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Iran is not simply a medium-sized regional power that can be ordered around at will. Ironically, America's disastrous war in Iraq has allowed its fierce adversaries in Tehran to benefit from a massive shift of power in the Middle East.

Before his ascent to the office of president, not even diplomats stationed in Tehran and familiar with all of the ins and outs of Iranian politics were familiar with this short man with the sparse beard and piercing eyes. The fiery revolutionary, hardworking to the point of exhaustion and filled with contempt for earthly wealth, rose to power from humble beginnings and became the hope of all "Mostasafin," the disenfranchised millions without whom the Islamic Republic probably would not exist today and for whom Ahmadinejad has fashioned himself into an Iranian Robin Hood.

This places the Americans before the virtually impossible task of joining forces with Iran to resolve the classic Middle East conflict and its 30-year conflict with Tehran itself. For this reason, the Iraq question is also becoming increasingly urgent for Washington.

Obama knows that the United States could derive substantial benefits from cooperation with Tehran. Without Iran, for example, it will be almost impossible to bring peace to Afghanistan in the long term. In Afghanistan and Pakistan -- the center of conflict that Washington describes in its new strategic concept as a single unit known as "AfPak" -- the Americans and Shiite Iran have many interests in common. Tehran's rulers battled the Sunni Taliban radicals, whom they have always seen as dangerous neighbors and ideological foes, before the Americans did.

And Tehran, with the world's second-largest natural gas reserves and its third-largest oil reserves, has the capacity to do a great deal of damage to the international economy -- or help it overcome the global economic crisis.

Conversely, rapprochement with the United States and Europe would also bring enormous benefits to the Iranians. Without know-how from the West, the country will hardly manage to achieve the modernization it needs so urgently. With inflation approaching 30 percent and real unemployment exceeding 20 percent (12 percent, according to official figures), and more than a million drug addicts -- a distressing world record of addiction -- the country faces practically insurmountable problems.

Whether the internally divided Palestinians will manage to come to terms and form a unified government for the Gaza Strip and the West Bank is no longer in the hands of the inconsequential negotiators in Cairo, but will be decided instead by Hamas's patrons in Tehran. Tehran also decides whether the Lebanese Hezbollah or Hamas's extremists use primarily words to express their hostility toward Israel or, as is currently the case, resume their bloody terrorist attacks instead.

Ahmadinejad feels obligated to the permanently downtrodden members of society. As if he were one of them, he campaigned for president four years ago in Tehran's massive poor neighborhoods, traveled to the country's most remote places and promised the underprivileged their share of Iran's riches. He told them that he would fill their empty plates with the proceeds from the sale of oil, and that he would declare war on corruption and nepotism. The "era of oppression, hegemonic regimes, tyranny and injustice has reached its end," Ahmadinejad told supporters after his election.

But the political achievements of President Ahmadinejad have been more miserable than stellar. In addition to isolating his country even further in the world, he has ruined its economy with his chaotic economic policies. In the devastating assessment of Ali Larijani, the president of the Iranian parliament and Ahmadinejad's biggest domestic rival, whom he previously removed from his position as Iran's chief nuclear negotiator with the West: "The confusion is the result of the government arbitrarily dissolving offices and dismissing experts, ignoring parliamentary resolutions and stubbornly going its own way."

Nevertheless, it is quite possible that this man, who has probably done more damage to his country than any other president in the 30-year history of the Islamic Republic, will enter a second term this summer -- simply because he lacks a convincing and courageous opponent.

Moussavi is of a significantly more robust nature than Khatami. As prime minister during the years of the Iraq war, he successfully managed the country's wartime economy. Critics note, however, that Moussavi's tenure was marked by a sharp rise in arrests and repression. He has not held any public office in 20 years and is virtually unknown among younger Iranians, who make up about 60 percent of the population.

