Both events are the result of an intensifying struggle between hardline theocrats and reformist factions about the country’s future. Moreover, they happened at a time when many had considered the reformist movement to be running out of steam.

Throughout the year, reformers have been exposed to a renewed crackdown by hardliners. Dozens of people have been summoned to court or jailed, among them publishers and politicians. In late July, a Tehran court banned the opposition Iran Freedom Movement and sentenced more than 30 of its members to up to 10 years in jail each.

At least 20 reformist newspapers have been closed since February by institutions controlled by the conservative clerical establishment. One of the casualties was the well-known Noruz, which in late July was suspended for six months.

Earlier that month, demonstrations in several cities – including Tehran, Ahwaz, Isfahan and Shiraz – ended in violence when thousands turned to the streets to protest against the clergy, which is widely considered to be responsible for the social, economic and political grievances of millions of Iranians. Ayatollah Taheri’s resignation on 8 July marked a watershed in the ongoing struggle: he stepped down in protest against the very clerical establishment he represents. In a speech unprecedented in both forcefulness and frankness, Taheri called Iran an ‘oppressed nation’ and accused the hardline clergy of political and economic corruption and unjustly holding on to power. Predictably, his protest was condemned by conservative forces and welcomed by reformists. However, for several weeks it failed to elicit any response from President Khatami.

Well known for his tactic of letting situations calm down before acting, the president chose to wait until late August to break his silence. Then, in a clear signal of his determination to continue his drive towards democracy and reform, Khatami announced that he would submit two bills to the majlis (parliament).

The first would seek to strengthen his constitutional power by enabling him to suspend judicial decisions that violate the constitution. The second would call for an amendment of the election law by reducing the influence of the guardian council (GC). This conservative-dominated watchdog screens majlis candidates and has to approve all bills passed by parliament to ensure they conform to the constitution and Islamic law. Khatami’s legislation effectively aims to reduce the GC’s ability to veto candidates in parliamentary and presidential elections, as has happened frequently in the past.

‘What I declare here is that the president should be able to perform his duties with authority,’ Khatami said in Tehran in late August. ‘Those duties will all be within the framework of the constitution.’

If successful, Khatami’s thrust would provide new momentum to his stalled reform programme, which has been blocked by intense factional fighting since he was overwhelmingly re-elected in July 2001. Both bills have cleared parliamentary hurdles already, but will need GC approval before becoming law. This could prove difficult, given that the council would effectively need to agree to weaken itself.

The draft legislation is already the subject of severe criticism from conservatives. They argue that the bills are non-conformist saying the initiatives were ‘changing, not interpreting’ the constitution and would upset the balance of power in favour of the executive over the legislative and judiciary.

If the bills are blocked twice by the GC, the issues will be turned over to the expediency council (EC), the main arbitrator between parliament and the GC. However, the outcome of any EC ruling is not clear. The EC has often – but not exclusively – ruled along the lines of Supreme Leader Ayatollah Khamenei.

President Khatami has warned that if his initiative fails and the bills are rejected, the next step could include a popular referendum on what the president’s powers should be. If that fails too, one alternative would be for Khatami to act on a pledge he has made twice before: to resign.

The judiciary has been unimpressed with this possibility. In early November, it continued its onslaught against the reformist camp by sentencing Aghajari to death for blasphemy. In a lecture at a university in the western city of Hamedan in June, Aghajari had criticised the ruling clergy and said that Muslims should not blindly follow rulers like ‘monkeys’.

The verdict has widened further the rift between reformists and the hardline clerical establishment. It also revived the country’s student activists, who in the aftermath of Aghajari’s sentence staged demonstrations on university campuses across the country. The protests continued throughout much of November, despite the supreme leader’s intervention to order a review into the judiciary’s ruling. Eventually, Khamenei threatened to use the ‘force of the people’ – the revolutionary guards – unless the protests stopped and the different camps resolved their differences through compromise.

The threat of force is not new, but it does demonstrate the anxiety on the clergy’s side. ‘The death sentence was another miscalculation on the [part] of the hardliners, because it has shown that the reformist movement is not dead,’ says a London-based Iran analyst.

Moreover, the Aghajari case has brought to light rifts within the clergy. Despite the supreme leader’s order to review the death sentence, prosecutor-general Abdulnabi Namazi in late November ruled out an automatic reassessment if Aghajari failed to appeal – which he did. Khamenei’s move had aimed to defuse the row by reviewing the sentence, no matter whether Aghajari decided to appeal or not. Namazi’s insistence that Aghajari’s case would follow ‘normal procedure’ was, therefore, a clear affront to the supreme leader.

Adding to the tension in Tehran in recent months has been the threat of a US military attack on neighbouring Iraq. Being labelled a member of the ‘axis of evil’ alongside Baghdad, Tehran fears that it could be next in line in President Bush’s international war on terrorism.

In August, reformist MPs expressed fears that extremist conservative factions would use the potential threat of a wider US military campaign as a pretext for a final offensive on liberal supporters and activists. They also rejected Bush’s 12 July statements supporting demonstrators in their struggle against the ‘unelected few’ that control the state. They consider US policy in the region to be playing into the hands of their opponents by providing hardliners with yet another excuse for a clampdown on the liberals, many of whom are in favour of some sort of dialogue with the US.

‘There have been fears in the liberal camp that the conservatives will declare a state of emergency due to the US threat,’ says the UK commentator. ‘The threat of a US attack would provide hardliners with an opportunity for a total crackdown. Maybe Khatami moved for this reason, to avoid a worsening of the situation.’

The pressure on Khatami is intense. Political stability will, to a large extent, depend on his ability to free the political system from the existing gridlock. If he fails, the danger would be that lack of progress – in particular on economic reform – could push frustration levels in the population beyond control, leading to widespread unrest.

However, if Khatami can secure the support of the supreme leader and moderate conservative elements that are ready to make compromises, increased presidential power could pave the way to a smoother ride towards political reforms based on greater consensus. Khatami could then tackle structural challenges to transform the uncompetitive, state-dominated economy into a more flexible system.