Is this move really such a good idea and really necessary?
Maybe, and maybe yes.
I think Iran now has The Bomb. In this case diplomatic relations provides the only slim (and IMHO, futile) hope of preventing their use.
Alternate explanation: Bush recognizes that Osama Obama will win the next election, and he's setting him up for a long hostage crisis.
Goal?
In the minds of the voters
Democrats=Hostages (Carter, Obama).
Republicans=Freedom (Reagan, ???)