While refusing to formally lift the fatwa, Iranian President Mohammad Khatami told Western journalists in New York that the affair should be regarded as "completely finished".
Robin Cook, the Foreign Secretary, is expected to meet his Iranian counterpart in New York tomorrow to discuss the issue. Formally easing the fatwa would help bring Iran back in to the international comunity and lead to the upgrading of diplomatic ties.
Mr Rushdie has been in virtual hiding for nine years since the late Ayatollah Khomeini ordered the fatwa - an exhortation to murder - in response to his book, The Satanic Verses, which was considered blasphemous to Islam.
A senior British official poured cold water on reports, notably on the American CNN television network, that the threat had been completely lifted: "Suggestions that the fatwa has been lifted seem totally speculative to us," he said.
The meeting on the fringes of the United Nations General Assembly will be Mr Cook's first with Kamal Kharrazi, the Iranian Foreign Minister, and it follows a gradual warming of relations between the European Union and Iran. The EU and Iran have a lot to talk about - the brewing threat of war between Afghanistan and Iran, the deteriorating situation in Iraq and efforts to control drug smuggling - but the Rushdie affair remains a constant obstacle between the two sides.
Iranian diplomats insisted that Tehran had no leeway to annul the fatwa because it was a religious order, issued by the late ayatollah, that cannot be undone by the government.
But they indicated that some reassurance that Mr Rushdie need no longer consider his life to be in peril may be offered at the meeting. Mr Khatami is known to be concerned that the affair has poisoned his country's relations with the West for too long. President Khatami also called for United States investment in Iran and downplayed the risk of war with Afghanistan. He spoke of the more positive US tone towards his country. The last Iranian president to speak at the General Assembly was Ali Khamenei, who in his 1986 speech called the United States "the Great Satan".
Leading figures in the arts have campaigned for Rushdie since he was forced into hiding in 1989 and rumours of a shift in Iran's position prompted a surge of expectation. The Salman Rushdie Defence Campaign has held rallies and public debates to keep the author's plight in the public eye.
Last night, the poet Andrew Motion, who is the Arts Council literature chairman, said: "If this means that [Rushdie] can begin to lead a normal life then it is fantastic news and seriously about time too ... if this really is a turning point then it is marvellous."Reuse content