The world seems headed for a showdown in the Middle East within the next two years over the issue of Iranian nuclear capacity. The stakes are high. On the one hand, there is the emergence of a new nuclear power, whose rhetoric and revolutionary record seem to pose an existential threat to Israel and challenge centuries of Sunni dominance of Islam. On the other hand, there is an explosive set of potential military actions and economic repercussions, which could begin with a sustained air and naval campaign and end with massive economic and political upheavals. The environment is emotionally charged, too, with a triumphalist Iranian government, a failing U.S. military intervention in Iraq, a weakened U.S. president, and severe tensions between Sunni and Shia sects throughout Islam. Heading into a presidential electionand the end of the Bush administrationthe ramifications of all this make Democrats, and anyone else seriously forecasting global trends and economic forces, more than a little concerned. Major news magazines like Newsweek and the Economist have featured Iran as the next major crisis.

But just how acute is the problem with Iran? What is the likely outcome? And how should our policy makers and political leaders gain a peaceful resolution? Most importantly, how much leverage, and what kind of leverage, does the United States really have? There is much more than is visible.

If rhetoric is to be believed, the collision is inevitablea new beast is arising in the East. Iranian President Mahmoud Ahmadinejad has said that it would be suicidal for a country to attack Iran, adding that we must not bend to threats. The rhetoric from Washington has been equally tough, even as the diplomacy plays out in the United Nations. President George W. Bush memorably named Iran as a member of the axis of evil, and last year he stated unequivocally that Ahmadinejads hostility toward Israel is a serious threat. Its a threat to world peace … I made it clear, Ill make it clear again, that we will use military might to protect our ally Israel.

The perception that were moving toward a crisis isnt just based on rhetoric. Actions have accompanied the tough language. The Iranians have a serious nuclear program, and the United States is gearing up its response capabilities. The International Atomic Energy Agency (IAEA) has reported major unresolved issues with Irans nuclear efforts, suggesting that Iran is engaged in a covert effort to produce nuclear weaponry. These issues include unreported design work and acquisition of uranium enrichment centrifuges; experiments with enriching uranium and creating plutonium; hidden nuclear sites; uranium purchases abroad; design work on uranium metal fabrication; and evidence of the presence of highly enriched uranium, secret testing sites, explosive facilities, and interests in warhead designs. Iran, meanwhile, continues to construct new nuclear facilities and is moving forward with the installation of a full-scale uranium enrichment facilityall the while denying that it seeks nuclear weapons.

The timeline of the Iranian effort is unclear. Some evaluations indicate that Iran is very close to having a nuclear weapons capability. Other assessments suggest that they are years away from producing such weaponry. The key is how soon Iran will be able to produce enriched uranium in sufficient quantities. It is generally assumed that Iran will be able to do so within two years after bringing their cascade of 3,000 centrifuges at Natanz online. Israeli sources are the most concerned, predicting that Iran could become nuclear capable in 2008.

The United States has supported a diplomatic effort by Britain, France, and Germany to persuade Iran to cooperate with the IAEA. Thus far, however, the U.S. has refused to talk directly with Iran until it temporarily halts its nuclear enrichment activities. The UN Security Council agreed in December to impose possible further sanctions on Iran if it didnt comply with the IAEA requests for information and transparency.

In the meantime, the United States has escalated its military readiness and pressure in the region. This has involved the deployment of additional naval strike forces, specific targeting of Iranian elements inside Iraq, and a higher-profile public-relations effort aimed at tying Iran to the difficulties inside Iraq.

So much for the facts. What are the respective strategies? The Iranians have continued to profess a need for nuclear power and a distrust of relying on outside sources of nuclear fuel. But possession of nuclear weaponry would boost Tehrans power in the region, act as a deterrent to the United States, and perhapsand this is the most sensitive pointenable Iran to increase pressures against Israel. The Iranians may believe, for instance, that possessing nuclear weapons and the long-range missile systems to deliver them would enable them to provide extended deterrence to Hezbollah in Lebanon, implicitly threatening Israel if Israel acts against Lebanon. It must be assumed that the Iranians are seeking nuclear weapons.

