In its limited, theocratic, way Iran is still more democratic than any Arab country except Lebanon and Kuwait. In Egypt, with all its weight and influence, protests over recent parliamentary and presidential elections were quickly silenced by the security forces, and attracted little western attention.

Equally predictably, from the other side of the ideological divide, came barely concealed glee that Iran's policies and alliances were coming under fire at home: "Iranians are now speaking out boldly against the squandering of public money on Hezbollah and Hamas … especially as Hamas only spends their money on fighting [rival Palestinian group] Fatah," commented Abdul Rahman Al-Rashed, of the Saudi-owned Al-Arabiya TV.

Unequivocal support for the Iranian regime came only from Syria – where President Bashar al-Assad won 97.6% in an uncontested referendum two years ago – and from Lebanon's Hezbollah, whose secretary-general, Hassan Nasrallah, saluted Ahmadinejad's victory as "a great hope to all the mujahideen and resistance movements who are fighting against the forces of oppression and occupation".

it is hard to disagree with the ever-perceptive Rami Khouri: "Arabs will not feel comfortable seeing the Iranian people twice in 30 years fearlessly challenging their own autocratic regimes, while the people of the Arab world meekly acquiesce in equally non-democratic and top-heavy political systems, that treat their own people as unthinking fools who can be perpetually abused with sham elections and other forms of abuse of power."

The interventions from Obama capped an intensive lobbying effort for the bill by the White House and administration officials, Al Gore, and a broad coalition of environmental and business groups. The run-up had seen America's oil, gas and coal industry increase its lobbying budget by 50% in the first three months of the year to try to kill the bill. The spoiler campaign has run to hundreds of millions of dollars and involves industry front groups, lobbying firms, television, print and radio advertising, and donations to pivotal members of Congress.

The bill, now swollen to about 1,200 pages, would bind the US to reduce the carbon emissions from burning oil and coal by 17% from 2005 levels by 2020 and more than 80% by 2050.

t envisages measures to promote clean energy – from a development bank for new technology to new, greener building codes and targets for expanding the use of solar and wind power.

After the reduction of the original ­emissions-cut target to 17% and the granting of far more free pollution permits for the cap-and-trade scheme than originally envisioned, the most significant concessions include how farmers are rewarded for practices that reduce carbon ­emissions, and a four-year delay in new regulations that would have cut the profits of corn-based ethanol and encouraged the ­development of non-food biofuels instead.

Other charities resemble multinational conglomerates. The Mostazafan & Jambazan Foundation (Foundation for the Oppressed and War Invalids) is the second-largest commercial enterprise in the country, behind the state-owned National Iranian Oil Co. Until recently it was run by a man named Mohsen Rafiqdoost. The son of a vegetable-and-fruit merchant at the Tehran bazaar, Rafiqdoost got his big break in 1979, when he was chosen to drive Ayatollah Khomeini from the airport after his triumphal return from exile in Paris.

Khomeini made him Minister of the Revolutionary Guards to quash internal dissent and smuggle in weapons for the Iran-Iraq war. In 1989, when Rafsanjani became president, Rafiqdoost gained control of the Mostazafan Foundation, which employs up to 400,000 workers and has assets that in all probability exceed $10 billion. Among its holdings: the former Hyatt and Hilton hotels in Tehran; the highly successful Zam-Zam soft drink company (once Pepsi); an international shipping line; companies producing oil products and cement; swaths of farmland and urban real estate.

A picture emerges from one Iranian businessman who used to handle the foreign trade deals for one of the big foundations. Organizations like the Mostazafan serve as giant cash boxes, he says, to pay off supporters of the mullahs, whether they're thousands of peasants bused in to attend religious demonstrations in Tehran or Hezbollah thugs who beat up students. And, not least, the foundations serve as cash cows for their managers.

Today Rafiqdoost heads up the Noor Foundation, which owns apartment blocks and makes an estimated $200 million importing pharmaceuticals, sugar and construction materials. He is quick to downplay his personal wealth. "I am just a normal person, with normal wealth," he says. Then, striking a Napoleonic pose, he adds: "But if Islam is threatened, I will become big again."

What happens to annual revenues estimated in the hundreds of millions--perhaps billions--of dollars? Not all of it goes to cover the maintenance costs of mosques, cemeteries, religious schools and libraries. Over the past decade the foundation has bought new businesses and properties, established investment banks (together with investors from Saudi Arabia and the United Arab Emirates), funded real estate projects and financed big foreign trade deals.

