The Latest from Iran (25 January): Who Makes A Move Today?

2145 GMT: The Karroubi Story. We've worked tonight through the stories, the rumours, and possibilities to post an interim analysis of Mehdi Karroubi's statement today on "Mr Khamenei" and Mahmoud Ahmadinejad, "the head of the government of the regime".

2140 GMT: In Case You Missed It. Persian2English reports: "Abolfazl Eslami, former Counselor of the Iranian Embassy in Tokyo, writes that he has decided to join people’s movement in light of the Islamic Republics’ violence and oppression."

1955 GMT: And on the Clerical Front. Ayatollah Bayat-Zanjani has renewed his criticism of the regime, asking Iran's leaders to do "nahy az monker" (repent from the bad way).

1945 GMT: Remember the Economic Front? Most of the management of Bank Melli have been replaced.

1935 GMT: We are hoping to have a thorough, on-the-mark analysis, from an EA correspondent with excellent sources, of the Karroubi statement about 2130 GMT. (To be blunt, I got it wrong earlier today, but I think, thanks to a lot of help, we'll have the best possible reading by the end of tonight.)

NEW Iran Special Analysis: What Karroubi’s Statement on “Mr Khamenei”/”Head of Government” Means
NEW Iran Snap Analysis: The Karroubi and Khatami Manoeuvres
NEW Iran: Listening to Rumours, Whispers, and Shouts
Iran and Israel: The Start of a Beautiful Friendship?
Iran Analysis: Should the Greens Be Waiting for Economic Collapse?
UPDATED Iran: The Plot Against President Ahmadinejad
The Latest from Iran (24 January): Watching Carefully

Meanwhile, another piece of evidence to put into the mix, indicating that Karroubi is not recognising Ahmadinejad as President but merely as a "selected leader". He told Rah-e-Sabz that he stood by his comments, but the people have problems which must be solved by the government, which is responsible for the situation. He repeated a statement he had made to an English newspaper: "I am convinced that Ahmadinejad will not stay for four years."

1610 GMT: Going after Revolution. Amidst all the confusion over the Karroubi statement, a blunter political move by another cleric:

Ayatollah Mohammad Yazdi, who is close to the President, has made another attempt to pressure Hashemi Rafsanjani's authority. Speaking in Qom, he said that he was "shocked" at Rafsanjani's recent speech where the former President offered his view of the political situation "according to [Rafsanjani's] experience". Yazdi snapped, "Is this more important than the Supreme Leader's experience?"

Yazdi urged/warned Rafsanjani to "come back to the breast of the Revolution and the Supreme Leader", criticising Rafsanjani's ambiguity: "Your speech is not just two sides; it is many sides."

1515 GMT: We have posted a major update to our earlier analysis of the Karroubi and Khatami moves today, taking into account corrected and new information about the Karroubi statement.

1500 GMT: Hasan Ahmadian, a leading member of Mir Hossein Mousavi's campaign, was reportedly released on bail of $500,000 last night.

1300 GMT: We have posted an urgent snap analysis of the important --- if true --- developments of the Karroubi letter accepting Mahmoud Ahmadinejad as President (see 1135 GMT) and Mohammad Khatami's letter to the Supreme Leader: "Has a Deal Been Struck?"

1230 GMT: Watch-It Warning of the Day. Tehran Prosecutor General Abbas Jafari Doulatabadi strikes the pose --- insulting senior figures and the head of the three branches of the Iran Government (the President, Speaker of Parliament, head of Judiciary) is a crime. So don't do it.

Doulatabadi also commented on other matters, including the 5 Ashura detainees tried this weeks on charges of "mohareb"/war against God and threats to national security (verdicts will be issued soon) and the murder of Professor Ali-Mohammadi (enquiry continues).

1135 GMT: A Vote of Legitimacy. Well, you can now top our morning analysis of Rumours with this report:

Iranian opposition leader Mehdi Karroubi who had refused to accept the re-election of President Mahmoud Ahmadinejad, now recognises the hardliner as the country's "president", Karroubi's son told AFP (Agence France Presse) on Monday.

Hossein Karroubi quoted his father as saying: "I am still of the same belief that the election was unhealthy and massively rigged. But since the (Supreme) leader (Ayatollah Ali Khamenei) endorsed (Ahmadinejad's victory), I believe that he is the head of the government, meaning he is the president."

....Fars (News Agency) asked the opposition leader whether he now acknowledges Ahmadinejad as the president.

The ex-speaker of parliament, who came fourth in the disputed June 12 presidential election, replied: "I still maintain that there were problems (in the election), but with regard to your question, I should say that I recognise the president."

1130 GMT: Far-from-Academic Losses. An EA reader follows up on the story of the apparent firing of Professor Abbas Kazemi by Tehran University for his attendance at the funeral of Grand Ayatollah Montazeri (0655 GMT):

If the news is true about Kazemi being fired from U of T, that is a sad thing. Kazemi wrote The Sociology of Religious Intellectuals in Iran, which I have sitting on my table right in front of me.

1120 GMT: The Meaning of Investment. An EA reader pulls me up on my morning jab at Press TV (0755 GMT) over its story that Iran is seeking foreign investment:

On the foreign investment caps being lifted, you are missing the big story. When (President) Khatami tried to do similar things in the late 1990s, the Guardian Council and fellow conservatives completely attacked the idea, saying it was selling out the country's resources. This is another example of how Ahmadinejad is actually more of an economic liberal than Khatami (who was never really sure about economic liberalism and it was not his forte) ever was.

1110 GMT: Your Latest Plot --- Greens, the CIA, and Currency. Kayhan newspaper is none too amused that Iran's Central Bank has backed away from declaring "invalid" any banknotes with Green slogans and/or markings.

