Ali Larijani, Iran's top nuclear negotiator, said a committee of experts from both countries was discussing possible development projects, including some involving energy, the state-run news agency IRNA reported.
"We are prepared for implementation of economic projects in Iraq. For this purpose, we have allocated $1 billion in credit," IRNA quoted Larijani as saying.
His comments came two days before Iran joins the United States, European powers and Arab countries at a conference in Egypt to discuss a plan for stabilizing Iraq.
Iran's decision to participate has raised the possibility of a rare direct encounter between high-level U.S. and Iranian officials.
But Larijani, who spoke in the Iraqi holy Shiite city of Najaf, criticized the United States on Tuesday, accusing its former ambassador to Iraq of meeting with terrorists.
"We have information that the United States is holding talks with terrorists. The U.S. ambassador to Iraq talked to the leaders of these groups several months back," he said, without providing details.
Zalmay Khalilzad, the former U.S. ambassador to Iraq, has acknowledged that U.S. and Iraqi officials talked to representatives of insurgent groups hoping to draw more Sunni groups away from al Qaeda. Current U.S. Ambassador Ryan Crocker said last month that U.S. authorities will not talk with "terrorists," apparently distinguishing between al Qaeda in Iraq and Sunni insurgents opposed to the political process.
The U.S. has long accused Iran of providing weapons to insurgents in Iraq, a charge the country denies. Iran, a Shiite Muslim country with close ties to Iraq's majority Shiite population, says it does not allow fighters to cross into Iraq, but it does not rule out that such people might cross the long border illegally.
Meanwhile, a summit intended to prepare signatory nations to the Nuclear Nonproliferation Treaty for a planned 2010 overhaul was off to a slow start due to Iranian opposition to language calling for Tehran's full compliance.
Amid closed-door talks aimed at ending the impasse, France criticized Iran for defying a U.N. Security Council demand to freeze uranium enrichment, a potential pathway to nuclear arms, and urged Iran to "comply with its international obligations."
Iran opposed wording in the meeting's agenda that mentions the "need for full compliance with the treaty." The agenda must be adopted by consensus before delegates can move on to more substantive issues.
The United States seeks "to rationalize the development and stockpiling of a new generation of tactical nuclear weapons and their use in conventional conflicts," he asserted.
A senior diplomat from a nonaligned nation, which usually supports Iran in showdowns over its nuclear program, said Tuesday that even nonaligned countries were puzzled by Iran's move. Another diplomat said Cuba, Egypt and South Africa — all traditional Iranian allies — were urging Tehran to modify its stance.
Several diplomats expressed surprise at Iran's position, noting Tehran has always maintained its nuclear activities — including a program to enrich uranium that has led to U.N. sanctions — are in compliance with the treaty.
But another diplomat familiar with the issue said Iran was worried about being bullied and considered the text "an additional provocation." He said Iran's assertiveness also could reflect its belief that it was seeing signs of compromise from the West on its refusal to freeze enrichment totally.
All the diplomats spoke on condition of anonymity because they were not authorized to discuss the issue with the media.