American officials oppose the presence in Iraq of Iranian officials and members of the Revolutionary Guard, which is controlled by religious hard-liners in Iran. Washington and Tehran have been at odds for decades and are in a standoff over Iran's nuclear ambitions.
But to Iraq, Iran is its biggest trading partner and a source of tourist revenue, mainly from the thousands of Shiite Muslim pilgrims who travel to the holy cities of Najaf and Karbala every year.
In Iraq's semiautonomous Kurdish north, much of the economy is founded on trade with Iran and the smuggling of contraband into the Islamic Republic. Since the 1979 founding of Iran's theocracy, Kurdistan has been a transit point for banned alcohol, movies and satellite dishes.
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A blow to the economy
The U.S. raid on the Iranian office, which handled visas and other paperwork for Iraqis traveling to Iran, struck at the heart of Kurdistan's economy, which depends on commercial ties with Iran facilitated through that office.
Doing business with Iran also means doing business with the Revolutionary Guard, an institution that controls Iran's borders. Hassan Kazemi-Qomi, Iran's ambassador to Iraq, is a former member of the guard. Any neighboring country that wants to do business with Iran has to deal with members of the force, which was created by Grand Ayatollah Ruhollah Khomeini to aid the Islamic revolution.
Iraq's Kurds share a storied history with the Revolutionary Guard, fighting side by side against former Iraqi leader Saddam Hussein in the 1980-88 Iran-Iraq war.
Iraqi President Jalal Talabani, a Kurd, once told The Times that he planned military operations against Hussein with Mahmoud Ahmadinejad, Iran's controversial president.
Khalilzad, the U.S. ambassador, acknowledged the past but said it was time for Iraqis to sever ties to such groups.
"Now Iraq is in a different place," he said. "There cannot be and there should not be relations with security institutions of neighboring states that work against the interests of this new Iraq."
Iraqis and Kurds who oppose the detention of the five Iranians say the U.S. raid made the Iraqi government appear weak or a puppet of the Americans.
"They should help the Iraqi government to demonstrate its independence [and] sovereignty in its dealing with other countries," said Zebari, the foreign minister, referring to U.S. officials.
