Shhh. Don’t tell anyone. I saw Zalmay Khalilzad, U.S. ambassador to the United Nations, sitting between two Iranian officials at the Davos World Economic Forum.

There he was, right next to Iranian Foreign Minister Manouchehr Mottaki and Mojtaba Samare Hashemi, a top adviser to President Mahmoud Ahmadinejad. Honest. I was right in the front row.

It was supposed to be an off-the-record session. And Khalilzad’s appearance was not authorized by the State Department; he was a last-minute addition. But I can assure you he never even glanced at the Iranians, but spoke only to the audience. As he later noted, such exchanges happen “all the time” in multilateral settings like the U.N. General Assembly.

Then a video of the panel went up on YouTube and – Zowie! The you-know-what hit the White House fan, and unnamed officials (from Dick Cheney’s office?) told the media of their shock at Khalilzad’s dastardly deed.

Such are the absurdities that characterize American policy toward Iran at the end of the Bush presidency. In its final months, the administration seems as confused as ever about how to handle Tehran.

That confusion was evident at Davos. Secretary of State Condoleezza Rice gave a speech to hundreds of top global CEOs and political leaders in which she held out the prospect of a “new and expanded” relationship if Iran suspended the enrichment of uranium. In such a case she would meet her Iranian counterpart “any place, anytime, anywhere.”

But if U.S. officials truly want a dialogue with Iran, why go ballistic over Khalilzad? Why does President Bush keep hinting he really wants regime change, not a change in Iranian behavior?

Mottaki told me in a brief interview, after making reference to Rice’s speech and to former Secretary of State Madeleine Albright: “The ladies are more courageous” when it comes to Iran policy. He added this damper, however: “Though some people here and there send signals, we see no change in American policy.”

One thing seemed clear at Davos, after speaking with Iranians, Gulf Arabs, and U.S. officials and experts: there can be no progress in easing U.S.-Iranian relations until after elections – U.S. elections in 2008 and Iranian presidential elections in mid-2009.

Neither side seems ready to shift positions before then. The Iranian delegation, the largest in my 11 years at Davos, showed a cockiness born of high oil prices and the belief that U.S. policy in the Middle East has failed.

In the early 2000s, under Iran’s former President Mohammed Khatami, the Iran delegation was made up of savvy diplomats with Western doctorates who talked of the need for negotiations with the United States. Iranian overtures for broad talks in spring 2003 were rebuffed by the administration.

Those diplomats were cashiered when President Mahmoud Ahmadinejad came to power. This year’s delegates mostly sounded like slightly calmer versions of the Iranian leader. The mantra on Iran’s nuclear program: no freeze of uranium enrichment, full stop. There was no talk of destroying Israel by force, rather a constant repetition of Ahmadinejad’s formula that all Palestinians everywhere should decide the fate of the Jewish state by referendum.

Mottaki’s remove from global realities was evident when he seriously proposed that a meeting of the Davos regional Mideast forum should be held in Tehran (rather than in Jordan or Egypt). When asked whether Israel would be invited, he answered flatly: “The invitation would be according to the rules of the Islamic Republic of Iran.”

But Iranian officials clearly grasped that the regional power balance had shifted in their favor. The wars in Iraq and Afghanistan removed Iran’s two biggest enemies, Saddam Hussein and the Taliban, and put Iran-friendly regimes in power in Kabul and Baghdad. At Davos, CEOs and officials from Gulf Arab states made clear they don’t want America to attack Iran, despite American efforts to align those states against Tehran.

The loudest Iranian message at Davos was that Tehran won’t change its policies before the end of the Bush administration. “We can wait,” Mottaki told me. He seemed certain the United States would eventually accept Iran’s nuclear policy and that the Iran issue would be key in American elections.

The overweening confidence of Ahmadinejad’s team that America will accept their terms will make it hard for the next U.S. president – no matter who – to improve relations. Which brings me to Iran’s 2009 presidential ballot.

The most interesting Iranian figure at Davos may have been Tehran Mayor Mohammed Bagher Qalibaf, a pragmatic conservative who could well oppose Ahmadinejad in 2009. Qalibaf stayed away from journalists. But Iran expert Karim Sadjadpour of the Carnegie Endowment for International Peace met him and told me “his world view is based more on pragmatism and he is not beholden to ideology.

“Qalibaf is not going to be talking about democracy or civil society,” says Sadjadpour, “but he won’t deny the Holocaust or call for Israel to be wiped off the map. He is neither Khatami nor Ahmadinejad.”

The Davos message: Progress in U.S.-Iran relations will have to wait until pragmatism takes hold in high places in both Tehran and Washington. Which means, in the best case scenario, that things are on hold until 2009.