In 2007, the long-simmering enmity between the United States and Iran came to a boil as Washington ratcheted up its accusations on Tehran's nuclear weapons ambitions and its backing of insurgents in Iraq. But, as VOA correspondent Gary Thomas reports, a surprise year-end U.S. intelligence estimate on Iran's nuclear program altered some political dynamics in both capitals.

Throughout 2007, the Bush Administration pushed hard in the international community to isolate Iran for what officials said was Iran's bid to become a nuclear weapons power. U.S. officials also accused Iran of arming and training insurgents in Iraq.

President Bush, 17 Oct 2007

"We got a leader in Iran who has announced that he wants to destroy Israel," he said. "So I've told people that if you're interested in avoiding World War III, it seems like you ought to be interested in preventing them from having the knowledge necessary to make a nuclear weapon."

Iran has denied harboring any ambition to be a nuclear power, saying it was only seeking peaceful atomic energy.

The rhetoric became so tough that it sparked widespread speculation that the United States was preparing military action against Iran.

There was indeed a bombshell, but not one of a military nature. Earlier this month, the U.S. intelligence community released a new National Intelligence Estimate that said Iran had likely halted work on a nuclear weapons program in 2003 and as of mid-2007 at least had not restarted it.

The United States has insisted Iran halt uranium enrichment, which is necessary to build a nuclear bomb, as a precondition to direct negotiations between Washington and Tehran.

Ken Katzman, an Iran analyst at the nonpartisan Congressional Research Service, says the Bush Administration fears the new report takes the pressure off Iran to compromise.

"The net effect of that, in the administration view, is that Iran is going to effectively get a pass, that the pressure will not now be ratcheted up on Iran enough or quickly enough and Iran will continue its [uranium] enrichment expertise unfettered almost," said Katzman.

The new U.S. assessment was welcomed in Tehran by Iran's firebrand president, Mahmoud Ahmadinejad, who called it a "victory' for his country.

Patrick Clawson, Deputy Director for Research and an Iranian affairs analyst at the Washington Institute for Near East Policy, says President Ahmadinejad's position is now strengthened as a result of the report.

"There's been a vigorous debate in Iran in recent months about the wisdom of Ahmadinejad's aggressive and assertive stance, with many of his domestic critics saying that this is endangering the country and recommending that Iran compromise instead," said Clawson. "This report has seriously undercut the critics of Ahmadinejad and made his policies look like they were the smart ones. And so this report has been a huge setback in the effort to get Iran to compromise."

But other analysts note that President Ahmadinejad has vigorously attacked U.S.-led efforts to rein in Iran's nuclear program as one way to rally domestic political support.

The Congressional Research Service's Ken Katzman says that without that diversion, attention may now turn to the Ahmadinejad administration's lackluster performance on the economy. He says Iranians' attention will perhaps turn to the booming economy of neighbors like Dubai with bewilderment and envy.

"I think the Iranian public feels that with oil prices at this level, $90 a barrel, my goodness, I think that most Iranians think that they should all be swimming in money right now," said Katzman. "And they're not. If anything, they're going backwards. And I think that's causing a tremendous amount of frustration, particularly in the cities."

Analysts say that could spell trouble for the Ahmadinejad camp with parliamentary elections scheduled for March and the next presidential election coming in 2009. On December 11, former president Mohammad Khatemi delivered a rare public attack on President Ahmadinejad's economic policies in a speech at Tehran University.

The Ahmadinejad government has raised the price of subsidized gasoline and introduced gasoline rationing, and inflation rose to 19 percent as the year came to a close. Analysts say those economic woes could increase if U.S. efforts to get tighter international sanctions against Iran, particularly in the banking and financial sectors, succeed.