By Kim Ghattas
BBC News, Washington
Many in Iran's urban middle-class are behind Mousavi
The White House has so far resisted calls to speak out more forcefully in support of Iranian demonstrators and shelve plans for a dialogue with Iran's leadership.
But as reports of violent clashes between demonstrators and the feared Basij paramilitary forces emerged from Tehran, US officials said that a large-scale crackdown would change the tenor of statements coming out Washington.
Analysts and diplomats in the US have been exploring how President Barack Obama's offer of engagement, combined with internal Iranian factors, may have contributed to the dynamic of events unfolding inside Iran.
Over the weekend, President Obama upped the ante ever so slightly as he warned Iran's leaders that the world was watching.
"How they approach and deal with people who are, through peaceful means, trying to be heard will, I think, send a pretty clear signal to the international community about what Iran is and is not," said Mr Obama in an interview with the CBS network on Friday.
In a statement on Saturday he added: "We call on the Iranian government to stop all violent and unjust actions against its own people."
Despite some debate within the administration and vocal criticism of President Obama by Republicans accusing him of being weak for failing to taking a strong moral stand, there is generally a sense the White House has chosen the right tone so far - one it has carefully developed based on close consultations with Iran experts, inside and outside the administration.
The challenge has been threefold:
- keeping faith with the hundreds of thousands of Iranians who have taken to the streets without undermining their credibility in a country where the US is routinely called the "great Satan"
- condemning the violence used to quell the protesters without cutting off all chances of talks with Iran should the current leadership remain in power
- maintaining a cautious tone in referring to the protesters without ending up on the wrong side of history should the opposition emerge on top at the end of the struggle
The measured approach and offer of talks, which was repeated this week, may have also been highly unnerving for Iran's hardliners, who are more used to hostility from the West and whose positions were solidified during the Bush administration, which included Iran in the "axis of evil".
"In offering negotiation and conciliation, [President Obama] has put the region's extremists on the defensive," wrote Senator John Kerry in the New York Times on Thursday.
Mr Kerry, a Massachusetts Democrat and former presidential candidate, now chairs the Senate's Foreign Relations Committee.
While events unfolded slowly, Mr Kerry cautioned the administration against voicing strong support for the demonstrators or tougher condemnation of President Mahmoud Ahmadinejad.
"Returning to harsh criticism now would only erase this progress, empower hardliners in Iran who want to see negotiations fail and undercut those who have risen up in support of a better relationship," added Mr Kerry.
State department official Phillip Crowley said the offer of engagement appeared to have contributed to the dynamic of events in Iran even though "the debate is mostly among Iranians and about the future of Iran".
"The offer of engagement by the president helped start a debate in Iran that was perhaps more robust than the Iranian government anticipated," he said.
"In the midst of this debate, it would appear the government overreacted and the results of the election have lacked credibility in the eyes of the Iranian people."
The US administration has been at pains to stress that the crisis in Iran is a domestic one and that it is up to the Iranians to decide who they want as their leaders.
And indeed, as they took to the streets, thousands of Iranians released years of pent-up frustrations and voiced their opposition to another Ahmadinejad presidency, angered by the last four years of worsening economic crisis, mismanagement, severe clamping down on social freedoms and increasing international isolation.
But many Iranians had also been hoping their country would have a more conciliatory president at the helm to capitalise on the opportunity presented by President Obama's overtures.
Meanwhile analysts and Western diplomats say hardliners were probably working to ensure they remained the sole interlocutors with the outside world.
Ayatollah Ali Khamenei is thought to be averse to open confrontation with the West, while at the same reluctant to engage openly, especially with the US.
"I believe that Ahmadinejad and his entourage had been preparing this coup from within anyway, consolidating their power over the last four years," said an Iranian-American journalist who wishes to remain anonymous to avoid reprisal during future travels to Iran.
"But the Obama offer for a dialogue also played a role."
Authoritarian regimes often use outside threats, real or perceived, to rally their people around and silence internal dissent.
President Ahmadinejad's core appeal as the man defending Iran and standing up to the West was suddenly undermined by Washington's repeated calls for dialogue and gestures such as President Obama's message for Iranian New Year and invitations to Iranian diplomats to attend 4 July celebrations held by US embassies around the world.
''Whereas the Bush administration united Iran's disparate political factions against a common threat, Obama's overtures have accentuated the deep divisions and incongruities among Iran's political elites,'' said Karim Sadjadpour, an Iran expert at the Carnegie Endowment for International Peace.
The Iranian-American journalist added that the offer had "made Ayatollah Ali Khamenei nervous. He had felt vulnerable when [reformist] President Mohammed Khatami was in power and wanted to make sure he remained fully in control of managing relations with the West".
In this analysis, the elections were blatantly rigged.
Intent on preserving the status quo of a tandem between the supreme leader and a hardline president, the regime produced what it thought were sure-fire results.
"[Ayatollah Khamenei] miscalculated," says Mr Sadjadpour.
"Political, economic, and social malaise had been brewing for many years and this 'selection' was for many people the last straw."
In a letter to Iran's top legislative body, the Guardian Council, opposition candidate Mir Hossein Mousavi on Saturday accused the regime of planning the election rigging months in advance and he again called for the cancellation of the results.
Ironically, the supreme leader now finds himself faced with a "green revolution" just as Washington stopped calling for regime change in Iran.
So, although the outcome of the Iranian power struggle remains unclear, the unintended and indirect consequence of President Obama's offer for dialogue may be to have succeeded where threats had previously failed - seriously rattling Iran's hardline clerical establishment.
Engagement itself however will now probably have to be put on hold.