THE BOARD OF GOVERNORS OF the International Atomic Energy Agency (IAEA) is scheduled this week to decide whether to refer Iran to the United Nations' Security Council for alleged violation of the Nuclear Nonproliferation Treaty. Iran is making a last-minute effort to stall the decision, but it is already clear that the European strategy--carried out by Britain, France, and Germany--for dealing with Iran's clandestine quest for nuclear weapons has failed.

The trio of E.U. nations had based their policy on three assumptions. The first was that Tehran was playing the nuclear issue merely for short-term political gains, to attract attention and win "respect." But we now know that the decision to develop nuclear weapons' "surge capacity" was made at least a decade ago as part of a new National Defense Doctrine, which has been described by "The Supreme Guide" Ali Khamenei as "sacrosanct."

The second assumption was that last June's presidential election would sweep Hashemi Rafsanjani, a wheeler-dealer mullah with business connections in all three European countries, to power. As president, Rafsanjani was supposed to abandon Iran's nuclear project in exchange for "an honorable place" at the global high table plus business deals for his clan. Things, however, went differently. Mahmoud Ahmadinejad, who did win the presidency, has nothing but contempt for Britain, France, and Germany. One of Ahmadinejad's advisers, a certain Muhammad-Javad Larijani, has described the trio as "among the most savage nations on earth."

The third assumption of the European trio was that the Islamic Republic would tremble at the prospect of referral to the Security Council. This, too, has proved false. Far from fearing the prospect, the new leadership appears determined to bring it about. "We have no fear of the Security Council," says Hussein Shariatmadari, one of Ahmadinejad's ideological mentors. "If the IAEA does not abandon its accusations we may take the issue to the Security Council ourselves."

This is not braggadocio. Tehran claims it already has Russian and Chinese assurances that any "anti-Iran" resolution would be vetoed.

This is all very embarrassing, to say the least. The Europeans have no clue as to what they might do if the issue goes to the council and comes to nothing because of a lack of consensus. Would they go for unilateral sanctions against Iran? Would they take military action?

The Bush administration, for its part, is in an equally embarrassing position. Having subcontracted its Iran policy to the trio, it is now bereft of that fig leaf.

Europe and Washington appear to be downplaying the whole situation, presenting supposedly new research, along with a series of conspicuous leaks, to convince public opinion that the Iranian nuclear threat isn't so urgent after all. One National Intelligence Estimate report, leaked last month, claimed that Iran was 6 to 10 years away from making an atomic bomb. The International Institute for Strategic Studies, a British think tank, which echoed that claim last week, was quickly followed by French experts making similar claims in Paris newspapers.

None of this, however, addresses the distinct possibility that the entire nuclear issue has been nothing but a distraction from Iran's fundamental hostility to the West. The "medium and long-term program" that President Ahmadinejad presented to the Islamic Majlis (parliament) last month is based on the stark assertion that the world is heading for a "clash of civilizations," part of which will be fought between the United States and Iran in the Middle East.

The 6,000-word document describes the United States as a "sunset" (ofuli) power and presents Iran as a "sunrise" (tolu'ee) power. It claims that Iran is "the core power" of Islam and certain to win the duel against a United States "in its last throes." The 6,000-word document also declares, "Leadership is the indisputable right of the Iranian nation."

While part of this can be written off as hyperbole, there is no doubt that the new leadership in Tehran is already engaged in a low-intensity war against the United States as it sends terrorists across the border into Iraq. Tehran is prepared to keep up the drumbeat of arms and terrorists until the end of George W. Bush's presidency. The new leadership sees Bush as an aberration and is convinced that whoever succeeds him will revert to the traditional American policy of "waving a big stick and running away."

With something like $200 million pouring into its coffers every day as a result of rising oil prices, the Islamic Republic has embarked on a major military buildup, especially close to the border with Iraq, which has been put under the control of the Islamic Revolutionary Guard Corps.

Ahmadinejad has also promised "substantial increases" in the nation's military budget and the controversial nuclear project.

By overthrowing the Taliban in Afghanistan and the Baath in Iraq, the United States has destroyed the two most determined foes of the Islamic Republic. By driving Syria out of Lebanon, the United States has left Iran as the sole major regional influence in Beirut. Even the weakening of traditional Arab despotic regimes has helped the Islamic Republic, which is busy reviving its networks in Saudi Arabia, the Persian Gulf, and even Egypt and North Africa. The Iranian message is simple: "The Americans will run away, but we shall always be there!" That message is finding increasing resonance, even among the new leaderships in Kabul and Baghdad.

"The tide is turning in our favor," says Shariatmadari. "Even Katrina is working for us!"

Tehran's new cockiness is largely due to the Bush administration's failure to develop a coherent Iran policy. This has conceded to Iran the initiative, while the United States is playing catch-up and damage control, especially in Iraq.

Washington has three options. First, it can try to engage Iran in the hope of changing aspects of its behavior in exchange for diplomatic and security concessions. This would be a new version of the "grand bargain" that President Bill Clinton tried to sell to the mullahs in 1999. Clinton's attempt failed because the Tehran leadership at the time was too divided. Such a bargain has a better chance this time if only because the Iranian side now speaks with one voice. But it would mean sacrificing prospects of democratization in Iran in the name of short-term considerations of realpolitik.

The second option is to accept a mini-version of the Cold War, this time with Iran as the chief adversary. This mini-Cold War could last decades and, like the big one fought against the USSR, would almost certainly include low-intensity wars fought through proxies in Afghanistan, Iraq, the Caspian Basin, the Persian Gulf, and Israel-Palestine. The Islamic Republic will lose in the end, just as the USSR did. But the cost of achieving victory over years, if not decades, could be enormous, especially for the United States' regional allies including Israel and Saudi Arabia.

The third option is a policy of regime change. This need not mean military invasion as in Afghanistan and Iraq, although the use of force should never be ruled out. The Islamic Republic is a fragile structure in no position to play a costly power game at the high table. Its leadership has lost the confidence of perhaps a majority of Iranians, while the factional feuds of the past could return to plague it at any moment. More important, Iran has a strong domestic potential for a grassroots democracy movement that could challenge the bellicose vision of the present leadership. Such a policy may not succeed before the end of the Bush presidency. But it would have the immense merit of putting the mullahs on the defensive and might even put the fear of Mammon, if not God, in them.

Amir Taheri is the former editor in chief of the Iranian newspaper Kayhan.

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