For you see, the marking of the banknotes is clearly a CIA plot, based on the ideas of Robert Helvey, a retired Army officer and associate of Gene Sharp at Harvard University. Sharp is Iran's bete noire when it comes to thoughts of "velvet revolution", and Helvey also got a mention in the Tehran trials of August.

0755 GMT: More Morning Fun from Press TV. Apparently Shamsoddin Hosseini, Iran's Economy and Finance Minister, says there will no limit on foreign investment in Iranian industrial or mineral sectors under the 5th Development Plan (2010-2015) proposed by Presdent Ahmadinejad: ”The Iranian government will be trying to remove any obstacle in the financial domain by the end of the fifth development plan."

With respect, given reports that foreign investment fell up to 96 percent between March 2008 and March 2009 (in other words, before the current political crisis), I am a bit surprised Mr Hosseini did not declare that investors would be met at Imam Khomeini Airport with flowers and cases of Parsi Cola.

0735 GMT: Press TV's Morning Spin. The Iranian state outlet offers this dramatic story, "China attacks US for online warfare in Iran":

A Chinese Communist Party editorial says the election unrest in Iran was an example of US 'naked political scheming' behind a facade of free speech....The People's Daily editorial said the US had launched a "hacker brigade" and used social media such as Twitter to spread rumors and create trouble in Iran.

Interesting that Press TV doesn't seem to notice a possible motive for China's apparent defense of Iranian sovereignty and legitimacy --- perhaps theirreporters were looking at Twitter when US Secretary of State Hillary Clinton made her high-profile speech last week calling for Internet freedom and focusing on China as the Number One Test Case.

0710 GMT: We've put our first updates in a separate analysis on political and economic developments.

0650 GMT: The Academic Fight over the Funerals. Norooz claims Professor Abbas Kazemi, a member of the School of Communications at Tehran University, has been fired for attending the funeral of Grand Ayatollah Hossein-Ali Montazeri last month.

More than 110 academics and scholars around the world, including Noam Chomsky and Ramin Jahanbegloo, have called for an independent enquiry into the murder of Tehran University professor Massoud Ali-Mohammadi.

0645 GMT: Strikes and Firings. The Flying Carpet Institute reports that five workers at Rasoul Auto Company have been dismissed after strikes over disputed back pays. The employees' wages for November and December have not been settled.

0615 GMT: Sunday's Best Story? Rah-e-Sabz claims that President Ahmadinejad handed over his budget proposal to Speaker of Parliament Ali Larijani, the CD was blank. (Cue all the metaphors about Ahmadinejad's economic plans.) Apparently Ahmadinejad was "quickly ordered" to transfer the proposal that does exist to Parliament.

0530 GMT: We've moved our overnight updates to a separate entry, "Listening to Rumours, Whispers, and Shouts".

Pakistan: US "Public Relations Disaster" in Gates Mission

Juan Cole is scathing about the most recent political effort by the Obama Administration in Pakistan:

Secretary of Defense Robert M. Gates's trip to Pakistan this weekend has in many ways been a public relations disaster, and I think it is fair to say that he came away empty-handed with regard to his chief policy goals in Islamabad. Getting Pakistan right is key to President Barack Obama's policy of escalating the Afghanistan War, and judging by Gates's visit to Islamabad, Obama is in worse shape on the AfPak front than he is even in Massachusetts [after the unexpected Republican victory in the US Senate vote]. Since he has bet so heavily on Afghanistan and Pakistan, this rocky road could be momentous for his presidency.

In one of a series of gaffes, he seemed to admit in a television interview that the private security firm, Blackwater, was active in Pakistan.

The Pakistani public has a widespread resentment against US incursions against the country's sovereignty (64% say the US is a danger to the country's stability). But it also has a sort of paranoid obsession with Blackwater, which they suspect of covert operations to disrupt security in the country (i.e. they blame Blackwater for bombings that Americans see as the work of the Taliban). Thus, Gates's statement produced a media frenzy. (Jeremy Scahill has alleged in The Nation that Blackwater is in fact in Pakistan in a support role to CIA drone attacks in the country's mountainous Northwest on Taliban and al-Qaeda targets).


Dawn, a relatively pro-Western English daily, quoted the exchange, saying Gates was asked by the interviewer on a private television station,

' “And I want to talk, of course, about another issue that has come up again and again about the private security companies that have been operating in Iraq, in Afghanistan and now in Pakistan. . . Xe International, formerly known as Blackwater and Dyncorp. Under what rules are they operating here in Pakistan?”

Gates replied,

' “Well, they’re operating as individual companies here in Pakistan, in Afghanistan and in Iraq because there are theatres of war involving the United States.”

The Urdu press concluded that he had admitted Blackwater is active on Pakistani soil, while noting denials from the US embassy in Islamabad that that was what Gates had meant. The News, the mainstream English-language sister of Jang, was also insistent that Gates had let the cat out of the bag.

Gates had one strike against him, since he came to Pakistan from India. Moreover while in New Delhi he clearly was a traveling salesman for the US war materiel industries, who would like to pick up some of the $60 billion India is planning to spend on weapons in the next few years. During the Cold War, the US had mainly supplied Pakistan's military, and had been lukewarm to India, which Washington felt tilted toward Moscow. The current shift of US strategy to wooing India to offset growing Chinese power in Asia is taken by some Pakistanis as a demotion.

Then, he encouraged a greater Indian role in Afghanistan, including, according to the Times of London, possibly in training Afghan police. Pakistan considers Afghanistan its sphere of influence and the last thing it wants is a role for Indian security forces in training (and perhaps shaping the loyalty) of Afghan police. Germany is currently in charge of the police training program, but India is afraid that in the next few years NATO will depart, and that Pakistan will then redeploy its Taliban allies to capture the country for Islamabad's purposes. India is also concerned about significant Chinese investments, as in a big copper mine, in Afghanistan. So New Delhi is considering the police training mission.

