updated 11/4/2013 2:51:51 AM ET 2013-11-04T07:51:51

DUBAI (Reuters) - Iranian hardliners demonstrated to mark the anniversary on Monday of the 1979 seizure of the U.S. embassy in Tehran, a sign of the considerable obstacles to President Hassan Rouhani's diplomatic initiative to ease tension with Washington.

Large crowds gathered early on Monday morning around the embassy building - often described as the "nest of spies" - holding anti-U.S. placards, waving flags and shouting "Death to America", Iranian media reported.

The 1979 siege began when student activists stormed the embassy, taking hostage 52 embassy staff for 444 days. The two countries have not re-established diplomatic relations since.

While the rally is an annual event, this year has taken on greater significance because of the new government's attempts to ease tensions with Western countries exacerbated during the two terms in office of the previous president, hardliner Mahmoud Ahmadinejad.

Rouhani was elected in June on a platform of establishing better diplomatic relations and jump-starting talks over Iran's controversial nuclear program.

A short telephone conversation between him and U.S. President Barack Obama after the U.N. general assembly in September was applauded by many Iranians but met with suspicion by hardline Iranian groups.

On Sunday, the Islamic Republic's most powerful figure, Supreme Leader Ayatollah Ali Khamenei, gave strong backing to Iran's nuclear negotiators, an apparent warning to hardliners against accusing Rouhani of compromising with its old enemy.

"No one should consider our negotiators as compromisers," Khamenei said in a speech. "They have a difficult mission and no one must weaken an official who is busy with work."

On Saturday, an editorial by conservative newspaper Kayhan warned against trusting the United States in current nuclear negotiations and said there were signs that "the Americans are aiming to trick the Islamic Republic" in the next round of talks this week.

The new mood of Iranian diplomacy has also brought into question the use of the slogan "Death to America". While moderate figures have suggested it is time to drop the phrase, conservatives say it is as important now as ever before.

In an interview with Arabic-language state TV channel, the head of the parliamentary committee for national security, Alaeddin Boroujerdi described the chant as the "mildest response" to America's actions of interfering in countries around the world.

(Reporting by Marcus George; Editing by Jon Hemming and Elizabeth Piper)

(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp

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