MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

2007 was a year of heightened tension between Iran and the United States. Washington imposed economic sanctions, even hinted at possible military action, in response to Iran's nuclear program. Iran has defied the sanctions and intensified its effort to enrich uranium, the very activity that the U.S. find so threatening. Yet Iran's president, Mahmoud Ahmadinejad, now faces more criticism from within his country than at any time since he took office more than two years ago.

Here's NPR's Mike Shuster.

MIKE SHUSTER: Over the past year, Iran may have been one of the key foreign policy issues for the United States, but it cannot be said that the Bush administration and its allies have made any progress.

Mr. KARIM SADJADPOUR (Iran Specialist, Carnegie Endowment for International Peace ): Iran was, in 2007, the most vexing foreign policy challenge to both the Europeans and the Americans. And I think it will continue to be the most vexing foreign policy challenge in 2008.

SHUSTER: Karim Sadjadpour is an Iran specialist with the Carnegie Endowment for International Peace in Washington. During the past year, the U.S. pushed through two sanctions resolutions against Iran at the U.N. Security Council and the Europeans engaged in numerous rounds of talks with Iran's government, all designed to persuade Iran to stop enriching uranium. None of it was successful, notes Sadjadpour.

Mr. SADJADPOUR: European and American officials are really at a loss in knowing what it is that is going to be effective in trying to change Iranian behavior.

SHUSTER: The Bush administration even reversed the long-standing American aversion to talking directly with Iran, but with a precondition. Secretary of State Condoleezza Rice announced her willingness to meet with Iran's foreign minister if Iran suspends uranium enrichment. The Iranians said no. Rice repeated the offer just before Christmas.

Secretary CONDOLEEZZA RICE (U.S. Department of State): If Iran will just do the one thing that is required of it by the Security Council resolutions that have been passed, and that is suspend its enrichment and reprocessing activities, then I'm prepared to meet my counterpart any place and anytime and anywhere. And we can talk about anything.

SHUSTER: Iranian leaders have repeatedly rejected that offer. And that's where things stood between the U.S. and Iran until December 3rd. On that day, the new National Intelligence Estimate was made public, and with it, the finding of the U.S. intelligence community that Iran had shelved a secret nuclear weapons program four years ago. The conclusions of the NIE effectively removed the option of U.S. military action. And it has challenged the U.S. effort to maintain and expand sanctions against Iran.

At the same time, it gave Russia an opening to assert itself. In mid-December, Moscow announced that it was sending the first batch of nuclear fuel to Iran to operate the nuclear power plant at Bushehr, which the Russians are building. The second batch of nuclear fuel from Russia arrived in Iran last week. Construction of the plant is not expected to be completed until late next year.

At a recent news conference, President Bush tried to put the best face on this development even though the U.S. tried to prevent it for many years.

President GEORGE W. BUSH: If the Russians are willing to do that, which I support, then the Iranians do not need to learn how to enrich. If Iranians accept that uranium for a civilian nuclear power plant, then there's no need for them to learn how to enrich.

SHUSTER: Just a few days ago, Russia's foreign minister, Sergey Lavrov, declared that in his view, Iran has no need to enrich its own uranium because Russia is willing to do the job for it. This is an offer that the Iranians previously rejected, but the diplomatic sources hint there is now renewed interest in such an arrangement.

Abbas Milani, director of Iranian studies at Stanford University sees this as a move on the part of the Russians to supplant the U.S. as they key outside power on the Iran issue.

Mr. ABBAS MILANI (Director of Iranian Studies, Stanford University): They think and I think they're right that they are now the force that can decide. They have become the decider in Iran, I think. And they have done this carefully. They have moved very, very astutely for their own interest.

SHUSTER: In taking U.S. military action against Iran off the table, the National Intelligence Estimate may have had another unexpected effect inside Iran. It has emboldened the critics of Iran's hard-line president and given them more room to maneuver, says Milani.

Mr. MILANI: As this became known, the number of demonstrations, the number of open letters, the number of defiant interviews has increased dramatically.

SHUSTER: Many of President Ahmadinejad's adversaries, and even some of his former supporters, have begun to criticize him openly for the poor performance of the Iranian economy as well as his overheated and dangerous rhetoric on the international stage.

Karim Sadjadpour has noticed this trend as well.

Mr. SADJADPOUR: When we see the likelihood of a U.S. military attack removed, the more moderate pragmatic forces say, OK, now we can step up our criticism of the, our own hardliners and President Ahmadinejad because we don't have to worry that this is going to give further fodder to the neocons in Washington who may want to launch a strike on Iran.

SHUSTER: The coming year is likely to see further twists and turns to the Iran drama with the first big news coming in March, when Iranian voters go to the polls to elect a new parliament - a parliament that could very well see the number of critics of the current regime increase dramatically.

Mike Shuster, NPR News.

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