In addition, Gates had praised Indian restraint in the face of the fall, 2008 attack on Mumbai (Bombay) by the Pakistani terrorist organization, the Lashkar-i Tayyiba [Army of the Good]. He warned the Pakistani leadership that India's forbearance could not be taken for granted the next time. That is a fair point, but it is not the sort of thing you say publicly on your way to Islamabad from Delhi if you want to be received as an honest broker. Pakistanis feel that India has inflicted many provocations on them, too, not least of which was the Indian security forces' often brutal repression in Muslim-majority Kashmir, where thousands have died since 1989 in a separatist movement with which Pakistanis deeply sympathize. (Pakistani guerrilla groups also did routinely slip into Indian Kashmir in support of local separatists).

Prominent members of the Pakistani Senate denounced Gates for setting up Pakistan as a sort of patsy and hostage to communal violence in India, and of fomenting a Washington-New Delhi 'conspiracy' against Islamabad. What if some Indian terrorist group carried out an attack in India? wasn't Gates giving New Delhi carte blanche, they asked, to blame Pakistan for it even in the absence of any evidence, and then to launch a war of aggression on Pakistan with the incident as a pretext?

The Los Angeles Times said that "Gates, on the first day of a visit here, urged government officials to build on their offensives against militants . . ."

In fact, Gates was careful not to over-emphasize such demands, but there was a general public perception that he was doing so. The editorials in Urdu newspapers on Jan. 23, which the USG Open Source Center analyzed, complained bitterly about this further demand. Express sniffed that the US should establish security in Afghanistan and then everything would settle down in Pakistan's northwest. Khabrain rather cleverly pointed out that Pakistan has concentrated on limited territory in fighting its Taliban, which is wiser than the US policy of opening several fronts at once and getting bogged down.

Jang, which is mildly anti-American, said,

Describing Robert Gates' pro-Indian statements irresponsible, the editorial says: "It is believed that the political and military leaderships of Pakistan, with one voice, have made it clear to Gates and the titanic-size delegation accompanying him that in the present circumstances, it is not possible for Pakistan to accede to the persistent US demands of 'do more' and to further expand military operations in the tribal areas, because Pakistan not only has to secure the areas that it has taken control of from the militants but also has to strengthen and stabilize its position there."

Then the Pakistani military spokesman came out and flatly told Gates that the Swat and South Waziristan campaigns were it for now. The BBC reports, 'Maj Gen Abbas, head of public relations for the Pakistan army, told the BBC: "We are not going to conduct any major new operations against the militants over the next 12 months. . . The Pakistan army is overstretched and it is not in a position to open any new fronts. Obviously, we will continue our present operations in Waziristan and Swat." '

To be fair, the Pakistani military committed tens of thousands of troops to these two campaigns, in Swat and South Waziristan, and is in fact attempting to garrison the captured areas so as to prevent the return of the Pakistani Taliban. In the past two years, the Pakistani army has lost over 2,000 soldiers in such fighting against Taliban in the Northwest, a little less than half the troops the US lost in its 6-year Iraq War.

The Pakistani military campaigns of the past year, however, have not targeted those radical groups most active in cross-border raids into Afghanistan-- the Quetta Shura of Mullah Omar's Old Taliban, the Haqqani Network of Siraj Haqqani in North Waziristan, or whatever cells exist in Pakistan of the largely Afghanistan-based Hizb-i Islami (Islamic Party) of Gulbadin Hikmatyar. Washington worries that the effectiveness of its own troop escalation in Afghanistan will be blunted if these three continue to have havens on the Pakistani side of the Durand Line. And, Pakistani Prime Minister Yusuf Raza Gilani worries that the US offensive in Afghanistan will push thousands radicals over the border into Pakistan, further destabilizing the country's northwest.

Gates made a clumsy attempt to mollify Pakistani public opinion over the very unpopular US drone strikes on suspected al-Qaeda and Taliban cells in the Federally Administered Tribal Areas (FATA) of Pakistan, by offering the Pakistani military 12 unmanned aerial vehicles (UAV) or drones of its own. But the Pakistani military pointed out that the outdated RQ-7 Shadow UAV's on offer were unarmed and merely for aerial reconnaissance, and maintained that Pakistan's arsenal already contained such drones.

Gates addressed the Pakistani cadets at the National Defense University, attempting to emphasize that he wanted more of these future officers to study in the US, and that Pakistan is in the driver's seat with regard to the anti-Taliban counter-insurgency campaign. Its message was largely missed in the civilian Urdu press.

Does it matter? One sometimes see Americans dismiss Pakistan as "small" or "unimportant." Think again. Pakistan is the world's sixth-largest country by population (170 million),just after Brazil (200 million). It is as big as California, Oregon and Washington state rolled together. Pakistan's 550,000-man military is among the best-trained and best-equipped in the global South. Pakistan has within it a middle class with a Western-style education and way of life (automobiles, access to internet and international media) of some 37 million-- roughly 5 million families. (Pakistan has over 5 million automobiles now and is an emerging auto producer and market, with auto production at 16 percent of its manufaturing sector). If we go by local purchasing power, it is the world's 27th largest economy. It is a nuclear power with a sophisticated if small scientific establishment, and produced a Nobelist in physics.

Gates went to Pakistan to emphasize to Islamabad that the US was not again going to abandon it and Afghanistan, as it had in the past. Pakistan, he wanted to say, is now a very long-term ally of Washington. He hoped for cooperation against the Haqqani, Taliban and Hizb-i Islami guerrillas. He wanted to allay conspiracy theories about US mercenary armies crawling over Pakistan, occasionally blowing things up (and then blaming the explosions on Pakistanis) in order to destabilize the country and manipulate its policies.

