The Iranian regime signalled yesterday that it was granting bail to two American hikers at the centre of a diplomatic dispute since they were seized while trekking around a popular waterfall in northern Iraq more than two years ago and accused of spying for the United States.

Word that the two friends, Shane Bauer and Joshua Fattal, both 29 and graduates of the University of California, Berkeley, were at last on the brink of regaining their freedom tantalised their families in the US, whose efforts to have them released have met agonising setbacks, thanks in part to the tangled nature of the US-Iranian relationship and the often opaque judicial process in Tehran.

Iranian President Mahmoud Ahmadinejad, who is preparing to launch his annual international media blitz ahead of the September United Nations General Assembly meeting in New York, said he expected the pair to be set free "in a couple of days".

The bail offer, coming two months after the men were each sentenced to eight years in prison, was meant as a "humanitarian gesture", he told NBC. A lawyer for the pair, Masoud Shafiei, said the procedures for releasing them on bail of US$500,000 ($610,000) each had been set in motion by a court in Tehran yesterday. "They accepted to set bail to release." But last night Iran's judiciary said it was still reviewing details of the plan to offer bail.

It is a year since bail of the same amount was set for a third in the hikers' group, Sarah Shourd, who was ill.

After it was paid, she left Tehran and returned directly to the US.

US officials said they had not received independent confirmation from Tehran that the men would be freed. "We obviously hope that we will see a positive outcome from what appears to be a decision by the Government," said Secretary of State Hillary Clinton.

- Independent, AP