U.S. President Barack Obama has signalled he wants a dialogue with Syria that could further rehabilitate Damascus internationally but also force it to choose whether to loosen ties with Iran and anti-Israeli groups.

"If the (Obama) administration could somehow engineer the strategic realignment of Syria -- away from Iran toward the peace camp -- it would prove a real blow to regional militants," David Schenker, a senior fellow at Washington Institute for Near East Policy, wrote in a research note.

Syria would find it harder to maintain backing for militant groups and its longstanding alliance with Iran if the United States normalised ties and sought to broker peace between Israel and Syria, as it did for almost a decade until 2000.

U.S. Secretary of State Hillary Clinton said last week it was too early to predict a thaw in ties after a senior U.S. official met Imad Mustafa, Syria's ambassador in Washington.

But Mustafa said the meeting could herald a new chapter in ties and that Syria was open to discuss all issues.

Syrian President Bashar al-Assad has said direct U.S. involvement is vital in any peace talks with Israel aimed as securing the return of the Israeli-occupied Golan Heights.

In a goodwill gesture, the Obama administration has released $500,000 in donations raised in Washington for a Syrian charity backed by Assad's wife. However, Obama has retained Stuart Levey, a Treasury official appointed by former President George W. Bush to make sanctions against Syria and Iran more effective.

Bush imposed sanctions on Syria in 2004, accusing it of helping militants go to Iraq and of supporting Palestinian Hamas Islamists and Lebanese Shi'ite Hezbollah guerrillas -- viewed as terrorists by Washington and freedom fighters by Damascus.

"Syria's fostering of Hamas now is an asset but it could turn into a liability if the United States shows seriousness for a Syrian-Israeli deal," one diplomat in the Syrian capital said.

Washington withdrew its ambassador to Damascus in 2005 after the assassination of former Lebanese premier Rafik al-Hariri. Syria denies involvement in the killing. A special U.N. tribunal began work on Sunday but may take months to indict suspects. [ID:nL0726690]

DIPLOMATIC BUZZ

Potential standoffs between Syria and the United Nations over the Hariri tribunal and over nuclear inspections could throw spanners into any rapprochement with the United States, but for now Damascus is buzzing with diplomatic activity.

Since Obama's Jan. 20 inauguration, four U.S. congressional delegations have visited Syria. Senator John Kerry, chairman of the Senate Foreign Relations Committee, was among the visitors.

Diplomats in Damascus expect Obama to send George Mitchell, his Middle East envoy, to Syria and to return the U.S. ambassador after a June 7 parliamentary election in Lebanon.

Mitchell's priority so far has been to defuse tension after Israel's assault on the Hamas-controlled Gaza Strip in December and January -- a conflict which also deepened a rift between Syria and Washington's main Arab allies, Saudi Arabia and Egypt.

Syria backed Hamas during the Israeli offensive, but it has responded since to Arab efforts to mend ties with Saudi Arabia.

Foreign Minister Walid al-Moualem visited Riyadh last month to discuss differences, including those over Hamas.

Kerry said after meeting Assad that Syria showed willingness to help form a Palestinian unity government involving Hamas.

Talks on a power-sharing deal between Hamas and Palestinian President Mahmoud Abbas's Fatah faction are under way in Cairo.

Washington shunned a previous Hamas-led government, but Syrian officials say a political role for Hamas is now an area where they could find common ground with the Americans, along with efforts to stabilise Iraq and Lebanon and fight terrorism.

If Hamas agrees to join a Palestinian government that could relaunch peace talks with Israel, it would help Syria portray its own efforts for a deal with the Jewish state as part of a drive for a comprehensive peace, diplomats said.

Turkish-mediated indirect talks between Syria and Israel were suspended in December when the Gaza conflict erupted.

A Western source in Damascus said some Israeli officials were pushing for a U.S.-Syrian rapprochement because this could make it easier for Israel to reach a peace deal with Syria that would sideline Syria's main ally Iran and militant groups.

The source said Washington could eventually seek high-level meetings between Syria and Israel to kick-start peace talks.

Almost ten years of U.S.-supervised direct talks collapsed in 2000 after Syria's late President Hafez al-Assad rejected an Israeli offer that did not return what he saw as all the Golan.

Joshua Landis, a U.S.-based Syria expert, said the Syrians were wary of being sucked into renewed engagement with Washington without real gains, citing their experience with the administration of former U.S. President Bill Clinton.

"Syria has to worry that Obama will use the process to anaesthetise Syria and keep it on its best behaviour in Lebanon while he gets fruits out of the Palestinian issue, and then nothing will happen," he said.

"They won't get the Golan back and they will be in a weaker position."