The message his mission inadvertently sent was that the US is now increasingly tilting to India and wants to put it in charge of Afghanistan security; that Pakistan is isolated; that he is pressuring Pakistan to take on further counter-insurgency operations against Taliban in the Northwest, which the country flatly lacks the resources to do; and that Pakistani conspiracy theories about Blackwater were perfectly correct and he had admitted it.

In baseball terms, Gates struck out. In cricket terms, Gates was out in the most embarrassing way a batsman can be out, that is, leg before wicket.

Obama Reflects: Domestic Problems, Wars Abroad, and the Difficult Middle East

In interview with Time Magazine this week , Barack Obama faced up to disappointments at home and abroad

After covering his health care proposals and underlining the importance of financial reform, Obama turned to foreign policy. He talked of the "Administration taking out more al-Qaeda high-level operatives". He admitted that the decision to increased the number of troops in Afghanistan was one of the toughest he had ever made, adding that his Administration is doing a good job in getting troops out of Iraq even though it is not an easy process. On Iran, Obama reiterated the dual-track approach of engagement and sanctions.

Perhaps the most striking Obama reflection, however, was on the Israeli-Palestinian peace process: "The Middle East peace process has not moved forward. And I think it's fair to say that for all our efforts at early engagement, it is not where I want it to be."

The interview in full:

Klein: I talked to a bunch a folks — friends, my kids — what should I ask the President? It was almost unanimous: the thing that people remarked on is just how crazy things are. How difficult it is. Focused on the health care process — what have you learned from that process, what's your takeaway? How is it going to influence the rest of your presidency?

Obama: Look, even if we hadn't tackled health care, this year was going to be a tough year. During the transition period last year, it became apparent very quickly that we were going to have to make some fast, tough and in some cases politically unpopular decisions to make sure the financial system didn't melt down and we did not spiral into a second Great Depression. We made those decisions and executed them, and I am absolutely convinced that had we not acted the way we did that the situation would've been far worse.

Having said that, we've still lost 7 million jobs over the last two years. People who are out of work or have seen their 401(k)s diminish or their hours reduced understandably are frustrated when they see big banks getting money for a problem that they helped cause. And when you see the unemployment rate spike to 10%, it was inevitable and justifiable that the political climate would become very difficult. So health care was done against the backdrop of what was already going to be a tough political climate.

Having said that, there is no doubt that the process for doing big, important things in this country has become far more difficult because of the way Congress is working right now. I came in expressing a strong spirit of bipartisanship, and what was clear was that even in the midst of crisis, there were those who made decisions based on a quick political calculus rather than on what the country needed. The classic example being me heading over to meet with the House Republican caucus to discuss the stimulus and finding out that [House minority leader John] Boehner had already released a statement saying, We're going to vote against the bill before we've even had a chance to exchange ideas.

So I understand the strategy that the Republicans decided to pursue. There is a good political argument for it. I don't think it has served the country well, and it hasn't served the process well. Health care then became caught up in that process. And I think that what's clear is that if you have an opposition party that is determined to say no [and] sees their political survival dependent on gridlock, things can get tied up in knots. So that's the second point.

And the final point is that health care was going to be hard in any environment with any Congress. There's a reason why seven Presidents and seven Congresses have failed to do it. It is a massive undertaking. It involves every special interest imaginable. The American people know that the status quo isn't working, and yet sometimes the devil you know is better than the devil you don't. So it is very easy to caricature any efforts at reform as negative.

Now, I've given you three big reasons why this was so tough. Having said all that, I think we're going to get it done. And I think this is going to be a framework that allows us to genuinely say that every American is going to have access to quality, affordable health care. And that people who have health care have security in the coverage that they've purchased. That is an enormous accomplishment, and the thing that I'm most proud of is that not only will we have dealt with access, not only will we have dealt with accountability when it comes to insurance companies, but when all is said and done, this offers our best chance at significant deficit reduction, of any of the other options that are out there.

Klein: But it comes with a high opportunity cost, given the political hot spot of the moment. Say you're sitting in Belmont, Mass., or Needham, and you're watching the unions get their deal and Nebraska get its deal and everybody else get their deals. What would you say to that person, who probably voted for you because you promised change and — I was just reading David Plouffe's book [The Audacity to Win] — the emphasis on going after the special interests? But you've made deals with all the special interests to get this done.

Obama: Well, I'll tell you what, Joe. What I would say is, If you look at this bill when it is said and done — not where it was coming out of one committee or where it was coming out of another committee, but the bill that I actually sign. I think what you're going to see is that there have been very few instances where something of this magnitude had relatively few provisions in there that weren't for the broad public. Getting something through 535 members of Congress involves some trade-offs.

When I promised change, I didn't promise that somehow members of Congress weren't going to be looking to try to get a project in their district or help a hospital in their neighborhood. What I promised was that this White House was going to constantly be pursuing the people's interests. And this bill will pass that bar by a mile.

One last thing I'll say about this: There is no doubt that politically speaking, having this intense a focus on the sausage-making process in Congress is never helpful.

Klein: But it's impossible to avoid.

Obama: It's impossible to avoid if you're trying to do big stuff. Now it is even more difficult in a 24-hour news cycle. I have no idea what Lyndon Johnson had to do to get the Civil Rights Act done. Or if I have an idea, it's because I read Robert Caro's biography 40 or 50 years later. So that process is one that people have legitimate concerns about. And one of the things that I think is very important for us to do moving forward on financial reform, on energy legislation, on the jobs package that we're going to put forward, is we've got to do a better job highlighting what's good in these measures.

