We propose a rigorous electromagnetic design of two-dimensional and finite-aperture diffractive optical elements (DOEs) that employs an effective iterative optimization algorithm in conjunction with a rigorous electromagnetic computational model: the finite-difference time-domain method. The iterative optimization process, the finite-difference time-domain method, and the angular spectrum propagation method are discussed in detail. Without any approximation based on the scalar theory, the algorithm can produce rigorous design results, both numerical and graphical, with fast convergence, reasonable computational cost, and good design quality. Using our iterative algorithm, we designed a diffractive cylindrical lens and a 1-to-2-beam fanner for normal-incidence TE-mode illumination, thus showing that the optimization algorithm is valid and competent for rigorously designing diffractive optical elements. Concerning the problem of fabrication, we also evaluated the performance of the DOE when the DOE profile is discrete.