He will make a two-day visit to Iraq on March 2, the first trip by an Iranian president since the 1979 Islamic revolution.
"In spite of the tough pressure that is being exerted on Iraq, the people of that country are steadily moving down the path of progress," he said.
"The Iraqis have huge human potential, and they are in a position to settle their internal difficulties without outside interference," the Iranian president said.
Iran said it is offering a $1 billion loan to Iraq for projects to be handled by Iranian firms.
"Iran's $1 billion loan to Iraq has been one of the main issues of discussion with the Iraqi side," Iranian Deputy Foreign Minister Alireza Sheikh-Attar said.
Iran and Iraq fought an eight-year war in the 1980s that left about a million dead but relations have improved since the U.S.-led invasion in 2003 that brought down Iraqi leader Saddam Hussein.
The U.S. and Iran held three rounds of talks in Baghdad last summer, pledging to set up a three-party committee on Iraq's security and defense capabilities. They were the first direct talks between the two countries since they severed relations in 1979 following the Islamic Revolution which overthrew the U.S.-backed Shah.
The two countries are currently embroiled in a row over the Islamic Republic's controversial nuclear program.
Washington has also accused Iran of providing training and weapons to militants in Iraq, plagued by violence since the formal end of the U.S.-led invasion of the Middle East state in 2003. Tehran denies the accusations.