But I also think that I have to make sure that our team doesn't lose sight of our broader message. Which is that the American people have a right to see what's going on, understand what's going on. That there are some things you can compromise, but there are some things you shouldn't compromise. If you're dealing with the interest groups here in Washington, don't get too comfortable. That's something you have to constantly reinforce and remind.

Klein: What do you mean, "Don't get too comfortable"?

Obama: Don't get too comfortable in the sense that there's a culture in this town, which is an insider culture. That's what I think people outside of Washington legitimately can't stand. A sense that they're not being heard. I think we've done actually a pretty good job of working in this town without being completely consumed by it. But from the outside, if you're just watching TV and all you're hearing about is the reports, people may get the false impression that somehow [the insiders] are the folks we're spending more time listening to.

In fact, I spend most of my time listening to the people who — through their letters or through town-hall meetings or in my travels throughout the country — are telling me the stories of hardship and heartache. Losing their house because they don't have health insurance. That's what moves us here, but that's not always what comes across in the day-to-day combat that we're going through.

Klein: Well, it seems obvious that when you get through with this bill, you're going to be turning to some of the things that upset people and the perception that you're at one with Wall Street, at one with Big Government. And obviously that means financial reform and also I think budget and infrastructure are going to be big things this year. But let me ask you first about the financial reform part of it. One of your advisers, Paul Volcker, has said that none of the financial instruments that have been developed over the past 20 years have added anything to our economy. And I remember you and I talking during the campaign about how the economy was going to have to change. Do you agree with Volcker?

Obama: Well, what I agree with Paul about, and I agree with him on a lot of things, is that sophisticated financial tricks and fancy hedge instruments, etc., aren't valuable just because they're making somebody $100 million worth of bonuses. And I think it is very important that we understand first principles when it comes to our financial sector. The role of the financial sector is to raise capital for businesses that actually make things and provide services to people. To help grow this economy. They should make a profit doing it.

I think the fact that we have a diverse and sophisticated and innovative financial marketplace is a positive. It gives more businesses more tools to raise capital for good ideas, entrepreneurs to start businesses. But when you see more and more of the financial sector basically churning transactions and engaging in reckless speculation and obscuring underlying risks in a way that makes a few people obscene amounts of money but doesn't add value to the economy — and in fact puts the entire economy at enormous risk — then something's got to change.

Now, I want to go back to your initial premise of us being close to Wall Street. We knew that this would be a consequence of us managing TARP. It was inevitable. One of the things that we have to do is just remind people that having inherited this financial disaster as well as the TARP structure, this thing was managed in as prudent a way as any financial-crisis management has ever been managed.

Klein: I think they'll give you that.

Obama: And what we're now doing, for example, on the fee on these big financial institutions is not designed to punish; it's just designed to meet what was in the legislation originally, which was: This was not going to cost taxpayers a dime's worth of money. Something, by the way, that nobody believed, but something that we may actually be able to deliver on.

With respect to financial reform: This was always one of our top agendas. I started talking about this during the campaign, and I made a major speech about how we're going to move forward [last] March. My hope had been that health care wouldn't take this long. And that we would've teed up both energy and financial reform before the end of the first year. If there's one thing I have learned — you asked earlier about something I've learned about this process — it always takes longer than you think.

Let me just close on financial regulatory reform. This is going to be a top priority. You are already seeing the big banks and some of these other interests lining up in opposition to basic core reforms, like making sure that consumers know what the fine print is when it comes to their credit cards or their debit cards or their mortgages. You're already seeing them resisting the idea that they should have a regulatory regime that isn't full of loopholes.

And my attitude is that this is a fight that is entirely consistent with what we've done last year, it's entirely consistent with who I am and how I campaigned, and it's a fight that I welcome. And it'll be interesting to see how some who have tried to exploit legitimate anger at the big banks this year by trying to put it on us are going to position themselves when in fact they're going to want to protect all these financial institutions from the regulations that will prevent the kind of disaster that we've seen over the past couple of years.

Klein: They're going to have to vote yea or nay, aren't they?

Obama: Right.

Klein: During the campaign, the one program that you proposed that everybody from the left to the right loved was the infrastructure bank. And it seems to me that was another thing that kind of fell by the wayside this year.

Obama: You're wrong about that. Well, you're right that people liked it.

Klein: But that's the good government fight. That's the fight against the appropriators in Congress.

Obama: You're absolutely right, and look, one of the things we've got to do better is to tell the story of what was in the [American Recovery and Reinvestment Act]. That was the largest investment in research and development in our history.

Klein: And it's coming online this year?

Obama: And it's moving. One constituency that I know is happy with me are scientists, inventors, entrepreneurs who are in the high-tech sectors, because they are seeing already the incredible investments that are happening that are going to have 20-, 30-year payoffs. It was the biggest investment in education. And it wasn't just the usual formulas. Some of it was helping to make sure teachers didn't get laid off, but what [Secretary of Education] Arne Duncan is doing with our Race to the Top Fund — we've already had 48 states react by implementing reforms that had been resisted for years. And you're starting to see the teachers' unions really think through how can they be a partner in the process of reform. And when it comes to infrastructure, not only was it the biggest investment in infrastructure since the Eisenhower Interstate Highway System, but we actually introduced the infrastructure-bank concept in the Recovery Act.

Now, you are absolutely right that this seed that we've planted is going to have to be carefully nurtured. And for readers who aren't familiar, the basic idea is that we should not only fund the usual repaving of highways — although that's important — but we should also think, What's the 21st century infrastructure that's out there? And those decisions should be made by people who really have clear ideas about the kind of infrastructure we're going to need. As opposed to it being determined solely by, you know, "Who's the chairman of the transportation committee from what state?"

