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A hard-line politician and former head of the Revolutionary Guards, Mohsen Rezai, announced Wednesday that he would enter the presidential race, indicating additional splintering among the country’s conservatives.

Mr. Rezai, who oversaw the Revolutionary Guards from 1981 to 1997, had been seeking to unite conservative politicians behind another candidate to compete against President Mahmoud Ahmadinejad. But he decided instead to become a candidate himself in the presidential election, to be held June 12, Iranian news media reported.

Mr. Rezai, who has accused Mr. Ahmadinejad of mismanaging the economy, will run as an independent candidate, the ISNA news agency reported.

The other side of Iran's economy belongs to the Islamic foundations, which account for 10% to 20% of the nation's GDP--$115 billion last year. Known as bonyads, the best-known of these outfits were established from seized property and enterprises by order of Ayatollah Khomeini in the first weeks of his regime. Their mission was to redistribute to the impoverished masses the "illegitimate" wealth accumulated before the revolution by "apostates" and "blood-sucking capitalists." And, for a decade or so, the foundations shelled out money to build low-income housing and health clinics. But since Khomeini's death in 1989 they have increasingly forsaken their social welfare functions for straightforward commercial activities.

Until recently they were exempt from taxes, import duties and most government regulation. They had access to subsidized foreign currency and low-interest loans from state-owned banks. And they were not accountable to the Central Bank, the Ministry of Finance or any other government institution. Formally, they are under the jurisdiction of the Supreme Leader; effectively, they operate without any oversight at all, answerable only to Allah.

According to Shiite Muslim tradition, devout businessmen are expected to donate 20% of profits to their local mosques, which use the money to help the poor. By contrast, many bonyads seem like straightforward rackets, extorting money from entrepreneurs. Besides the biggest national outfits, almost every Iranian town has its own bonyad, affiliated with local mullahs. "Many small businessmen complain that as soon as you start to make some money, the leading mullah will come to you and ask for a contribution to his local charity," says an opposition economist, who declines to give his name. "If you refuse, you will be accused of not being a good Muslim. Some witnesses will turn up to testify that they heard you insult the Prophet Mohammad, and you will be thrown in jail." The Cosa Nostra meets fundamentalism.

When he was first elected president in 2005, Mr. Ahmadinejad showed his fealty to the leader, gently bending over and kissing his hand. On Saturday, the leader demonstrated his own enthusiasm for the re-elected president, hailing the outcome as “a divine blessing” even before the official three-day challenge period had passed. On Sunday, Mr. Ahmadinejad flaunted his achievement by mounting a celebration rally in the heart of an opposition neighborhood of Tehran

In many ways, his victory is the latest and perhaps final clash in a battle for power and influence that has lasted decades between Mr. Khamenei and Ali Akbar Hashemi Rafsanjani, the former president who, while loyal to the Islamic form of government, wanted a more pragmatic approach to the economy, international relations and social conditions at home. Mr. Rafsanjani aligned himself and his family closely with the main reform candidate in this race, Mir Hussein Moussavi, a former prime minister who advocated greater freedom — in particular, greater freedom for women — and a more conciliatory face to the West. Another former president and pragmatist, Mohammed Khatami, had also thrown in heavily with Mr. Moussavi.

The three men, combined with widespread public support and disillusionment with Mr. Ahmadinejad, posed a challenge to the authority of the supreme leader and his allies, political analysts said. The elite Revolutionary Guards and a good part of the intelligence services “feel very much threatened by the reformist movement,” said a political analyst who asked not to be identified for fear of retribution. “They feel that the reformists will open up to the West and be lenient on the nuclear issue,” he said. “It is a confrontation of two ways of thinking, the revolutionary and the internationalist. It is a question of power.”

The deal to reduce nuclear warheads and work together to limit nuclear proliferation signed in Moscow this week by Presidents Barack Obama and Dmitry Medvedev carried all the pomp of a milestone. But the official communiqués ignored an elephant lingering at the summit: Russia has a deal, signed in 2007, with Tehran to supply a state-of-the-art S300 antimissile defense system that could make a possible strike (by the U.S. or Israel) on Iran's nuclear facilities much harder. Even more than a lucrative deal for Moscow, though, this is Russia's diplomatic ace in the hole: the $1 billion system is really a bargaining chip between the powers.

Though the Iranians insist that the deal is on track, Russia has held back on delivering key elements of the S300 system. One key reason for the delay is a full-court diplomatic press by Jerusalem and Washington. In the week before Obama's visit to Moscow, Israeli Prime Minister Benjamin Netanyahu called Prime Minister Vladimir Putin to ask that the deal be stopped. Israeli Defense Minister Ehud Barak also buttonholed Gen. Nikolai Makarov, chief of the General Staff of the Russian Armed Forces, at the Paris Air Show late last month with the same request.

