* Latest report of gunfire from Iran into Azerbaijan
* Court frees Iranian held for alleged Israeli embassy plot
By Nailia Bagirova
BAKU, Dec 2 (Reuters) - An Azerbaijan border guard was shot dead and two were wounded by gunmen attempting to cross over from Iran, the Azeri border police said on Monday.
A spokesman said the incident happened late on Sunday night, hours before news emerged that an Azeri court had released an Iranian who had been held for a month on suspicion of plotting an attack on the Israeli embassy there.
That arrest, and the accusation of cross-border shooting from Iran - not the first such incident - show the deep mistrust between the two oil-rich countries which share a religion but have sharply different political systems.
The Iranian suspect, Hassan Faraji, 31, had been held in pre-trail detention while the suspected plot against the Israeli embassy was investigated. Several other Iranians have been accused of plotting attacks in Azerbaijan in recent years.
"Information about Faraji's complicity in the plot attempt was not confirmed during an investigation and he was released," a spokesman for the Azeri Interior Ministry said on Monday.
An Iranian embassy spokesman said Faraji had left Azerbaijan for Iran on Sunday.
The Islamic Republic has denied plotting against its neighbour and has accused Azerbaijan of assisting Israel in the killing of several of its nuclear scientists.
Azerbaijan, where secular President Ilham Aliyev was re-elected in October in a vote that international monitors said was flawed, arrested dozens of people last year suspected of links to Iran's Revolutionary Guards and of planning attacks, including on the Israeli ambassador.
There were scant details of Sunday night's cross-border shooting. The spokesman, who asked not to be named, did not say how many gunmen were involved and whether they were able to cross into Azerbaijan.
A similar incident in October - when a gunman opened fire from the Iranian side - prompted Azerbaijan to close one of its border points. Iran closed two check-points on the border with Azerbaijan in response but re-opened one of them in November. (Writing by Margarita Antidze; Editing by Alissa de Carbonnel and Robin Pomeroy)
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