By David Blair, Diplomatic Correspondent
Ever since the overthrow of the Shah almost 30 years ago, America and Iran have exchanged regular public threats. Teheran's defiant response to America's imposition of tough unilateral sanctions comes as no surprise.
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At present, the two countries are firmly set on the path towards confrontation. Iran continues to develop a nuclear programme which, it says, is nothing more than a grand scheme to generate electricity for a rapidly growing population, already exceeding 70 million.
But America is convinced that Teheran's real aim is to acquire a nuclear weapon. In particular, Iran is continuing to enrich uranium, a highly sensitive process which could produce the material essential for making a nuclear bomb.
The United Nations has now passed three Resolutions urging Iran to stop enriching uranium. President Mahmoud Ahmadinejad's decision to ignore this demand triggered the latest round of American sanctions.
But the fact that Washington chose to impose unilateral counter-measures is extremely revealing. The Security Council has passed two Resolutions placing sanctions on Iran. America, Britain and France are pressing for a third - but Russia and especially China are adamantly opposed.
Unable to win Security Council backing for another round of UN sanctions, Washington resorted to taking its own steps. In parallel with this, Britain and France are now pushing for the European Union to restrict trade and investment in Iran.
The central question is whether this economic pressure will have any effect? If it fails to change Iran's behaviour and cause the suspension of uranium enrichment, Western government will arrive at a point where they must choose between, in President Nicolas Sarkozy's phrase, the "bombing of Iran or Iran getting the bomb".
Deep divisions have emerged inside Iran's regime, with Mr Ahmadinejad installing his hardline allies in key positions. Parliamentary elections will take place next March and opponents of Mr Ahmadinejad have a good chance of winning a majority.
In short, Iranian politics is in flux. The result could be the sidelining of Mr Ahmadinejad and the emergence of powerful figures willing to reach an accommodation with the West. Or the president may consolidate his position - an outcome which would make a peaceful resolution of the crisis highly unlikely.
Divisions in Teheran are mirrored by those in Washington. Both Condoleezza Rice, the US secretary of state, and Robert Gates, the defence secretary, are opposed to military strikes on Iran. Vice-President Dick Cheney is believed to be in favour.
By imposing tough sanctions, Miss Rice and Mr Gates are trying to show there is an effective alternative to war.
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