On the surface, the elegant Moussavi would undoubtedly represent Iran more effectively on the international stage than Ahmadinejad. He appears to be more open to negotiations with the Americans. And yet, when it comes to the central nuclear conflict, the new candidate is just as obstinate as the current president. At a press conference in Tehran just last Monday, he noted that he too would not back down on the issue.

Which candidate the powerful religious leader Khamenei ends up supporting will likely be the decisive question. When Ahmadinejad came into office, he kissed Khamenei's hand. The two men were long considered extremely close ideologically, although since then Khamenei has more or less openly criticized Ahmadinejad's economic policies. Only recently, however, the religious leader spoke so positively about the president that many interpreted his words as an endorsement of his candidacy. Many observers of Iranian politics believe Ahmadinejad, because of his lasting popularity in rural areas, will be elected to a second term.

There are no questions that the Iranian president does not answer with questions of his own. He insists, most of all, on a few core concepts. One of them is justice, but he defines what justice is. Another is respect. He claims that he and his country are not afforded sufficient respect. This desire for recognition seems almost insatiable.

In Ahmadinejad's view, "hagh chordan," or the act of trampling on the rights of the Iranians, is a pattern that constantly repeats itself and comes from all sides, leading to a potentially dangerous mix of a superiority and an inferiority complex -- but not the irrationality of which the president is so often accused, especially by the Israelis.

Javier Solana, foreign policy chief for the European Union, said in Brussels on Monday that the group would reconsider its relationship with Israel if it did not remain committed to establishing a Palestinian state.

Mr. Lieberman also has few fans in Egypt, which has acted as an intermediary for Israel in several matters. Some months ago Mr. Lieberman complained that President Hosni Mubarak of Egypt had not agreed to come to Israel. “If he doesn’t want to, he can go to hell,” he added.“Imagine that Hossein Mousavi wins the Iranian presidency this spring and he names Mohammad Khatami as his foreign minister,” said Meir Javedanfar, an Iran analyst in Israel, referring to two Iranian leaders widely viewed as in the pragmatist camp. “With Lieberman as foreign minister here, Israel will have a much harder time demonstrating to the world that Iran is the destabilizing factor in the region.”

Secretary of State Hillary Rodham Clinton has already criticized Israeli plans to demolish Palestinian homes in East Jerusalem, and her department has criticized Israel’s banning of certain goods from Gaza.This represents a distinct shift in tone from the Bush era. An internal Israeli Foreign Ministry report during the Gaza war noted that compared with others in the United States, “liberals and Democrats show far less enthusiasm for Israel and its leadership.”

Some Israeli officials say they believe that what the country needs is to “rebrand” itself. They say Israel spends far too much time defending actions against its enemies. By doing so, they say, the narrative is always about conflict.“When we show Sderot, others also see Gaza,” said Ido Aharoni, manager of a rebranding team at the Foreign Ministry. “Everything is twinned when seen through the conflict. The country needs to position itself as an attractive personality, to make outsiders see it in all its reality. Instead, we are focusing on crisis management. And that is never going to get us where we need to go over the long term.” Mr. Gilboa, the political scientist, said branding was not enough. “We need to do much more to educate the world about our situation,” he said. Regarding the extra $2 million budgeted for this, he said: “We need 50 million. We need 100 million.”

While President Mahmoud Ahmadinejad continues to make belligerent noises about Israel and the West, others in Tehran have hinted that they're ready for a change. In a Mar. 21 speech, Supreme Leader Ali Khamenei trotted out standard anti-American rhetoric but also indicated a willingness to talk. And Ahmadinejad's probable opponent in the June presidential election, former Prime Minister Mir Hossein Moussavi, favors negotiations with the US. "Obama has prompted Iranians to have an open debate about the relationship they want to have with the US," says Gary Sick, an Iran specialist at Columbia University in New York. "This is something that hasn't been seen in 30 years."