The driving force behind the commercialization of the Razavi Foundation is Ayatollah Tabasi's son, Naser, who was put in charge of the Sarakhs Free Trade Zone, on the border with the former Soviet republic of Turkmenistan. In the 1990s the foundation poured hundreds of millions of dollars into this project, funding a rail link between Iran and Turkmenistan, new highways, an international airport, a hotel and office buildings. It even paid $2.3 million to a Swiss firm to erect a huge tent for the ceremonies inaugurating the Iran-Turkmenistan rail link.

Then it all went wrong. In July 2001 Naser Tabasi was dismissed as director of the Free Trade Zone. Two months later he was arrested and charged with fraud in connection with a Dubai-based company called Al-Makasib. The details of the case remain murky, but four months ago the General Court of Tehran concluded that Naser Tabasi had not known that he was breaking the law and acquitted him.

Until a few years ago the simplest way to get rich quick was through foreign-currency trades. Easy, if you could get greenbacks at the subsidized import rate of 1,750 rials to the dollar and resell them at the market rate of 8,000 to the dollar. You needed only the right connections for an import license. "I estimate that, over a period of ten years, Iran lost $3 billion to $5 billion annually from this kind of exchange-rate fraud," says Saeed Laylaz, an economist, now with Iran's biggest carmaker. "And the lion's share of that went to about 50 families."

One of the families benefiting from the foreign trade system was the Asgaroladis, an old Jewish clan of bazaar traders, who converted to Islam several generations ago. Asadollah Asgaroladi exports pistachios, cumin, dried fruit, shrimp and caviar, and imports sugar and home appliances; his fortune is estimated by Iranian bankers to be some $400 million. Asgaroladi had a little help from his older brother, Habibollah, who, as minister of commerce in the 1980s, was in charge of distributing lucrative foreign-trade licenses. (He was also a counterparty to commodities trader and then-fugitive Marc Rich, who helped Iran bypass U.S.-backed sanctions.)

The 1979 revolution expropriated the assets of foreign investors and the nation's wealthiest families; oil had long been nationalized, but the mullahs seized virtually everything else of value--banks, hotels, car and chemical companies, makers of drugs and consumer goods. What distinguishes Iran is that many of these assets were given to Islamic charitable foundations, controlled by the clerics. According to businessmen and former foundation executives, the charities now serve as slush funds for the mullahs and their supporters.

Dozens of interviews with businessmen, merchants, economists and former ministers and other top government officials reveal a picture of a dictatorship run by a shadow government that--the U.S. State Department suspects--finances terrorist groups abroad through a shadow foreign policy. Its economy is dominated by shadow business empires and its power is protected by a shadow army of enforcers.

Ironically, the man most adept at manipulating this hidden power structure is one of Iran's best-known characters--Ali Akbar Hashemi Rafsanjani, who has been named an ayatollah, or religious leader. He was the speaker of parliament and Khomeini's right-hand man in the 1980s, president of Iran from 1989 to 1997 and is now chairman of the powerful Expediency Council, which resolves disputes between the clerical establishment and parliament. Rafsanjani has more or less run the Islamic Republic for the past 24 years.

He played it smart, aligning himself in the 1960s with factions led by Ayatollah Khomeini, then becoming the go-to guy after the revolution. A hard-liner ideologically, Rafsanjani nonetheless has a pragmatic streak. He convinced Khomeini to end the Iran-Iraq war and broke Iran's international isolation by establishing trade relations with the Soviet Union, China, Saudi Arabia and the United Arab Emirates. In the 1990s he restarted Iran's nuclear program. He is also the father of Iran's "privatization" program. During his presidency the stock market was revived, some government companies were sold to insiders, foreign trade was liberalized and the oil sector was opened up to private companies. Most of the good properties and contracts, say dissident members of Iran's Chamber of Commerce, ended up in the hands of mullahs, their associates and, not least, Rafsanjani's own family, who rose from modest origins as small-scale pistachio farmers.

Five luxury cars, each worth some $80,000, were given as gifts to the officials, it said. The paper did not say which cars were given, but Kim has long been known to favor Mercedes and French wine as gifts to ensure his inner circle's loyalty.

According to the intelligence minister, the US and some western countries were aiming to achieve unrest in Iran's elections atmosphere. When asked by a reporter about the arrest of foreign spies working under the guise of reporters, Mohseni-Ejei said, "Anybody who embarks on espionage activity in the country will be arrested. A foreign reporter has so far been nabbed and another one has been questioned and his things were confiscated." The Iranian government has arrested a reporter working for the Newsweek and another one working for the Washington Times.

