MILAN - Italy has arrested seven people Wednesday on suspicion of trafficking arms to Iran -- two Iranians they believe are secret agents and five Italians, police said Wednesday.

Italian police worked with authorities in Britain, Romania and Switzerland and made the arrests overnight in several cities.

One of those held was an Iranian journalist accredited with Rome's foreign press club. All four Iranian suspects, including two who remain at large, are believed to be members of the Iranian secret services, police said.

The investigation, which began in June, uncovered a ring that sent weapons to Iran from Italy and via third countries.

The operation prevented tracer bullets, explosives from eastern Europe and explosive material for incendiary bombs being sent to Iran, as well as 1,000 German-made rifle sights and 120 military diving jackets, police said.

Their system ... often involved buying merchandise abroad and moving it between Italy and other nations to hide the final and real destination, which was Iran, Italian anti-terrorism prosecutor Armando Spataro told a news conference.

Britain became involved after rifle sights were seized at London's Heathrow airport and police arrested a man believed to be the gang's contact in Britain.

This international ring of arms traffickers was playing on ambiguity -- that is to say, the seized material ... could be used for civil and military purposes, Attilio Iodice, a provincial police commander, told a news conference.

Investigations showed this was material that was destined solely for military purposes.

Police named all nine suspects wanted in Italy, including the Italian head of an import-export company and a lawyer. Another Italian cited is normally resident in Switzerland.

Italy is one of Iran's main trading partners in Europe but Prime Minister Silvio Berlusconi's close ties with Israel and diplomatic pressure over the nuclear dispute with Tehran have led to a sharp reduction in Italian investments in Iran.

Iran is subject to an international arms embargo and Berlusconi has said on several occasions that trade sanctions ought to be toughened.

Police initially said nine people had been held, but later said two arrest warrants for Iranians had not yet been served.

(Editing by Kevin Liffey)

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