Russia has already been rewarded for its cooperation. In April, Russia's deputy defense minister, Vladimir Popovkin, confirmed that Russia had signed a deal to buy $50 million worth of Israeli-made pilotless drones to replace the Russian-made version that performed disastrously during last summer's war with Georgia. Until recently, Israel had supplied pilotless drones, night-vision and antiaircraft equipment, rockets, and various electronic systems to Tbilisi, and the Georgian military received advanced tactical training from retired Israeli generals (including one who commanded Israeli ground forces during the 2006 offensive against Hizbullah). Now, says independent Moscow-based military analyst Pavel Felgenhauer, there is "a clear understanding" between Moscow and Jerusalem that the Israeli government will discourage private Israeli contractors from helping Georgia modernize its military.

Iranian leaders say they have obtained confessions from top reformist officials that they plotted to bring down the government with a “velvet” revolution. Such confessions, almost always extracted under duress, are part of an effort to recast the civil unrest set off by Iran’s disputed presidential election as a conspiracy orchestrated by foreign nations, human rights groups say.

Reports on Iranian Web sites associated with prominent conservatives said that leading reformers have confessed to taking velvet revolution “training courses” outside the country. Alef, a Web site of a conservative member of Parliament, referred to a video of Mohammad Ali Abtahi, who served as vice president in the reform government of former President Mohammed Khatami, as showing that he tearfully “welcomed being defrocked and has confessed to provoking people, causing tension and creating media chaos.”

Ayatollah Ali Khamenei’s representative to the Revolutionary Guards, Mojtaba Zolnour, said in a speech Thursday that almost everyone now detained had confessed — raising the prospect that more confessions will be made public.

Analysts suggested that the unyielding response showed that Iran’s leaders, backed by the supreme leader, Ayatollah Ali Khamenei, had lost patience and that Iran was now, more than ever, a state guided not by clerics of the revolution but by a powerful military and security apparatus.

President Mahmoud Ahmadinejad has maintained a low profile, but evidence suggests that he has filled security agencies with crucial allies.

“What has been going on since 2005 is the shift of the center of power from the clergy to the Pasdaran,” or the Islamic Revolutionary Guards Corps, said a political analyst with years of experience in Iran who feared retribution if identified. “In a way one could say that Iran is no longer a theocracy, but a government headed by military chiefs.”

Three men convicted of bombing an Iranian mosque two days ago have been publicly executed, state media says.The bombing killed at least 19 people during evening prayers in the south-east city of Zahedan on Thursday. The three men, who were hanged on Saturday morning near the mosque, were already in custody before the attack. One Iranian official had earlier accused the US of hiring mercenaries to carry out the bombing - a claim dismissed by Washington. The men were arrested before Thursday's bombing in connection with other attacks, including a 2007 attack on Iran's Revolutionary Guard in which 11 people died.

Part of a Shia mosque, Amir al-Mohini, was destroyed in Zahedan, a mainly Sunni Muslim city. A Sunni militant group had claimed responsibility, with Abdel Raouf Rigi, described as a spokesman for the Jundallah group, telling Saudi-owned TV channel Al-Arabiya that a suicide bomber had targeted a secret meeting of Iran's elite Revolutionary Guards inside the mosque.

clerics like Montazeri believe that Supreme Leader Ayatollah Ali Khamenei and his protégé, President Mahmoud Ahmadinejad, use a distorted interpretation of Shiite theology for their own political ends. As a result, they believe Iran has become an un-Islamic, militarized state where Islamic militias repress the Iranian population in the name of God. There is another fact unknown to those unfamiliar with Iran: The youth are actually fond of some of the clerics, and shout their names at their demonstrations.

Khamenei's has, in turn, granted enormous power to the Islamic Revolutionary Guards Corps and the basij, the Islamic militias under their command

This is not to say that the majority of clerics oppose Ahmadinejad and Khamenei. It is likely that the clerics are split, and even those who do not support Khamenei and Ahmadinejad might be unwilling to say so in public for a variety of reasons, including the fact that clerics rely on the state to some degree to fund their seminaries

In an unprecedented public appeal, former president Akbar Hashemi Rafsanjani urged the country's supreme leader, Ayatollah Ali Khamenei, to rein in the president, who in the debate last week accused Rafsanjani of corruption.

The outburst came as supporters of Ahmadinejad's most serious rival – the leading reformist contender Mir Hossein Mousavi – kept up the pressure with a second day of mass rallies.

Khamenei, who had previously backed Ahmadinejad, last week also rebuked the president for his remarks in the debate.

One of the three defeated candidates, Mohsen Rezai, a conservative, has now withdrawn his complaint about the poll. Barack Obama has condemned the "unjust" violence used against protesters.

The US president's comments came as the UK expelled two Iranian diplomats in response to the expulsion of two of its own officials from Tehran.

The Iranian authorities have accused Britain and the US of trying to destabilise the country, something they have denied.