"It is possible to resolve the territorial aspect of settlement construction," Netanyahu said yesterday following his meeting with Sarkozy. "It is possible to find a formula but this requires good will of all sides. What is important is to enable people to live normal lives and that is what I am explaining to the Americans."

Another option that was reported yesterday in Haaretz is a "temporary freeze" of settlement construction, except for projects that have already begun. "The main consideration is how long the freeze will remain in place and whether this may be a precedent that will transform the temporary hiatus into a permanent one," a source close to Netanyahu said.

But there are among all these religious leaders and ayatollahs who are neutral and do not have political interests or inclinations several other religious leaders and ayatollahs in Qom who lean toward one trend at the expense of the other. These include Ayatollah Hoseyn Nouri Hamedani and Ayatollah Mesbah Yazdi both of whom support President Ahmadinejad while Ayatollah Mousavi Ardabili and Ayatollah Sani'i lean toward the reformists.

"There are demands that the Supreme Leader will oversee the regime without being its supreme commander," the source told Al-Sharq Al-Awsat, adding that the current crisis has already weakened Khamenei.

Meanwhile, Iran's interior minister took aim at the U.S. saying rioters were being funded by the CIA and the exiled opposition group the People's Mujahedeen.

Iran has accused the United States and its close ally Britain in particular of stoking trouble, with Foreign Minister Manouchehr Mottaki announcing on Wednesday that Tehran may downgrade ties with London.

Ahmadinejad told US President Barack Obama on Thursday to stop "interfering" in Iran's affairs. "I hope you (Obama) will avoid interfering in Iran's affairs and express regret in a way that the Iranian people are informed of it," Ahmadinejad was quoted as saying.

Mr. Moussavi, the defeated candidate who embodied the hopes of reformers, posted a notice on his Web site of a late afternoon rally in front of the Parliament, but he distanced himself from the action, saying it was not organized by the reform movement. It is not clear how far Mr. Moussavi, a former prime minister who is essentially an insider thrust into the role of opposition, would go to defy the system. He has not been seen since Thursday. So as the crackdown infuriates protesters, there is a greater gap with their ostensible leader, political analysts said.

Those arrested include officials who served from the founding of the Islamic republic in 1979, until Mr. Ahmadinejad’s election in 2005: Behzad Nabavi, a former deputy speaker of Parliament; Mohsen Aminzadeh, a key figure at the Intelligence Ministry for many years; Mostafa Tajzadeh, a deputy interior minister during the presidency of Mohammad Khatami; Mohammad Ali Abtahi, a vice president under Mr. Khatami; and Abdullah Ramezanzadeh, Mr. Khatami’s spokesman. They were all close to Mr. Khatami, then threw their support behind Mr. Moussavi.

During the presidential campaign of 2005, the supreme leader endorsed Mr. Ahmadinejad because the humble son of a blacksmith appeared to be just such an obscure candidate. But he entered the presidency with a coterie of veterans and ideologues shaped by the Iran-Iraq war who were conservative, religious, largely populist and disdainful of the old guard from the 1979 revolution.

Today, these allies, many of them former midlevel Revolutionary Guard officers in their 50s, run the Interior, Intelligence and Justice Ministries. They also include the commander of the Basij popular militia, the head of the National Security Council and the head of state-run broadcasting. They are aligned with another member of their generation who has emerged as the most important figure in the Khamenei camp, the spiritual leader’s son, Mojtaba Khamenei.

Mr. Ahmadinejad has also changed all 30 of the country’s governors, all the city managers and even third- and fourth-level civil servants in important ministries like the Interior Ministry. It was Interior that announced that Mr. Ahmadinejad had won the June 12 election with just 5 percent of the votes counted, analysts pointed out, and it is the Intelligence Ministry that has been rounding up scores of supporters of the reform candidate, Mir Hussein Moussavi, and other dissidents.

At the same time, Ayatollah Muhammad Taqi Mesbah-Yazdi, Mr. Ahmadinejad’s spiritual mentor, runs three powerful educational institutions in the holy city of Qum, all spun off from the Haqqani seminary, which teaches that Islam and democracy are incompatible. The ayatollah favors a system that would preserve the post of supreme leader and eliminate elections. The Ahmadinejad administration has provided generous government subsidies to the seminary, and its graduates hold significant government posts nationwide.

Perhaps the most important media organization to spread the government’s message is the hard-line Kayhan newspaper. Its general director, Hossein Shariatmaderi, in recent days has resurrected a standard accusation: that foreign governments were manipulating the demonstrations on Iran’s streets.