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ANKARA Hardline conservative challengers accused Iranian President Hassan Rouhani in an election debate on Friday of failing to revive the economy even after a diplomatic thaw with the West he has touted as the key to attracting new investment.

During a three-hour debate carried live on state television, the pragmatist Rouhani's opponents sought to denigrate his economic record and said that the Islamic Republic would be harmed if he were re-elected on May 19.

Rouhani secured Iran's nuclear accord with world powers in 2015, welcomed by many Iranians, but discontent has risen over the lack of broad improvement in living standards despite the lifting of most international sanctions in 2016 under the deal.

"The gap between rich and poor has widened in Iran...Monthly cash handouts to poor people should be tripled," Ebrahim Raisi, an influential Shi'ite cleric who is Rouhani's strongest rival, said in the debate in a nod to lower-income rural Iranians. The monthly cash subsidy is currently around $14.

"One of the main priorities of the Islamic Republic is to preserve social justice...Steps should be taken to protect poor people. We need to overhaul the economic system," said Raisi, who enjoys the support of Supreme Leader Ayatollah Ali Khamenei.

Rouhani, who was elected by a landslide in 2013, defended his economic record, complaining that it had been subjected to "lies and defamation".

He repeated that Iran's road to economic recovery, growth and modernization lay in deeper engagement with other countries.

"More investment means the creation of more jobs...If we want eight percent economic growth, we need foreign investment."

Iran's real gross domestic product grew by 7.4 percent over the past year but that was mainly driven by oil exports rather than job-creating investment, according to the International Monetary Fund. Official unemployment runs at just over 12 percent but independent analysts put it at around 20 percent.

Khamenei and hardline loyalists have heaped pressure on Rouhani, saying the diplomatic opening afforded by the nuclear deal had not yielded benefits promised by the president.

LIMITED ECONOMIC DIVIDEND

The economic pay-off has been limited by factors beyond Rouhani's ability to rectify soon under Iran's complex system of dual theocratic and republican rule, analysts say.

Many foreign investors have been put off by obstacles to doing business such as the poor state of Iranian banks, the heavy role of powerful hardline institutions such as the elite Revolutionary Guards in the economy, a lack of clarity about the legal system as well as lingering unilateral U.S. sanctions.

Iran's president broadly manages domestic affairs, above all the economy, and can influence foreign policy decisions. But overall state policy is the remit of Khamenei, who wields decisive powers across government and the military and security services, and warily endorsed the 2015 nuclear settlement.

The election will see Rouhani facing off against Raisi, conservative Tehran Mayor Mohammad Baqer Qalibaf, ex-conservative culture minister Mostafa Mirsalim and reformist ex-vice president Mostafa Hashemitaba.

Raisi, one of four sharia (Islamic law) judges who oversaw executions of thousands of political prisoners in 1988, has been mentioned as a possible successor to Khamenei.

Raisi and Qalibaf, who is a former Revolutionary Guards commander, have promised to ease unemployment by creating millions of jobs per year, if elected. Economists have criticized their campaign promises as "unrealistic".

Despite his vulnerability over the economy, analysts say Rouhani retains a good chance of re-election thanks to support among large numbers of urban young and women who have welcomed a modest relaxation of social restrictions since 2013.

They also fear that a return to a hardline presidency could usher in more repression at home and isolation abroad.

"I am tired of slogans, tired of political feuding...But I will vote for Rouhani. In the election I have to choose between bad and worse," university student Homeyra Pazokian said.

(Additional reporting by Sharafedin Bozorgmehr in London; Writing by Parisa Hafezi; editing by Mark Heinrich)

WASHINGTON U.S. President Donald Trump said on Thursday a major conflict with North Korea is possible in the standoff over its nuclear and missile programs, but he would prefer a diplomatic outcome to the dispute.

SEOUL North Korea test-fired a ballistic missile on Saturday from a region north of its capital, but it appears to have failed, South Korea's military said, defying intense pressure from the United States and the reclusive state's main ally, China.

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Hardliners attack Iran's Rouhani over economy in election debate - Reuters