But Tehran also knows that it will pay a price to gain nuclear capabilities. Certainly this price will involve continued pressure and hostility from the United States; possible further UN sanctions; covert attack by various groups sponsored, presumably, by the United States or Israel; and perhaps even U.S. air and naval strikes against Irans nuclear and military facilities. For the Iranians, then, the question is how to reduce the price they must pay for nuclear weapons. They can do this by five principal means. They can prolong any negotiations by diplomatic stratagems, now giving the impression of softness, then toughening up, and all the while moving steadily forward with their nuclear programs so that eventually Irans possession of nuclear weapons becomes a fait accompli. They can inflict chaos and casualties against U.S. troops on the ground in Iraq, diminishing the United States reputation, tying down American troops, and posing a clear threat should the U.S. act militarily against Iran. They can create a perception that worldwide terror strikes would be unleashed in retaliation for any U.S. military action against Iran. They can divide the United States from its regional allies by flexing power through Hezbollah and Syria, while reaching out directly to Sunni states; and by using their influence with large Shia communities in the region to provide domestic pressures to moderate the hostility of Sunni-led states. They can seek countervailing relationships with major powers like Russia and China. All these Iranian efforts are already under way. By December 2006, Iranian statements were practically giddy, declaring with triumphalist rhetoric that the United States had failed in Iraq, and demanding our strategic withdrawal from the region.

For the United States, the conventional thinking would be that we should raise the price that Iran must pay for nuclear weapons: make the sanctions tougher; drive Iran further into diplomatic, financial, and economic isolation; work to destabilize the Iranian regime; inhibit Irans ability to affect the outcome in Iraq; work to resolve the Israeli-Palestinian crisis and use any progress to diminish Irans regional appeal; and convince Iran of a credible U.S. threat. All of this is also under way, assisted by American friends in the region such as Saudi Arabia. The Saudis and other Sunni OPEC members are also probably working to drive down the price of oil, which they believe is one of the most powerful methods to undercut Iran.

Some in the administration are gratified by the signs of success they see, such as the defeat of Ahmadinejads party in the recent municipal elections, a rising rate of inflation inside Iran, a faltering oil production forecast, and some apparent Iranian hesitancy in advancing both the nuclear program and the hostile rhetoric. According to Sunni observers in the region, Iran was surprised by the U.S. surge in Iraq and President Bushs stubborn defense of his policy. And the departure of some of the more hard-line leaders inside the administrationSecretary of Defense Donald Rumsfeld and UN Ambassador John Bolton, as well as the earlier departures of Paul Wolfowitz and Douglas Feithhas enabled the administration to take some of the edge off its rhetoric, if not to change its impassioned resistance to Iran.

The result is a more nuanced, behind-the-scenes struggle. Ultimately, this struggle will be played out as a test of wills of the competing sides: Irans determination to acquire nuclear weapons against Washingtonsand Sunni Arabdetermination that they not get them. With the active Saudi role as a key regional ally of the United States and a trusted intermediary, the Iranian situation could take on overtones of the long-standing six-party negotiations with North Korea. Its not difficult to see the Saudis eventually brokering a statement of principles which could form the basis for a behind-the-scenes dialogue between the United States and Iran, hosted in Riyadh or another state in the region. Could such a dialogue succeed in defusing the crisis short of war, and short of an Iranian nuclear capability?

Here are the potential stumbling blocks. First, the administrations approach to Iran is premised on the success of the military surge in Iraq. (I wouldnt have picked a military reinforcement of Baghdadsomething weve tried and failed at twice beforeas the key element of the strategy, but that decision has already been made.) If the surge fails, then Irans respect for American strength will evaporate further, and it will be the Iranians who have gained leverage over us. Iran, of course, is not a neutral bystander, and will work actively to shore up resistance to the surge, though perhaps not before pausing to assess U.S. tactics and procedures.

Second, U.S. success in Baghdad is also critical in maintaining the alignment with the Sunni Arabs, who would see a U.S. failure as demanding both a more aggressive Saudi assistance to the Baathist insurgency and a more open struggle against Iran and its Shia sympathizers throughout the region.