Most Iranian executives seem to be rooting for Moussavi. Although he is an old-guard leftist, businesspeople hope he would lead a reform-minded administration that could ease Iran's isolation. "Ahmadinejad has done serious damage to Iran's reputation and the reputation of Iranian business," says Mohammad Reza Behzadian, a former head of the Tehran Chamber of Commerce who runs Tondar Middle East, a trading company in Tehran.

Facing pressure from Washington, major European banks have stopped doing business in the country. So Iranians must pay exorbitant rates for trade financing from second- and third-tier banks in Europe, the Middle East, and Asia. Some Iranians work around the restrictions by setting up subsidiaries in the United Arab Emirates and playing cat-and-mouse with American inspectors. But such solutions are expensive, adding billions of dollars to Iran's soaring import bill-$57 billion for the year that ended in March. "It's a challenge finding banks that we can trust," says Parviz Aghili, CEO of Karafarin Bank in Tehran.

Sanctions also restrict the development of Iran's vital energy reserves. Tehran wants to boost oil production capacity by 25 percent, to 5 million barrels a day, but with little foreign help and aging fields in rapid decline, it's tough even to maintain current output. That's one reason Iranian oil officials are quick to say they want American help. "We don't have any problems with US investment," says M.A. Khatibi Tabatabaei, Iran's representative on OPEC's board of governors.

Ahmadinejad's erratic policies make things worse. The populist President has spent freely on everything from loans to small businesses of questionable viability to imported food and cash handouts for the poor. And he has pressured banks to shovel out easy credit, leading to a real estate boom. But worried that oil earnings will start to peter out, the central bank has tightened up, starving factories of capital and prompting a sharp fall in property prices.

Last year, when oil prices surged, the Iranian economy could shrug off its problems. With oil's steep decline and the global financial crunch, though, some fear social unrest. Many factories are months behind on salaries, says Ali Reza Mahjoub, a member of Parliament and head of Workers' House, a labor group. He estimates that unemployment, officially 12.5 oercent, is really closer to 17 oercent. As financing dries up, building is grinding to a halt, says developer Amir-Mohamad Mazaheri. "This is a very dangerous situation," he says, puffing on a cigarette in a new tower in North Tehran. "There will be 3-4 million construction workers looking to any activity to support themselves."

Even with sanctions in place, savvy foreigners have managed to make a mark in Iran-though it takes persistence. Renault, for instance, has a $200 million joint venture to build the Logan compact. But late payments from the Iranians and difficulties training enough suppliers to meet a requirement of 60 percent local content have slowed progress, Renault says. The venture, Renault Pars, has cut its output target for the Logan by 25 percent, to 150,000 cars per year. "You need a lot of time and energy," says Renault Pars chief Jean-Michel Kerebel. "What takes five hours in Europe could take five days here."

Local giants Lockheed Martin and General Dynamics also run substantial government-support operations and would see some weapons projects cut, while other programs would receive budget increases.

In particular, the proposed budget would sharply reduce the number of contractors who help the Pentagon oversee and manage its vast weapons-buying apparatus following a string of reports chronicling cost overruns and other problems.

A CACI executive said the company is waiting for further details before commenting. The Arlington company has 12,300 employees, half of whom are in the D.C. region. Ninety-five percent of its $2.4 billion in revenue last year came from federal contracts for technical services and information technology and contracting oversight for the Army and Navy, as well as such Pentagon offices as the Defense Advanced Research Projects Agency and the Missile Defense Agency.

Overall, the budget Gates proposed calls for major cuts to the weapons programs of some of the largest contractors.

One of the hardest-hit defense firms was Boeing. The Chicago company's $150 billion Future Combat Systems, a family of Army vehicles linked by high-tech communications, came under criticism from Gates for being costly and plagued by development problems. He proposed canceling the $87 billion vehicle part of the system -- a move that would hurt Boeing, SAIC and their subcontractors, BAE and General Dynamics.