But I am sensitive to the fact that Congress has its prerogatives. We're trying to nudge them in the direction of rationalizing our transportation knowledge — particularly in a time of fiscal constraint. And by the way, that's a principle that's going to apply, Joe, to all of government. You mentioned earlier the pivot that we have to make. It's not driven by politics. We had to do what we had to do last year, whether it was politically popular or not. Now that we have begun the recovery process and the economy has stabilized, we have to deal with our long-term fiscal problems, whether it's politically popular or not. And some of those decisions are going to be just as unpopular.

But part of that pivot, then, is to say, "How are we going to make sure that we squeeze every ounce of value out of every dollar that we spend?" We began that process with Pentagon reform. And the victories that [Secretary of Defense Robert] Gates helped win are ones that this town completely discounted when we started. We are scrubbing the budget once again to make sure that every program that we're funding actually has some justification — it actually works. Yesterday we had a whole bunch of CEOs and innovators here to talk about modernization of government. The infrastructure bank falls in that broader category of, How do we make these dollars work better? Because we're going to have to make some very difficult spending decisions moving forward.

Klein: It seems to me that these are ways — the Wall Street battle — to start building trust in a small way. People have had 30 years of propaganda telling them that government doesn't work.

Obama: And my theory, Joe, has always been, A) A lot of people's skepticism is entirely justified. B) There's no reason that government should inherently be inefficient. C) At a time when we've got such enormous problems and such limited resources, people are going to be looking to government for help. But they want to make sure that their dollars are well spent, because those are the same decisions that they're having to make in their own lives. They're looking for value. Whether they're shopping for a pair of jeans or they're going to a restaurant or they're buying a new car. And right now, they don't feel like they're getting good value out of their government.

Klein: Let me ask you one foreign policy question. My sense is that — just my own personal sense, but also from people I talk to — the overall conception of your foreign policy has been absolutely right. Necessary, corrective. Subtle, comprehensive.

Obama: We have a good team.

Klein: But there have been some problems in execution.

Obama: Well, I would not deny that, but let me say that given what's on our plate — and you know the list. I don't need to tick them off.

Klein: I've been to most of them in the past year.

Obama: I actually think that our execution has been sound as well. I'll give you the examples of where I think our foreign policy team has gotten the right strategy and has executed well even though the outcomes are still uncertain — because these are tough problems that aren't subject to easy solutions. I think that in Iraq, we are moving forward and on pace to get our troops out. It's messy, it's imperfect, but I think that our team has done a very good job managing that process.

I think in Afghanistan, as difficult as those choices were — and me sending in additional troops over the next two years was probably the toughest decision that I've made this year among a lot of very tough decisions, because it involved the lives of young men and women in uniform. We are monitoring very carefully how it's being executed. And I think that General [Stanley] McChrystal, General [David] Petraeus, [U.S. ambassador to Afghanistan] Karl Eikenberry and others are working double time to successfully implement this. I know that you've written, Joe, that there may be some questions in terms of pace of getting troops in. I can assure you that a fire is lit under them about making that happen.

Klein: That's one of the reasons I wrote that.

Obama: They want it to happen. And we are more or less going to be on schedule. We are probably ahead of schedule so far in terms of recruiting and training Afghans. Although I've said that we should set very modest expectations of what's sustainable to transfer to an Afghan government.

On Iran, one of our trickiest foreign policy challenges, we have held the international community together, both in our engagement strategy, but also now as we move into a dual-track approach. Which is, If they don't accept the open hand, we've got to make sure they understand there are consequences for breaking international rules. It's going to be tough, but I think the relationship we've developed with Russia will be very helpful. The outreach we've done to our traditional NATO allies will be very helpful. The work that we've done with China — including the work we've done with China to enforce sanctions against North Korea — will help us in dealing more effectively with Iran.

I mentioned North Korea — everybody was skeptical at the beginning of this year that we could get serious sanctions. Not only have we gotten serious sanctions, but they've actually been implemented. And finally — because this has been the area of most immediate concern — when it comes to counterterrorism, this Administration has taken out more al-Qaeda high-level operatives, has been more aggressive in pinning them down, not just in the border regions of Afghanistan and Pakistan, but also working with our international partners in places like Yemen and Somalia, than a lot of what's taken place previously.

Having said that, there's no doubt, as I said, that I think our intelligence failures in picking up [Nigerian terrorism suspect Umar Farouk] Abdulmutallab shows how much more has to be done. I think everybody understands that this is an area where we have to be relentless regardless of what else is on our plate. The other area which I think is worth noting is that the Middle East peace process has not moved forward. And I think it's fair to say that for all our efforts at early engagement, it is not where I want it to be.

Klein: Why is that? My sense of it is that [U.S. special envoy to the Middle East George] Mitchell spent a number of months negotiating a settlement deal and saw some progress from the Israelis and kind of got blinded by that, because he didn't see that it wasn't sufficient progress for the Palestinians.

Obama: I'll be honest with you. A) This is just really hard. Even for a guy like George Mitchell, who helped bring about the peace in Northern Ireland. This is as intractable a problem as you get. B) Both sides — the Israelis and the Palestinians — have found that the political environment, the nature of their coalitions or the divisions within their societies, were such that it was very hard for them to start engaging in a meaningful conversation. And I think that we overestimated our ability to persuade them to do so when their politics ran contrary to that. From [Palestinian Authority President Mahmoud] Abbas' perspective, he's got Hamas looking over his shoulder and, I think, an environment generally within the Arab world that feels impatient with any process.

