SHARM EL-SHEIK, Egypt - Secretary of State Colin Powell says America and Iran could restore relations one day, but only after Iran has changed course on terrorism and nuclear development.

"It is not in the best interest of international relations for there to be a permanent enmity or animosity between two states," the outgoing secretary told ABC on Tuesday while attending a conference on Iraq in this Red Sea resort.

On Monday, Egypt seated Powell next to his Iranian counterpart, Kamal Kharrazi, at a dinner. The encounter provoked a question in the Iranian parliament today and editorials in Tehran newspapers.

Powell was asked if the United States should revise its position, since it's virtually the only country that does not have diplomatic relations with Iran.

"In due course," Powell told ABC. "But I think there is a history here, a 25-year history of difficult relations with Iran."

Iran and the United States have not had diplomatic relations since 1979, when Iranian militants occupied the U.S. Embassy in Tehran and held its staff hostage.

Washington objected to Iran's "support of terrorist activity," such as its backing for the Lebanese militant group Hezbollah, as well as its "nuclear weapons development program," Powell said.

The United States accuses Iran of secretly developing weapons, though Iran says its nuclear program is strictly for generating electricity.

"Many nations agree with us. Many nations do not - they think we are overreacting," Powell said. However, he added, Britain, France and Germany did negotiate with Iran on its nuclear program after they realized it posed a problem.

Powell indicated it was too early to forecast a resumption of ties or even direct talks: "We will have to see changes in behavior."

He said he had not discussed anything substantial with Kharrazi at dinner.

"It was mostly polite dinner conversation. It was pleasant," Powell said.

Kharrazi confirmed this to reporters in Sharm el-Sheik on Tuesday and added the light conversation should not be seen as a possible start to better relations.

"We do not believe Americans are ready to engage with us in serious dialogue. Dialogue between nations has to be based on mutual respect and equal footing. This is not the case," Kharrazi said.

In Tehran today, the reformist newspaper Hambastegi said it regretted that Kharrazi did not make more of the encounter at Sharm el-Sheik.