Gates also proposed canceling some of Boeing's missile defense programs, including one to equip a modified 747 aircraft with a laser that can shoot down missiles soon after they're launched, saying the program "has significant affordability and technology problems and the program's proposed operational role is highly questionable."

Boeing would also be hurt because it makes one-third of the F-22 fighter jet and the Pentagon plans to stop ordering additional aircraft. Gates would also cancel the Air Force's program to build a new search-and-rescue helicopter, which had been awarded to Boeing. And it would not order more of Boeing's C-17 cargo planes. Boeing could also see a military satellite program, known as TSAT, end.

Lockheed Martin, of Bethesda, the biggest defense contractor in the world, also took hits on several of its major programs.

Gates said he would kill the company's bid to build the presidential helicopter, known as the VH-71, citing the fact that the program is six years late and has gone from initial estimates of $6 billion to $13 billion.

Lockheed was also hit by the move to not order more F-22 fighter jets. Perhaps hoping for support in Congress, the company has taken out newspaper ads explaining how its F-22 supports roughly 25,000 jobs around the country.

But the Pentagon proposed ordering more of Lockheed's F-35 known as the Joint Strike Fighter, and it would increase from two to three the number of littoral combat ships being built by Lockheed and General Dynamics to patrol near enemy coastlines.

The political elites in Europe have not yet responded to these problems. There have been no significant public debates; neither about the euro, EU expansion, a proposed constitution, nor the European Union's responsibilities in the Balkans and Afghanistan. Instead, Europe's political elites have remained silent. EU policies are determined, following the pre-1989 Western European tradition, by a cartel of political elites that is insulated from the democratic public. The more that Europe lacks the acceptance of its citizens, the harder it will befor the Union to meet the coming geopolitical challenges.

The assumption that the European Union lacks competence in foreign and security policy is misguided. For nearly a decade, the European Union has had access to the entire spectrum of institutional capacities -- including military capability -- that is necessary for active participation in global politics. It is an equally unconvincing argument that the 27 member states are simply too difficult to coordinate to actively engage in international politics. On the contrary: the foreign and security strategy of the European Union is remarkably consistent and coherent, from effective multilateralism, to peaceful conflict resolution, to addressing the problem of fragile statehood. Europe only needs to match its words with action. Member states need to abandon their vain attachment to national prerogatives and speak with one foreign policy voice. Here the largest member states -- Great Britain, France, and Germany -- have often been the biggest hindrance.

The era of the G-7 or G-8, in which the western industrial states (and Russia) could keep to themselves, is over. There is no alternative to a G-20 that systematically includes developing nations from all regions of the world into the process of global governance.

Until now, the European Union -- despite its inclusion in the Middle East Quartet -- has always been reluctant to propose solutions to the conflict between Israel and Palestine. Instead, Europe has essentially hidden behind the United States. Now, after eight years of the Bush administration, America has lost nearly all of its credibility, and it is going to be a while before President Obama can do anything to significantly reestablish it. There is a need, in other words, for the European Union and its member states to play a larger role -- not least, because the European Union has pro-Arab as well as pro-Israeli positions represented in its institutions and among its member states. The European Union could credibly serve as an honest broker in the region -- if it only wanted to.

Unfortunately, the countries of the European Union allow themselves to be played against one another yet again -- especially along the economic fault line between old and new member states. Europe's answer to the economic and financial crisis is not encouraging. Instead of a coordinated reaction of the EU member states, national measures have taken priority. Even Germany -- despite all its pro-European rhetoric -- has shown little appetite for cooperation.This failure is particularly frustrating in light of the fact that Europe has the world's best institutional capacity to develop integrated answers to crossborder economic challenges.

In addition, there is still a clear asymmetry between negative and positive integration, as political scientist Fritz Scharpf diagnosed in the mid-1990s. The creation of an internal market continues to trump the development of economic and social policies that can steer and correct that very market. It is no accident that the call for a "social Europe" is getting ever louder. The inability for European governments to coordinate their responses to the financial crisis has contributed to the legitimation crisis of European integration.

