Here's a link to the Register's editorial on the plan for the United States and Iran to sit down together and talk about security issues and common interests (if any) in the way Iraq works out. Although Bush in particular has talked himself into a box with his previous statements -- we won't talk until they quit enriching any uranium whatsoever -- we hope the talks will lead to wider discussions and eventually to diplomatic relations.
I've thought for a long time that the practice of withdrawing diplomatic recognition from countries of which you disapprove is childish and almost completely ineffective. (But then diplomacy quite often resembles a school playground whjen the third-graders are at recess -- remember the Iranian diplomat who claimed to be offended by a violinist wearing a red dress at the get-together at Sharm-al-Sheik a couple of weeks ago?)
Withdrawing recognition, however, means you don't have an embassy in the other nation's capital, and embassies areoften used for both overt and covert intelligencve-gathering. They allow you to know more about your opponent or potential adversary, which is a key to being effective. Bush seems to prefer posturing and ignorance.