Anthony Zurcher,traveling with the US president in Franceand

Max Matza

The leaders of the US and Iran have signed an initial peace deal aiming to end the war, allowing it to immediately take effect.

The agreement includes reopening the Strait of Hormuz, a $300bn (£224bn) plan for Iran's "reconstruction", and the US terminating "all types of sanctions" on Iran.

But the issue of Iran's nuclear programme, the main reason stated by the US for the conflict, is still to be negotiated over an extendable 60-day period.

US President Donald Trump, who signed the deal in France during the G7 summit, defended the proposal, saying it would it would stave off an "economic catastrophe". He warned, though, that the US would "bomb the hell" out of Iran if no final deal emerged.

Iranian President Masoud Pezeshkian also signed the document on Wednesday, Tehran confirmed.

Iran's parliamentary speaker and key negotiator Mohammad Bagher Ghalibaf told state media his distrust of the US remained, and Iran's "finger is on the trigger".

"If the enemy does not understand the language of logic, we will enter again with the language of power," he told state broadcaster Fars.

The US and Israel launched the war on Iran on 28 February, assassinating Supreme Leader Ayatollah Ali Khamenei and top military officials on the first day.

But since that time the conflict has spiralled, driving up energy prices and renewing inflationary pressures as Iran imposed a de facto closure of the Strait of Hormuz, a key trade waterway that controls around 20% of the world's oil and liquefied natural gas (LNG).

Trump told reporters in France at the lakeside resort of Evian-les-Bains, where the G7 summit was hosted, that the plan would avert "worldwide depression".

"I didn't want to see economic catastrophe," Trump told reporters. "If you kept this going, that could have happened.

"All I know is every time we talked about the possibility of peace, the stock market shot up like a rocket ship," he added.

"Every time we said something negative, like, guess what, we're not going to be able to settle, it would go down very big."

Oil prices dipped after the agreement was announced.

In early Asia trading on Thursday, Brent crude was around 1% lower at $78.79 (£59.21) a barrel, but it remained about $8 higher than before the conflict started.

A hard copy of the initial deal, called a memorandum of understanding, was signed by Trump during a state dinner hosted by French President Emmanuel Macron at the Palace of Versailles.

The text says the US and Iran will "commit to negotiating and achieving the final deal in maximum 60 days, extendable with mutual consent".

On the nuclear question, the agreement says "Iran reaffirms that it shall not procure or develop nuclear weapons", which was Trump's number one condition ever since the start of the war.

The memo also says that Iran's enriched uranium will be "down-blended" – meaning diluted – on site, under the auspices of the IAEA, the UN's nuclear watchdog.

Originally, the US had demanded that the nuclear material be removed from the country entirely.

On the question of the reopening of the Strait of Hormuz, there will be no charges for ships going through the key waterway for 60 days, according to the agreement.

But the memo leaves open the possibility of future charges, where there were none before the conflict.

Iran's parliamentary speaker, Ghalibaf, said in an interview aired on state TV that the Strait of Hormuz "will not return to pre-war conditions".

He suggested the country would charge ships crossing the key passage after the 60-day period in the agreement had lapsed.

While Trump has previously ‌vowed to obliterate Iran's ballistic missiles, he said at the G7 that it would be "OK" for Tehran to have such weapons "if other countries have them".

The first point of the agreement declares the "immediate and permanent termination of military operations on all fronts, including in Lebanon".

But Israel has said it had no plans to withdraw its troops from Lebanon, and it launched attacks on Hezbollah on Wednesday.

Trump has been growing concerned that Israeli military operations against Hezbollah could upend a deal with Iran. He admonished Israeli Prime Minister Benjamin Netanyahu at the G7 on Wednesday.

The US president said that Netanyahu was a "good man", but he could do with "a little softer touch".

"You don't have to knock down a building every time someone walks into it that's from Hezbollah," Trump said.

After dinner at Versailles, Trump began his journey back to Washington, where the peace plan with Iran has unsettled lawmakers on both sides of the aisle - including members of his own political party.

Republican Louisiana Senator Bill Cassidy, who recently lost his re-election bid to a Trump-backed challenger, said: "This is the worst foreign policy blunder in decades."

Republican Texas Senator Ted Cruz, an Iran hawk in Congress, questioned the $300bn fund for Iran.

"Giving billions of dollars to theocratic lunatics who want to murder us is not a good idea," Cruz told reporters. "I think the president, unfortunately, is receiving bad advice."

Earlier on Wednesday, US officials held a media briefing, where they read out the text verbatim from the memo and denied the US was required to pay "a cent of money" to Iran under the $300bn fund.

As a hypothetical example, one official said that if Iran "behaves", Emirati authorities could build a power plant in Iran, with US blessing.

At G7, Trump said reports that the US would give Iran money under a $300bn fund were a "fake story".

"We don't give them money," he says. "We don't give them any of that."

But he also said Iranian assets frozen during the war should be returned.

"It's not our money, it's their money, and we froze it," Trump said. "At a certain point in time, I guess we're going to have to give it back."

He has previously railed against former US President Barack Obama for unfreezing $1.7bn in Iranian assets, including interest, under a 2015 nuclear agreement with the country. Trump scrapped the Obama era deal during his first term in the White House.

Democrats, meanwhile, were withering in their assessment of Trump's plan.

New Hampshire Senator Jeanne Shaheen told the BBC that it was "a very bad deal" and did not address issues such as Iran's support for regional proxies, like the militant group Hezbollah, or its missile programme.

"It's not accomplished any of the aims that President Trump laid out at the start of the war," she said.