Former Iranian president Mohammed Khatami says he has pulled out of the race against the country's hardline incumbent president to avoid splitting the pro-reform vote in upcoming elections.

Khatami's entry into the race against President Mahmoud Ahmadinejad a month ago boosted the hopes of some reformists, who favour improving ties with the West and liberalizing Iran's conservative Islamic government.

But two other prominent reformists entered the race for the June 12 election after Khatami. One of them, former prime minister Mir Hossein Mousavi, is an ex-hardliner who Khatami has said has a better chance of siphoning the conservative vote. With Khatami pulling out, Mousavi is now seen as the leading reformist candidate.

The other reformist candidate in the race, former parliamentary Speaker Mahdi Karroubi, has repeatedly said he won't drop out regardless of who else is running, but his party was meeting Monday to assess the situation.

"I'm pulling out of the election on the basis of a moral obligation and to avoid scattering the votes so that… change and improvement will be more easily achieved and with less cost," Khatami said late Monday in a statement.

Rival has right skills, Khatami says

Khatami praised Mousavi as having the necessary qualifications to bring change to the country and said "he can potentially win people's votes and get elected provided we act with wisdom and realism."

Reformers believe they have a strong chance of unseating Ahmadinejad, who came to power in 2005 but has lost popularity because of his handling of the country's faltering economy and other issues. But the manoeuvres in the reformist camp reflect a debate over the best strategy for defeating the hardliner.

Khatami called on Karroubi and Mousavi to avoid fracturing the reformist camp, advising them "to manage the scene with understanding so that… no rift or differences emerge."

Khatami, a liberal cleric who was president from 1997 to 2005, was the best known internationally among Iran's reformist politicians and is also popular at home, particularly among the young. But some reformists worried that his candidacy would galvanize the hardline camp, which strongly dislikes him because they believe he aims to fundamentally change the nature of Iran's Islamic state.

Mousavi, some believe, is better positioned to draw conservatives who have grown disenchanted with Ahmadinejad. The former prime minister, who announced his candidacy last week, is remembered well by many Iranians for managing the country during the 1980-88 war with Iraq and has strong enough revolutionary credentials to appeal to Ahmadinejad's base.

Khatami said previously that he and Mousavi would not compete against each other. On Sunday, he acknowledged the advantages Mousavi holds in the race.

"Rest assured that Mousavi will recruit a remarkable percentage of votes from the other side. I have reports that some conservatives will not vote for me or [Ahmadinejad], but they would definitely vote for Mousavi," Khatami told supporters.

But, on the other end of the spectrum, Mousavi could dampen enthusiasm among the reformists, whose electoral landslides in the late 1990s depended on massive turnout among the youth, excited at the prospect of change.

Pullout is a setback, experts say

"This is a major setback for the reformist camp as a whole. Mousavi is not likely to bring back young Iranians who have been on the political sidelines," said Mehrzad Boroujerdi, a political and religious researcher and Iran specialist at New York's Syracuse University.

"Mousavi doesn't speak the reformers' language. He might try to soften his message to appeal to them, but he still echoes the past to many people," he said.

Political analyst Saeed Leilaz said Mousavi is a stronger candidate than Khatami because he "can liquidate Ahmadinejad's support base." But he said Mousavi won't be able to pull in the votes of all Khatami backers.

The election is vital for reformists because they have spent much of the past years in decline. While Khatami was still in office, hardliners blocked many of his reforms through cleric-led bodies that have powers over the government under Iran's Islamic system.

Those same bodies broke reformists' hold on parliament by using their powers to prevent reformist lawmakers from running for re-election. By the 2005 election — in which Khatami could not run because of term limits — the reformists were in disarray and largely eclipsed.