Iraq will be plunged into a new war if Israel or the US launches an attack on Iran, Iraqi leaders have warned. Iranian retaliation would take place in Iraq, said Dr Mahmoud Othman, the influential Iraqi MP.

The Iraqi government's main allies are the US and Iran, whose governments openly detest each other. The Iraqi government may be militarily dependent on the 140,000 US troops in the country, but its Shia and Kurdish leaders have long been allied to Iran. Iraqi leaders have to continually perform a balancing act in which they seek to avoid alienating either country.

The balancing act has become more difficult for Iraq since George Bush successfully requested $400m (£200m) from Congress last year to fund covert operations aimed at destabilising the Iranian leadership. Some of these operations are likely to be launched from Iraqi territory with the help of Iranian militants opposed to Tehran. The most effective of these opponent groups is the Mujahedin-e-Khalq (MEK), which enraged the Iraqi government by staging a conference last month at Camp Ashraf, north-east of Baghdad. It demanded the closure of the Iranian embassy and the expulsion of all Iranian agents in Iraq. "It was a huge meeting" said Dr Othman. "All the tribes and political leaders who are against Iran, but are also against the Iraqi government, were there." He said the anti-Iranian meeting could not have taken place without US permission.

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The Americans disarmed the 3,700 MEK militants, who had long been allied to Saddam Hussein, at Camp Ashraf in 2003, but they remain well-organised and well-financed. The extent of their support within Iran remains unknown, but they are extremely effective as an intelligence and propaganda organisation.

Though the MEK is on the State Department's list of terrorist groups, the Pentagon and other US institutions have been periodically friendly to it. The US task force charged by Mr Bush with destabilising the Iranian government is likely to co-operate with it.

In reaction to the conference, the Iraqi government, the US and the International Committee of the Red Cross (ICRC) have started secret talks on the future of the MEK with the Iraqi government pressing for their expulsion from Iraq. Dr Othman, who speaks to the MEK frequently by phone, said: "I pressed them to get out of Iraq voluntarily because they are a card in the hands of the Americans."

An embarrassing aspect of the American pin-prick war against Iran is that many of its instruments were previously on the payroll of Saddam Hussein. The MEK even played a role in 1991 in helping to crush the uprising against the Baathist regime at the end of the Gulf war. The dissidents from Arab districts in southern Iran around Ahwaz were funded by Saddam Hussein's intelligence organisations, which orchestrated the seizure of the Iranian embassy in London in 1980 which was supposedly carried out by Arab nationalists from Iran.

The one community in Iran most likely to oppose the Tehran government is the Iranian Kurds. There have been an increasing number of attacks by PJAK, the Iranian wing of the Turkish PKK, which claims to be a separate party. Based in the Kandil mountains in Iraqi Kurdistan, PJAK has carried out frequent raids into Iran and has reportedly been able to win local support. But it would be extremely dangerous for the US to be seen as a supporter of PJAK as this would offend the Turks who have a military co-operation agreement with Iran against terrorism.