Rival says Ahmadinejad is steering Iran toward dictatorship

"Your method [of government] definitely leads to dictatorship," Mousavi told Ahmadinejad, who fidgeted in his chair often through the debate and gave scornful smiles as Mousavi spoke.

Mousavi also said Iran has been "downgraded" in the eyes of world by Ahmadinejad's firebrand style and statements. Just hours earlier, Ahmadinejad called the Holocaust a "big deception" and said Israel uses it to sway international support.

"Our nation's dignity has been harmed. We've been degraded. There has been increasing tension [under Ahmadinejad]. Is it in our interests?" Mousavi said.

Mousavi and Ahmadinejad are in an increasingly tight race heading into the June 12 election. The outcome will set the tone of Iran's policies on crucial issues ahead such as its standoff with the West over its nuclear ambitions and the possibility of groundbreaking talks with Washington after a nearly 30-year diplomatic freeze.

Mousavi and the reformers are in favor of better ties with the West and Washington and greater freedoms at home, while Ahmadinejad has taken a tougher stance abroad and domestically.

Ahmadinejad's bid for reelection has been burdened by Iran's stumbling economy and accusations from rivals that his confrontational policies have left Iran with few friends in the world.

Iran has not held a presidential debate since 1997, when four candidates spoke in a rather staid, polite affair.