And that is precisely what Khamenei and some of the other hard-line leadership saw in the vibrant, jubilant scenes from the Mousavi rallies in the campaign’s final days—the young people dancing all night in the streets of the capital were not a sign of hope, as they were for many Iranians and spellbound international observers. Instead, for Khamenei they represented dangerous cracks in the stability of the Islamic system, the seeds of a "color revolution," as a Revolutionary Guard commander flatly asserted last week. Their goal in the manipulation of the election results was to eradicate the threat as quickly and definitively as possible. Subtlety was neither necessary nor desirable. Most analysts of Iran presumed that the rigging would be restrained by the need to maintain some perception of the system’s legitimacy, of which its representative institutions and popular participation are a crucial component. This assumption proved false. For Khamenei, stability does not require legitimacy, and when forced to choose the regime will sacrifice the latter for the former.

For the Obama administration, the developments of the past week in Iran represent perhaps the worst possible outcome. The U.S. administration’s strategy of engagement was never predicated on the personality of the Iranian president, who after all is not even the country’s final authority. But a win for the reformists would have added real energy to the effort, both within Iran and here at home, in the excitement over shifting ideological tides in Tehran and the inclusion of Iranian leaders who were both capable of and prepared to countenance serious negotiations. A plausible Ahmadinejad victory, while unwelcome, would at least have offered Washington the prospect of dealing with a consolidated conservative government that might have felt confident enough to pursue a historic shift in its relationship with an old adversary.

Outraged supporters of the moderate candidate, Mir Hussein Mousavi, who claimed his defeat in the Iranian election at the hands of hardliner Mahmoud Ahmadinejad was manipulated, took to the streets of Tehran again today raising the prospect of more violent clashes.

Mousavi, who had been widely expected to beat the controversial incumbent if there was a high turnout - or at least do well enough to trigger a second round - insisted he was the victor and appealed against the result to Ayatollah Ali Khamenei.

Crowds also gathered outside Mousavi's headquarters but there was no sign of Ahmadinejad's chief political rival, who is rumoured to be under house arrest.

The political chief of Iran's Revolutionary Guard has warned reformists in the country against seeking what he called a "velvet revolution", vowing that it would be "nipped in the bud".

In a statement on its website, Javani drew parallels between Mousavi's campaign and the "velvet revolution'' that led to the 1989 overthrow of the communist government in then Czechoslovakia.

"There are many indications that some extremist [reformist] groups, have designed a colourful revolution ... using a specific colour for the first time in an election," the statement said.

t's rumble time in Tehran. At dozens of intersections in the capital of Iran thousands of students are protesting on a recent Friday around midnight, as they do nearly every night, chanting pro-democracy slogans and lighting bonfires on street corners. Residents of the surrounding middle-class neighborhoods converge in their cars, honking their horns in raucous support. Suddenly there's thunder in the air. A gang of 30 motorcyclists, brandishing iron bars and clubs as big as baseball bats, roars through the stalled traffic. They glare at the drivers, yell threats, thump cars. Burly and bearded, the bikers yank two men from their auto and pummel them. Most protesters scatter. Uniformed policemen watch impassively as the thugs beat the last stragglers.

These Hell's Angels are part of the Hezbollah militia, recruited mostly from the countryside. Iran's ruling mullahs roll them out whenever they need to intimidate their opponents. The Islamic Republic is a strange dictatorship. As it moves to repress growing opposition to clerical rule, the regime relies not on soldiers or uniformed police (many of whom sympathize with the protesters) but on the bullies of Hezbollah and the equally thuggish Revolutionary Guards. The powers that be claim to derive legitimacy from Allah but remain on top with gangsterlike methods of intimidation, violence and murder.

Who controls today's Iran? Certainly not Mohammad Khatami, the twice-elected moderate president, or the reformist parliament. Not even the Supreme Leader Ayatollah Ali Khamenei, a stridently anti-American but unremarkable cleric plucked from the religious ranks 14 years ago to fill the shoes of his giant predecessor, Ayatollah Khomeini, is fully in control. The real power is a handful of clerics and their associates who call the shots behind the curtain and have gotten very rich in the process.

Although the president has the support of the Islamic Revolutionary Guards Corp (IRGC), the clerics still have considerable power over the country's charitable foundations (Bonyads). These multibillion dollar business organizations don't report their income or pay taxes. They report directly to Supreme Leader Ali Khamenei. Their participation in the economy is crucial. They could make life difficult for Ahmadinejad's presidency by increasing their business clout in areas where the IRGC is trying to muscle in. These industries include energy, construction and the import/export sector. Last year, these clerics scored a major victory. Bonyade Mostazafin (Charity foundation for the dispossessed) was allowed to buy and sell oil, allowing them to compete directly with Iran's National Oil Company. This raised the fury of Ahmadinejad's supporters. As means of checking Ahmadinejad's power, they could expand further into this sector, or compete in the lucrative construction sector. These companies also have huge financial assets. These can be used to finance new businesses which compete directly with the IRGC.

They could also side with Ayatollah Rafsanjani. It is an accepted fact that Rafsanjani financed part of Mousavi's campaign. This obviously dented Ahmadinejad's popularity. So much so, apparently, that Ayatollah Khamenei felt compelled to assist the president by allowing fraud. Rafsanjani is already a millionaire many times over. Should the clergy start helping him financially, using his political muscle in the Assembly of Experts and the Expediency Council, he could further challenge Ahmadinejad politically.