The Obama administration will proceed with its plan to engage Iran and deal with re-elected President Mahmoud Ahmadinejad, even as it monitors complaints from his opponents that the election results were fraudulent.

The Obama administration has concluded that it will have to forge ahead with its efforts to persuade Iran to stop its nuclear program and that it will have to work with Ahmadinejad, an administration official said, speaking on condition of anonymity.

US leaders must face the situation as it is, not how they wish it would be, the official said.

The US has fundamental interests at stake and will pursue them to the end, the official said.

They include preventing an arms race in the Middle East, a step that may destabilize the entire region.

That means maintaining the position that Iran must abandon any goals of obtaining nuclear weapons.

The US will continue to monitor the entire situation closely, including reports of irregularities, White House Press Secretary Robert Gibbs said in a statement.

We, like the rest of the world, are waiting and watching to see what the Iranian people decide, Secretary of State Hillary Clinton told reporters at a joint appearance with Canadian Foreign Minister Lawrence Cannon at Niagara Falls, New York, today.

We hope that the outcome reflects the genuine will and desire of the Iranian people.

Iranian opposition candidate Mir Hossein Mousavi, 67, has challenged the validity of results, prompting thousands of protesters to clash with police in Tehran.

A second term for Ahmadinejad, a persistent critic of the US and Israel, threatens to complicate President Barack Obama's plan to engage the Iranian regime and persuade it to abandon its nuclear program.

Ahmadinejad, 52, captured 62.6 percent of the vote in final results, compared with 33.7 percent for Mousavi, Interior Minister Sadegh Mahsouli said today.

Supreme Leader Ayatollah Ali Khamenei, considered the ultimate power in the Islamic republic, described the election as a glittering event and the winner as president of the whole country.

His comments were read on state television.Mousavi said the results were blighted by obvious violations.

A crowd of several thousand today shouted fraud last night in the streets leading to the Interior Ministry headquarters, which served as election headquarters.

Ranks of anti-riot police guarded the building in the capital Tehran.

The administrations policy on Iran and its nuclear program doesn't vary based on whos governing the Persian Gulf nation, US Ambassador to the United Nations Susan Rice said yesterday.

The Islamic Republic of Iran ought to not pursue a nuclear weapons program, Rice told reporters at the White House. And that will not change regardless of the winner, she said.

Ahmadinejad is likely to be emboldened by the victory, said Karim Sadjadpour, an Iran expert at the Carnegie Endowment for International Peace in Washington.

I don't see any probability of Ahmadinejad taking a more moderate, measured, approach the second time around, Sadjadpour said.

I fear Ahmadinejad is an insurmountable obstacle to easing US-Iranian relations, he said.

I think the administration understands the realities in Iran, Anthony Cordesman, a military analyst at the Center for Strategic and International Studies in Washington, said.

It isn't going to be a villain, but it is going to pose a serious problem in the Gulf.

While Ahmadinejads win wasn't surprising in itself, the margin was unexpectedly wide and raises internal tensions in Iran, said Alireza Nader, an analyst at the Rand Corporation in Arlington, Virginia.

The protest by Mousavi, a former prime minister supported by former President Ali Mohammad Khatami, risks dividing the opposition, Nader said.

You could see a situation where the elite are fighting amongst themselves, Nader said.

They have been, but it could become much more serious.

Michael Singh, director of Middle East affairs at the National Security Council under former President George W. Bush, said nobody should have had any illusion that this election was going to produce some kind of dramatic change in Iranian policy because Ayatollah Khamenei, who is in charge of nuclear and foreign policy, wasnt up for election.

The election is a blow to the efforts of US, Britain, China, France, Russia and Germany to convince Iran to stop work on its nuclear program, but when it comes to generating international pressure and building that coalition, this election could galvanize that, Singh said.

Canada's Cannon said during today's appearance with Clinton at a commemoration ceremony that his country is deeply concerned by reports of voting irregularities and voter intimidation of opposition candidates.

Cannon called on Iranian authorities to conduct fair and transparent counting.

British Foreign Secretary David Miliband and Frances Foreign Ministry issued statements that also cited opposition concerns about the validity of the results.

Both countries said they are closely following the situation.

This is a matter for the Iranian authorities to address, Miliband said in a statement.

Our priority is that Iran engages with the concerns of the world community, above all on the issue of nuclear proliferation.

BLOOMBERG TEHRAN