Mahdi was accompanied by the deputy foreign minister for political affairs, Hamed al-Bayati, and some 300 other government officials as well as businessmen.
In an opening speech to a conference on boosting trade, due to conclude late Monday, Iran's Foreign Minister Kamal Kharazi said the two neighbours and former rivals had "a special and historical opportunity".
Kharazi pointed to planned oil cooperation under which Iraq would pipe 350,000 barrels per day of crude from Basra to Abadan in Iran, and Tehran would in turn export Iranian crude on Iraq's behalf from the Gulf.
Iran has also offered assistance with electricity projects in Iraq, and increased trade, railway and road transportation projects as well as joint tourism development.
The minister of economic affairs and finance, Safdar Hosseini, said Iran has donated 10 million dollars and alloted 300 million dollars of credit toward Iraq's reconstruction drive.
Conference chairman Mohammad Hossein Adeli, who is Iran's deputy foreign minister for economic affairs, predicted the value of trade between the two neighbours would reach four billion dollars within three years.
But Kharazi also cautioned Iraq in the wake of allegations from its defence minister, Hazem al-Shaalan, of Iranian meddling.
"We expect Iraqi officials to act vigilantly and precisely given the special current circumstances. Each side should not permit foreign agents to create challenges and prevent the expansion of bilateral and regional cooperation," he said.
Another Iranian deputy foreign minister, Mohammad Sadr, said his country "does not want to take its conflict with the United States into Iraq".
In remarks published last week by The Washington Post, Iraq's Defence Minister Hazem al-Shaalan said he had seen "clear interference in Iraqi issues by Iran" and accused Tehran of working "to kill democracy" in his country.
Iran has rejected Shaalan's allegations, with a government spokesman here describing the minister's statements as "contrary to the official message we get from Baghdad".