And on the Israeli front — although the Israelis, I think, after a lot of time showed a willingness to make some modifications in their policies, they still found it very hard to move with any bold gestures. And so what we're going to have to do — I think it is absolutely true that what we did this year didn't produce the kind of breakthrough that we wanted, and if we had anticipated some of these political problems on both sides earlier, we might not have raised expectations as high. Moving forward, though, we are going to continue to work with both parties to recognize what I think is ultimately their deep-seated interest in a two-state solution in which Israel is secure and the Palestinians have sovereignty and can start focusing on developing their economy and improving the lives of their children and grandchildren.

The Latest from Iran (1 January): Mousavi's Resolution?

2050 GMT: A First Go at Reading Mousavi. Edward Yeranian of the Voice of America writes, "Iran Opposition Leader Mousavi Not Afraid to Die for Reform" (there is also an audio report), and kindly gives us space in the article for a few thoughts:

Scott Lucas...thinks that both the opposition and the government are digging in their heels for a confrontation:

"The five-point plan is not new. [Mousavi] said something similar in around October. [This], therefore, is still a compromise within the system. [However], the other thing that's important is that the language he uses --- before he gets to that [compromise] --- about his possible martyrdom is striking: 'My blood is no redder than those of others in the [opposition] movement, but I'm ready to die.' [This is] a language of expected confrontation, as opposed to political compromise," he said.

Lucas also argues that Mousavi may be trying to re-establish himself as the clear leader of the opposition after complaints in recent months that he hadn't been showing up to lead public demonstrations. Many in the opposition, he notes, have been saying that the "opposition is leading Mr. Mousavi and not the contrary".

NEW Iran: 2009’s Year of Living Dangerously (Part 1)
Latest Iran Video: Protests Against and for the Regime (31 December)
Iran: The Rafsanjani Interview on France 24 (28 December)
Iran: The Regime’s Misfired “Big Shot” at Legitimacy
Iran: How Significant Was the Regime’s Rally?
The Latest from Iran (31 December): Is That All There Is?

2010 GMT: Explaining the Mousavi Statement (0745 GMT). We'll ponder overnight before offering an analysis tomorrow of Mir Hossein Mousavi's political move today. However, we may have gotten clues from Dr. Abolfazl Fateh, the head of Mousavi’s media committee in the Presidential campaign: "Mousavi’s statement is a significant goodwill gesture from his side and an important test for the authorities."

Fateh explained that Mousavi had offered a solution based on “goodwill and the minimum expectations of the people”, but this was now the last argument to be put:

If the authorities lose this chance the future great difficulties is their responsibility and they will be blamed for not taking advantage of this opportunity forever. Is there anyone listening among those who claim to care for the country?

So is Mousavi really calling this a "last chance" for the Government to accept a compromise within the system, based on the Constitution and changes in legal and political practices? And is he putting that message to the Supreme Leader as well as politicians and ministers?

1955 GMT: And Also Going After Ayatollah Dastgheib. It appears that, along with Ayatollah Sane'i (1005 GMT), Ayatollah Ali Mohammad Dastgheib of Shiraz is the main target of the regime. Plainclothes forces again attacked Qoba Mosque, days after moving on Sane'i's offices. Claimed footage of the attack has been posted, and there is a purported audio of Dastgheib speaking to  his followers.

1845 GMT: Today's Trees-Died-For-This? Moment. William Kristol in The Washington Post, claiming to come to the assistance of "the people of Iran" but establishing that he knows little if anything of Iranian religious tradition, history, culture, or politics.

(Mr. Kristol, if you're reading this, go to "A Request to Charles Krauthammer: Go Away". Consider the message duplicated.)

1810 GMT: Punishment, 1979 Style. In a telling passage in his Tehran Friday Prayer (see 1640 GMT), Ayatollah Jannati called for a return of "justice" of the first years of the Islamic Republic:

People’s expectations of the judiciary are very high. Of course we are aware that the judiciary has certain limitations now and cannot act like the courts of the early days of the Revolution. But if they had acted like those days this affair would have been over long ago.

Some analysts contend that in those years, amidst terrorism and the war with Iraq, Iran's judicial system authorised summary execution without full trials.

1725 GMT: Tehran's Friday Prayer (see 1640 GMT). Islamic Republic of Iran Broadcasting has posted extracts from Ayatollah Jannati's speech, promising punishment on all those who protest in the Islamic Republic.

1715 GMT: A group of students from Amir Kabir University in Tehran have issued a statement that they will not attend classes or take exams until their detained classmates are released.

1650 GMT: And That Punishment Is.... Giving the tough words of Speaker of Parliament Ali Larijani (0940 GMT), Minister of Intelligence Heydar Moslehi (1120 GMT), Deputy Head of Judiciary Ebrahim Raeesi (0935 GMT), and Tehran Friday Prayer leader Ahmad Jannati (1640 GMT) some back-up, Iran's judiciary has announced that seven people arrested on Ashura will be put on trial next week for "desecrating the ideals of the Islamic Revolution".

1640 GMT: Your Tehran Friday Prayer Summary. Ayatollah Ahmad Jannati laying it out for the masses today:

Protesters are really, really bad. And we will punish them.

Jannati, the head of the Guardian Council, said, "The judiciary system should act with more speed in dealing with rioters....The Islamic establishment in Iran will not tolerate any attempt to undermine Islam."

Most of the speech was the standard foreign-powers-are-behind-all-this script; however, Jannati added an ominous improvisation: "the harshest punishment for desecrating Islamic beliefs". The reference is being read by some observers as an endorsement of the death penalty.

