congressional leaders also argued for dropping the terrorist designation to reward the MEK for renouncing violence and providing intelligence to Western governments about Iran’s nuclear program.

Supporters argued that they are acting legitimately to facilitate U.S. policy decisions.

“The MEK are Iranians who desire a secular, peaceful, and democratic government,” Rep. Dana Rohrabacher (R-Calif.), chairman of the House Foreign Affairs subcommittee on oversight and investigations, said in a statement Friday. “Nothing threatens the Mullah dictatorship more than openness and transparency.”

Some U.S. officials and policy experts oppose the move, saying any U.S. support for the MEK undercuts America’s image inside Iran, where many ordinary Iranians view the group as a terror cult.

“The United States just shot itself in the foot by giving [Iranian supreme leader Ali] Khamenei this gift that will help him shift the balance of anger towards the U.S.,” said Trita Parsi, author of “A Single Roll of the Dice,” a book on U.S. policy toward Iran.

For the exiles themselves, the decision may have an immediate impact. MEK supporters say the removal of the terrorist label will help the dissidents find homes outside Iraq. Previously, few countries volunteered to accept them.

U.S. officials who helped mediate a months-long standoff between Iraq and the MEK over the exiles’ living quarters in recent months cautioned that the excising of the terrorist label may not end the group’s troubles or the U.S. role in helping find permanent homes for its members.

“We’re very happy that we’ve come this far without a blood bath,” said a senior administration official who is privy to internal deliberations over the issue. He and others spoke on condition of anonymity, citing the delicate diplomacy involved in resolving the MEK’s fate. “Now we have to move forward on resettlement.”

Administration officials said the decision to lift the terrorist designation was based on the recent history of the MEK, which renounced violence and turned over its weapons to U.S. forces after waging a decades-long armed campaign against both the current Iranian government and its predecessor, led by the U.S.-backed Shah Mohammad Reza Pahlavi. But the decision also hinged in part on the MEK’s decision to leave its longtime home in Iraq, a former military base known as Camp Ashraf near the border with Iran.

Iraq had insisted on closing the base — by force, if necessary. Iraqi police had clashed repeatedly with MEK members at the facility in recent years, killing dozens of them.

Under a U.N.-brokered arrangement, the group was offered temporary quarters in Baghdad, on the grounds of the former U.S. military base known as Camp Liberty.

Secretary of State Hillary Rodham Clinton said in congressional testimony in February that the MEK’s willingness to peacefully depart Camp Ashraf would be a “key factor” in the decision on the group’s terrorist listing.

Nearly half of Camp Ashraf’s residents had completed the move in early summer when the agreement collapsed, with MEK officials decrying alleged mistreatment by Iraqis and what they described as intolerable living conditions at the new camp.

A tense stalemate followed, as the MEK balked at completing the move in defiance of an Iraqi deadline for evicting the last exiles from Camp Ashraf. MEK supporters hired dozens of high-ranking former U.S. government officials and politicians to lobby the Obama administration on the group’s behalf, demanding that Washington back the MEK in its struggles with Iraq.

A breakthrough came last week when the MEK, warned that it could lose its battle over the U.S. terrorist listing, relented and agreed to allow the last major convoys of dissidents to depart for new homes in Baghdad. Even then, as MEK members climbed into vans and buses, disputes erupted over baggage searches and the treatment of disabled dissidents, the senior U.S. official said.

“Friday and Saturday were all-nighters for a lot of our people, as well as the U.N. folks,” the official said. Iraqi officials agreed to allow about 200 MEK members to remain at Camp Ashraf for a few weeks to oversee property transfers, but “this effectively means the end of Camp Ashraf,” he said.

Until last week, Camp Ashraf had been the MEK’s home since the group was invited to Iraq by then-President Saddam Hussein, who saw the dissidents as useful allies in his war against Iran. Hussein provided arms and housing for the MEK and sometimes used its members, U.S. officials say, as muscle for his repressive policies at home. The MEK’s reputation as Hussein’s allies ensured their pariah status after U.S. troops overthrew the dictator in 2003.