Third, unlike the North Korean economy, the Iranian economy is not in such a desperate condition that Iran will surrender its nuclear pretensions for a few billion dollars worth of assistance. This means that other, more positive inducements must become part of the U.S.-Iranian dialoguesuch as, perhaps, some reexamination of security alignments for our purposes or activities in the region, a prospect that might be difficult for many Sunni states that have grown quite comfortable with American hostility toward Iran.

And fourth, because the Iranian program is advancing, the Iranians win unless there is a specific action to excise their suspected nuclear weapons programs.

What should the United States do to improve the chances of reaching a peaceful settlement that precludes Irans nuclear capabilities? First, it should broaden its efforts at the decisive point in Baghdad and throughout Iraq by surging nonmilitary expertise from the Departments of State, Commerce, Justice, and Treasury into the country. Accompanied by a wholesale augmentation of interpreters, this influx of expertise could accelerate the emergence of effective Iraqi institutions. This is the first and most long-standing requirement for a successful U.S. mission. Second, the United States should intensify its pressure on Nouri al-Malikis government to deal with the militias and the Iranian relationships that are undercutting the effectiveness of both the Iraqi government and the United States in the region. Both these measures are necessary to avoid the repetitive failures that have plagued U.S. efforts in the past, and which in this case could leave the United States with no alternative but strikes on Iran.

Whether the surge succeeds or notand especially if it doesntthe United States needs other leverage points. It should immediately open an unconditional dialogue within the region, including dialogue with Iran and Syria. The focus of this conversation should be on providing a future vision for the region, taking into account national and sectarian insecurities and sensitivities, and acknowledging the de jure legitimacy of the existing regimes. While the Saudis and other interlocutors with the Iranians have been helpful, a more direct conversation will accelerate both the application of pressures and the development of the kinds of positive inducementsrecognition, admittance to international organizations, resumption of economic relationships, and a regional security structurethat may be necessary for Iran to see the overwhelming advantages of giving up its nuclear weapons programs.

In essence, the policy issues come down to a debate over leveragehow much and what type of leverage is required for Iran to dismantle and bar the resumption of any nuclear weapons programs. The administration would argue that it currently lacks leverage, and so must continue to apply pressure and use indirect dialoguethat the Iranians are stubborn, only understand the use of force, cant be given the impression that they are winning, and so forth. The administration seems to consider sticks the only form of leverage. But the truth is that the Iranians have survived almost thirty years of isolation, hostility, and war. The U.S. intervention in Iraq probably altered permanently the sectarian balance of power in the region in Irans favor. And whether our allies in the region appreciate Iran or not, its population of nearly 70 million people, enormous wealth of resources, and strong heritage make it a significant power. A policy of sticks alone is unlikely to persuade Iran to give up its pursuit of nuclear weapons.

The administrations dogged pursuit of leverage by sticks, unfortunately, is too much a holdover of the tough-guy, new-sheriff attitude that landed us in the Iraq mess. But another kind of leveragecarrotscould succeed. The United States is the largest economic power in the world, and has control, or very near controlling influence, over almost every international institution of significance to the Iranians. I believe we can gain far more from Iran by dispensing some carrotsand can also apply the sticks more effectivelyif we are in face-to-face dialogue. Dangling some carrots now in an unconditional dialogue with Tehran while the surge in Baghdad is only beginning could prove decisive.

What can Congress do to help? First, push the administration to support Iraq with the nonmilitary resources that are essential to progress there. Congress should hold immediate hearings to investigate why the nonmilitary elements of the administrations strategy have failed so badly, and why the appropriate resources cannot be brought to bear. Second, add pressure on al-Maliki to convince him to take the tough measures required to settle the issues of oil revenues, federalism, and the militias. Congress should strengthen its efforts to investigate corruption inside the economic-development program, and demand stronger accounting for the Iraqi governments and leaders relationships with Iran. And third, demand that the Bush administration commence an unconditional dialogue with the regional powers and each of Iraqs neighbors immediately. This is the next sense-of-the-Congress resolution that is required.

General Wesley Clark, USA (Ret.), was supreme allied commander, Europe, from 1997 to 2000, and a candidate for the Democratic nomination for president in 2004.