Much of the answer lies in the hands of Mohammad Khatami, the moderate president who, after five crisis-ridden years in office, has signalled his readiness to resign if his hard-line opponents persist in blocking him. Student protests in Tehran and other cities this week, ostensibly in defence of a liberal academic sentenced to hang but driven by growing discontent with Islamic dictatorship, have added an edge to the power struggle.

Despite such pressures, government sources say Mr Khatami has gone ahead and delivered an ultimatum to the highest authority, Ayatollah Ali Khameneh’i, the supreme leader. Unless Mr Khameneh’i passed legislation that could neutralise two key pillars of the non-elected conservative establishment - the judiciary and the Council of the Guardians - the president would quit, taking his administration and most of parliament with him.

Is Mr Khatami, himself a cleric, ready to jeopardise the survival of a regime of which he is the product? Many Iranians doubt it. Those working close to him, however, insist this is for real. They point to his deeply held religious beliefs, his political convictions and a stubborn character. "These are not empty slogans", the 59-year-old president declared on August 28 when he went public with his legislative plans. "I seek the judgment of the people. I intend to defend the rights of the people. I accept there is a sort of hopelessness in our society".

That sense of despair - that the revolution has failed to deliver on its promises of freedom and simply replaced one kind of autocracy with another, propelled Mr Khatami, on a platform of civil liberties, to his first election victory in 1997. "One crisis every nine days," was how the president described his first four-year term.

The leader and some other conservatives had come to appreciate Mr Khatami's virtues. His belief in a dynamic Islam compatible with democracy, combined with his undoubted charisma, could give the decaying and corrupt regime a new lease of life and also rehabilitate Iran in the eyes of the international community. "The president is an honourable man and not a Gorbachev," Ayatollah Khameneh’i assured the conservative doubters.

But the true hardliners have never accepted him or his leftwing allies. They admit their fundamentalist view of Islam gives no space to rule by the people, only rule by God. Society's problems, they say, can be solved by returning to the true roots of Islam, not by new interpretations. And with their vested interests in religious foundations reaching into every corner of the economy, the hardliners do indeed fear that Mr Khatami is a Mikhail Gorbachev whose moderate reforms will bring the whole system crashing down.

For these reasons, Mr Khatami's second and final term has begun just where the last left off. The death sentence handed down to the dissident Hashem Aqajari, for challenging the clerics' claim to a divine right to rule, is the latest example of the judiciary's determination to silence dissent.

As a graduate of philosophy, Mr Khatami has cultivated the public persona of a reluctant president ready to set aside his beloved books in the cause of service to the people. He has twice resigned from office before - once as editor of Kayhan newspaper and in 1992 as minister for culture, following a dispute over censorship. He then dropped out of sight to become head of the national library.

His latest book is titled: Faith and Thought Trapped by Despotism. On a recent visit to Spain, he hinted strongly that he was preparing to go: "The media have no weapons but ideas and pens, whereas the weapon of politicians is force. I belong, myself, to the people of culture and journalists, rather than politicians. I am a guest in the political arena and hope to return soon to books, studies and research".

His colleagues say that is only half the man. Indeed, Mr Khatami is passionate about ideas, culture and promoting the concept of dialogue among civilisations. He feels disappointed his overture to the US failed, but more worried that the US approach to terrorism and its labelling of Iran as part of an "axis of evil" will widen the gulf between Islam and the west.

The president knows from internal opinion polls his popularity is sliding, that at best he is seen as passive, at worst a puppet. Protesting students are urging him to carry out his threat to resign. "Mr President, the honeymoon for beautiful discourses is over", shouted one speaker at Tehran University. Events are moving. Parliament is likely to pass the two controversial bills within weeks. The six clerics on the Council of Guardians appointed by the supreme leader have signalled they will wield their veto. Parliament could then decide to submit the bills to the Expediency Council, which acts as arbiter. But such is the distrust of Ali Akbar Hashemi Rafsanjani, the former president who heads the body that MPs want to go straight to a vote calling for a national referendum.

Perhaps it was a moment of weakness, but Mr Khatami has spoken publicly about the possible "failure" of the Islamic republic. Its end, he said last month, would be a disappointment for the Islamic world which saw the Iranian experience as a model. The primacy of the people mattered, he argued. "If religion conforms with people's demands, it will remain strong on the scene. Otherwise it will fail". ENDS KHATAMI ON TIGHTROPE 161102

Editor’s note: Mr. Dinmore’s article was published by The Financial Times on 15 November

Highlights, some phonetisation of names and editorial work are by IPS