1635 GMT: Latest Arrests. Sadegh Javadi-Hesar, a member of the reformist Etemade Melli Party and lawyer Nemat Ahmadi.

1625 GMT: From China With Love. The buzzing story this afternoon comes from Rah-e-Sabz: "Iran has imported high-tech armored anti-riot vehicles equipped with water cannons that can douse people with boiling water or teargas". An Iranian blogger gives details of the vehicles, two of which are pictured on the website:

With an alleged price of $650,000 a unit, the 25-ton trucks each hold 2,640 gallons of water, which can shoot hot or cold water at a distance of up 220 feet. They can also shoot tear gas, burning chemicals or paint stored in three 26-gallon containers.

[The truck] includes a plow, which can presumably demolish makeshift barriers placed on streets by protesters, or even the demonstrators themselves.

The Los Angeles Times features the story, which has a none-too-subtle undertone: from Tienanmen Square in 1989 to a version in Tehran 20 years later?

1445 GMT: A Renewed Attempt at Unity? At least one prominent politician has not given up on the search for political compromise. Presidential candidate Mohsen Rezaei has published a letter to the Supreme Leader. Rezaie asks Ayatollah Khamenei to publish a statement on unity and brotherhood, as Mir Hossein Mousavi, according to Rezaei, has retreated from his claim that that the Government is illegal.

1245 GMT: Mousavi and the Students. Today's Mir Hossein Mousavi statement (see 0745 GMT) has now climbed the ladder of the Western media, with a featured place on The Los Angeles Times site and coverage on CNN television (but not CNN's website).

Meanwhile, a student at Azad University Mashhad has given a first-hand account of the demonstrations and clashes, with more than 200 arrested and some reportedly missing, at the campus.

1120 GMT: We're Gonna Get Ya (cont. --- see 0935 GMT). Iran's Minister of Intelligence Heydar Moslehi dealt out some more tough talk on Thursday in a TV interview: "The Intelligence Ministry has obtained good clues in respect to the elements who had a role in the recent riots. This unrest is different from that of the past and is a prearranged counter-revolutionary movement, designed by agents of sedition."

1005 GMT: Going after Sane'i? More possible evidence that the regime sees Ayatollah Yusuf Sane'i as a religious and political threat: a video and photos of claimed attacks on his residence and his office in Kerman have been posted.

0945 GMT: Rah-e-Sabz reports that 210 students of Azad University of Mashhad have been arrested after Wednesday's demonstration and clashes with security forces.

0940 GMT: However, in Mashhad.... Nothing low-key about yet another public declaration by Speaker of Parliament Ali Larijani. Speaking before Friday Prayers in Mashhad, he once again brought out all the themes of the Iranian regime defending the nations by smacking down the "hypocrites", backed by foreign powers, who demonstrated on Ashura.

0935 GMT: We're Gonna Get Ya. The deputy head of Iran's judiciary, Ebrahim Raeesi, has introduced Tehran Friday Prayers with yet another warning that protesters will be dealt with firmly. Hardly a surprising line, and one wonders --- given that Raeesi is not one of the most prominent players in the regime --- whether this is a relatively low-key finger-wagging despite its current first-story status for the Islamic Republic News Agency.

0855 GMT: The Changing Importance of the Story. The elevation of Iran in Western media can be measured by the quick attention given to Mir Hossein Mousavi's statement (see 0745 GMT)declaring his readiness for martyrdom and proposing a 5-stage resolution for post-election conflict. The BBC website features the story as "Breaking News", and The Washington Post, carrying the Associated Press report, highlights that Mousavi is "defiant after new threats". Reuters announces that Mousavi has declared Iran is in "serious crisis"; The New York Times quickly prints the report.

0835 GMT: We Do Information, You Do Propaganda. No comment necessary, I think, on this article from Press TV:

The Islamic Republic of Iran Broadcasting (IRIB) has launched a satellite channel to respond to the subliminal psychological programming of western media. The international channel Sahar Universal Network 2, which was launched on Thursday, December 31, 2009, aims to show Iranian society as it really is, and effectively combat western manipulation of media which distorts events, censoring and misrepresenting them.

It aspires to confront the influence of non-Islamic culture in the Muslim world and reveal the hegemonic policies of the great powers, which wish to dominate the peoples and nations of the world. Sahar Universal Network 2 seeks to introduce the rich culture of Islam, as well as political, cultural, social and economic advances made by the Islamic Republic of Iran.

0745 GMT: A weekend Friday has started quietly in Iran, as the country continues to wind down from the drama of Moharram's last two weeks. EA's Mr Smith takes advantage of the lull to offer Part 1 of a special review, ""2009's Year of Living Dangerously".

There could be some political noise later, however. Mir Hossein Mousavi has issued his first statement after Sunday's Ashura demonstrations. Criticizing the brutal confrontation of the Government’s forces with the mourning nation of Iran, Mousavi offers a five-stage resolution.

Mousavi's stages are 1) the acceptance by the administration, the Parliament. and the judiciary of direct responsibility for recent events, 2) a transparent law for elections that can create public trust, 3) release of political prisoners restoring their dignity and honour, 4) recognition of the freedom of press and media, and 5) confirmation of the people’s right of legal demonstrations.

Without singling out the martyrdom of his nephew on Ashura, Mousavi reiterates that he has no fear of becoming a martyr in the people's quest for their legitimate religious and political demands. He declares that any order for the execution, murder, or imprisonment of Mousavi, Mehdi Karoubi Mousavi, or other prominent reformists will not solve Iran's problems.

We watch to see if Tehran's Friday Prayers, led by Ayatollah Jannati, the head of the Guardian Council, bring a significant show of support for the regime to follow Wednesday's rally. Meanwhile Ayatollah Javadi-Amoli has issued a statement on the events of Ashura, expressing his sorrow and concern over violence involving police against protesters. Javadi-Amoli said it was essential that while those who were breaking the law were dealt with, while those were demonstrating peacefully should not be treated justly.