|Mahmoud Ahmadinejad has grown in strength following the disputed elections [GETTY]
Ahmadinejad was reelected as the president of Iran last June against a background of an unusually open, divisive and acrimonious election campaign.
The vote was followed by unprecedented levels of street protests and growing international pressure and isolation led by the US, despite the stated intentions of Barack Obama, the US president.
But now, several months on, Ahmadinejad's government appears to have emerged stronger and more self-confident than it was before the contentious elections.
Not only did he maintain his position on some of the most controversial foreign policy issues, he also made a direct challenge to the power of Ali Akbar Hashemi Rafsanjani, who was the second most powerful man in the country after Ayatollah Khamenei, the supreme leader.
This included the arrest of Rafsanjani's family members, and his subsequent falling in line behind the regime in the face of mass protests.
In the process, Ahmadinejad also continued to elevate the position of the Revolutionary Guards at the expense of the old guards of the revolution, led by the likes of the late Ayatollah Montazeri.
The government and security forces have managed to suppress any serious challenge to the government and what looked like an increasingly popular movement has withered away as a result of a brutal crackdown and political gamesmanship.
This has been greatly assisted by foreign plots against the regime, which made it much easier for the government to rally support in the face of external threats.
A Jundallah suicide attack in October, which killed more than 40 people including six senior commanders of the Revolutionary Guards, marked a turning point for the opposition movement.
The government was quick to point the finger of blame for the attack - the worst of its kind on Iranian soil for decades - at the UK and the US, claiming they backed the group.
Such a challenge to peace and stability inside Iran served to undermine the opposition.
Moreover, Iran has continued with its uranium enrichment programme to the deep consternation of others.
|US military spending is expected to exceed $680bn in 2010 [AFP]
The answer to how this has been possible rests not in the strength of Iran - which is, after all, really quite a small player in the realm of global economic, military and political power games - but with the weakness of the US and her allies.
The US is a heavily indebted nation with an economy that has progressively lost its competitive edge and which came close to total meltdown in a financial crisis that was largely self-inflicted.
But despite its financial woes, the US continues to spend more on military affairs than much of the rest of the world combined.
Plunder used to bring in the loot, but this does not work so well when the weapons used are far more expensive than the loot acquired.
A growing new media and internet-assisted political awareness serves to expose the inherent contradiction between democracy and plunder, making life more difficult for the propagandists and imperialism a less lucrative business.
The Chinese factor
Then there is China.
Having not only surprised everyone with its rapid economic rise, China has also accrued a multi-billion dollar surplus and become the investor keeping the US afloat.
It is not often the case that a debtor can dictate terms to a creditor, but it could be the case that a new debtor needs time to adjust to changing economic power relations.
For now, many economists dismiss China as being far behind developed nations and in per capita terms this is very true - the average Chinese earns far less than, let's say, the average German.
But, if five decade long trends are anything to go by, the US knows where it is heading, and fast.
What matters more than the size of an economy is the underlying forces determining its direction and momentum - a bit like being a heavyweight on account of muscle rather than fat.
And a look at the economic history of Asia since the end of the second world war - an era of decolonisation - leads to a clear conclusion: The centre of gravity of the global economy has shifted.
This has become particularly evident during the global economic crisis, which has seen Western economies shrink while several Asian economies surge ahead.
It will soon be increasingly difficult for any country to dictate terms to Asia, and China in particular.
What is more, China has a greater affinity with Iran than might be initially apparent.
Both countries are among the oldest and proudest civilizations, neither has a great appetite for, or substantial experience of, representative democracy, and both are irritated by the imposition of such external conditionalities on sovereign nations.
In purely economic terms, Iran and China have everything to gain from good relations with each other.
China has no interest in seeing the US market or the dollar - her main reserve currency - collapse, but beyond this there is not much the US has to offer China as an incentive to harm Iran.
Then there is Russia, which has everything to gain from a standoff between Iran and the US, but which has no interest in helping the US win the fight for hegemony in the oil-rich region.
For as long as the US remains bogged down in long-term conflicts that she cannot win, she will not be able to challenge Russia's resurgence effectively.
As a former superpower that traditionally posed the greatest challenge to US hegemony, Russia has several political scores to settle with the US, and Iran is a great tool for that.
Likewise, Iran likes to keep Russia on board against the US, but could happily negotiate fair terms with the US against Russia, an old regional rival.
The positions of China and Russia mean that "crippling sanctions" are not an option and it is surprisingly naive of the Obama administration to imagine otherwise.
And with widespread war fatigue among the US public, a military strike targeting Iran's nuclear programme is equally as unlikely.
Out of options
|A peaceful Middle East would better
serve US and Iranian interests [GETTY]
So, the stark reality appears to be that the US is out of options.
The best course of action now may be to eat humble pie and negotiate a deal with Iran as a new nuclear power.
However, internal and external political factors, teamed with a continuing fixation on playing the role of 'sole superpower' make it difficult for the US leadership to adopt the most rational option at this juncture.
Both countries have much to gain from pursuing peace and their interests may be more closely aligned than they imagine.
Official figures for US military aid to Israel currently exceed $3bn a year. In addition, US taxpayers are burdened with long-term aid support to Palestine, Egypt, Jordan and Lebanon; all essentially with the aim of ensuring Israel's dominance in the service of misconceived US 'interests'.
The US taxpayer is also burdened with supporting backbreaking US war efforts in the Middle East to the tune of well over $100bn a year.
But, a peaceful Middle East with a steady and safe flow of oil and gas through the Persian Gulf would serve the interests of the US and Iran.
It would help to reduce the crippling costs of the US' wars and enhance Iran's income and investment potential.
It would also help to reduce Russia's energy influence over the West by opening up a number of new avenues, particularly for gas.
Time to act
Iran and the US shared common enemies in Saddam Hussein and the Taliban, as well as in al-Qaeda, and they have much to gain from closer cooperation on the remaining fronts.
Obama started last year with a promise to negotiate with the Islamic Republic and it is time for him to make good on this promise through actions rather than words.
A good starting point would be for Obama to stop congress funding covert operations in Iran to the tune of $400mn - as set up at the request of George Bush and exposed in a 2008 report by Seymour Hersh.
Repealing this would be seen as a serious gesture of goodwill and would also remove the Iranian government's excuse for suppressing the reformist movement.
Without a Great Satan, the Iranian government would have to be more responsive to and accommodating of the wishes of Iranians.
Massoud Parsi is a development economist and a commentator on Iranian affairs.
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.