The post-Cold War era is over. Europe has no choice but to orient itself to the challenges of the future. Before anything else, the European Union needs to gain the approval and trust of its own citizens. The failed referenda pose less of a threat to Europe than does the continent's growing Euro-skepticism and the silence of European elites in the face of criticism "from below." Those who are believers in Europe and European unification must actively take on the challenge of convincing others.

The deceased politician and scholar Peter Glotz, just several weeks after the end of the fateful year 1989, wrote in this very publication that "the decisive question of the next decade will be whether the European elites manage to overcome the narrow categories of the nation state. ... In Europe, the nations are too weak to engage in global politics; at the same time, they are strong enough to prevent the development of an effective supranational European politics." Twenty years later, those observations have unfortunately lost none of their truth.

“The most important goal is to prevent Mr. Ahmadinejad from re-election, not to get Mr. Khatami elected,” Mr. Leylaz said. “The chances of getting a reformist president elected would decrease if we have several candidates running.”

In the meeting on Sunday, Mr. Khatami told campaign staff members that Mr. Moussavi might stand a better chance of winning than he would, the Mehr news agency reported.“Opponents want to divide my supporters and supporters of Moussavi,” Mr. Khatami was quoted as saying. “It is not in our interest. Also, some conservatives are supporting Moussavi.”He added, “Moussavi is popular and will be able to execute his plans, and I prefer he stays in the race.”

Mr. Leylaz said that Mr. Moussavi’s announcement to run came unexpectedly last week, even though Mr. Khatami had consulted with him before announcing his own bid for the office on Feb. 8. Before the announcement, Mr. Khatami had said that he would run only if Mr. Moussavi did not, to avoid diluting the reformist vote.“Mr. Khatami was offended and felt betrayed,” Mr. Leylaz said.

Mr. Khatami, 65, won a landslide victory in 1997 and was in office for two terms until 2005. A charismatic leader, he was expected to draw considerable support in the coming election. More than 20,000 supporters showed up at his speech last week in the southern city of Shiraz, despite government restrictions.

Mr. Moussavi was the country’s prime minister from 1980 to 1988. He is well remembered by many Iranians for managing the country during its eight-year war with Iraq. His presidential platform is not yet clear, but in the past he supported protectionist economic policies.

Mr. Ahmadinejad is supported by the conservative Iranian establishment, but his economic policies have unleashed inflation of over 25 percent, and two major setbacks last week suggested that he might be losing support ahead of elections.

Last week, Parliament rejected a major element of his proposed budget to cut energy subsidies and to distribute the money directly among the poor.

The US and its allies should rather propose turning Iran's nuclear enrichment efforts into a multinational program with strong inspection. Under this approach, the Iranian government would agree to allow two or more additional governments -- for example, France and Germany -- to participate in the management and operation of those activities within Iran. In exchange, Tehran would be able to jointly own and operate an enrichment facility without facing international sanctions. Resolving the nuclear issue would, in turn, make it possible to end sanctions and for Iran to enjoy a variety of other benefits, such as membership in the World Trade Organization (WTO), increased trade with Europe and, perhaps, normalized relations with the United States.

we should offer Moscow clear incentives. For instance, we should strengthen NATO-Russian consultation, and we should signal stronger support for Russian WTO membership.

SPIEGEL ONLINE: In debates in Washington, it has been said that the Germans could play a major role in facilitating a better dialogue between Moscow and Washington. Is that realistic?

Pickering: I think they can be very helpful -- but to facilitate, not mediate.

Germany already has an Ostpolitik, and it is working. Also, Russians and Americans can still speak to each other; they don't really need an intermediary. So assuming such a role for the Germans might be a step too far.

The Russians have an inclination to drive a wedge between the Americans and the Europeans. If the Germans try to freelance outside the bounds of the area of common agreements, that could end up creating difficulties.