To avoid confusion between the two neighboring countries Iran and Iraq, which were both involved in WWII and occupied by the Allies, Winston Churchill requested from the Iranian government during the Teheran Conference for the old and distinct name "Persia to be used by the United Nations [i.e., the Allies] for the duration of the common War." His request was approved immediately by the Iranian Foreign Ministry. The American side, however, continued using "Iran" as it had at the time little involvement in Iraq to cause any such confusion.

http://en.wikipedia.org/wiki/Name_of_Iran#The_two_names_in_the_West