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Credit: Reuters/PRESS TV TEHRAN | Thu Sep 15, 2011 3:07am EDT TEHRAN (Reuters) - Two U.S. citizens convicted of spying in Iran will be freed soon after Iraqi President Jalal Talabani negotiated their release with Iranian officials, an Iranian daily quoted an Iraqi envoy to Tehran as saying. Shane Bauer, 28, and Josh Fattal, 29, were arrested on the border with Iraq in 2009 where they said they were hiking. They were found guilty of illegal entry and espionage and were sentenced last month to eight years in prison. On Wednesday, Iran's judiciary rejected President Mahmoud Ahmadinejad's announcement that Bauer and Fattal would be freed "in a couple of days." "The Iraqi president contacted top Iranian officials after the pair's families asked for his mediation ... They will be handed over to the Swiss embassy in Tehran early next week," the Thursday edition of Sharq daily quoted Nazem Dabbagh as saying. The Swiss embassy represents U.S. interests in Tehran since Washington broke off diplomatic ties after the 1979 Islamic revolution that toppled the U.S.-backed Shah. Relations between Iran and Iraq, which fought an eight-year war in the 1980s, have improved since the ousting of Saddam Hussein in the 2003 U.S.-led invasion. Many Iraqi politicians, mainly Shi'ite and Kurdish, spent years in exile in Iran when Saddam was in power. The United States accuses Iran and its elite Revolutionary Guards of funding, training and equipping Iraqi militias. Iran denies a role in the violence, which it blames on the presence of U.S. troops, and says it wants a stable neighbor. The lawyer for the U.S. men said on Tuesday the two would be released on $500,000 bail each. Iran's judiciary said their release was under review. Bauer and Fattal were arrested on July 31, 2009, along with a third American, Sarah Shourd. She was allowed home on $500,000 bail in September 2010. Washington has denied they were spies and on Tuesday U.S. Secretary of State Hillary Clinton said she was encouraged by Ahmadinejad's remarks. The release of the two could ease tension between Tehran and Washington, particularly before Ahmadinejad visits New York next week to attend the United Nations General Assembly. Iran and the United States are at odds over the Islamic state's disputed nuclear program, which Washington says is a cover to build bombs. Tehran denies this, saying its nuclear program is aimed at generating power and has so far refused to halt its nuclear work. (Writing by Parisa Hafezi; editing by Elizabeth Piper) World United Nations Iraq Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. Social Stream (What's this?) 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