The mere possibility that Iran might try to force the issue was enough for President Bush to warn Teheran last week against a military move into Iraq. Iran is already involved in the uprising, albeit to a limited extent. NEWSWEEK has learned that at least some Iranian Revolutionary Guards have been infiltrated into southern Iraq along with truckloads of small arms. Teheran has also allowed Iraqi rebel units based in Iran to return home to join the uprising, but denies it is supplying them with fresh weapons and ammunition. At Khorramshahr, an Iranian border city reduced to rubble during the Iran-Iraq War, trucks carry food and medicine into opposition-held Iraqi territory. Ambulances race toward Iranian hospitals carrying wounded Iraqi mujahedin, and armed Iraqis stand guard at the city library - now a headquarters for the Supreme Assembly of the Islamic Revolution, an umbrella group of anti-Saddam Shiites.

But fears of a militant Islamic government in Baghdad may be misguided - or at least premature. The Teheran-based leader of the Supreme Assembly, Ayatollah Muhammad Bakr al-Hakim, who says he seeks not a fundamentalist regime but only free elections to decide Iraq’s political future, is one of dozens of potential Iraqi leaders. “Mr. Hakim heads just one group fighting Saddam Hussein,” says Iranian Deputy Foreign Minister Abbas Maleki. “There are others more numerous and stronger.” President Ali Akbar Hashemi Rafsanjani has urged Saddam to “submit to the will of the people,” but he has also urged all political groups in Iraq to work together. “Iran wants a friendly government in Iraq, Islamic or not,” says Hooshmand Mirfakhraei, a strategic analyst at the Center for Political and International Studies in Teheran. The hope is for a government that is sympathetic to Iran, but also able to hold the country together.

Iran has as much to lose as to gain from the chaos across the border. A power vacuum in Baghdad could draw neighboring countries and their vast arms supplies into the turmoil. Rebellious Iraqi Kurds could start a war for an independent state, touching off similar demands among the Kurdish populations of Iran, Syria and Turkey. “If Lebanonization starts and the Kurds get the upper hand,” says Hossein Nosrat, a senior editor at the Islamic Republic News Agency, “it means trouble for Iran, too.”

This is a particularly bad time for Iran to contemplate an unstable western border. A dozen years of revolutionary fervor and an eight-year war have left Iran’s economy a shambles. By 1989 Iranian industry was producing at one third its capacity and per capita income had declined by about 50 percent from the previous decade. Rafsanjani, leader of the so-called pragmatist camp in Teheran, needs foreign investment and know-how to rebuild the country. For that, he needs to break Iran’s international isolation.

Rafsanjani has already made diplomatic inroads in Europe and the Middle East. An Iranian embassy will soon open in Amman, and Cairo and Teheran have agreed to re-establish interest sections. Britain reopened diplomatic relations with Iran in September, and last week another hurdle may have been surmounted when Mehrdad Kokabi, an Iranian student imprisoned in connection with a series of bomb attacks in Britain, was released and deported. The Teheran Times newspaper, which often reflects the views of Iran’s Foreign Ministry, reported that Iran would likely “respond positively and make a return gesture,” perhaps the release of British businessman Roger Cooper, held in Iran on espionage charges since 1985. Even rapprochement with the Great Satan seems possible. The Bush administration sent word to Teheran earlier this year that it is willing to discuss normalization of relations. As a result of Iran’s “good behavior” during the gulf war, said an administration official, “we just think it’s time to talk.” Teheran has not yet responded.

Iran’s credibility got its greatest boost from Rafsanjani’s stance on the gulf war. Rafsanjani rebuffed radicals in Teheran clamoring to join Iraq in a jihad against Western forces in the gulf, and maintained Iran’s neutrality throughout. Even now, Teheran seems unready to return the jet fighters Iraqi pilots flew to safe harbor in Iran; one official said they would discuss the issue only after “the Iraqi people” decided the future of their government. As expected, the position won praise from both the West and the Arab gulf countries. But Rafsanjani wants more than benediction: he seeks a central role in postwar security and economic arrangements for the region. Beyond extending Iran’s political clout, cooperation with the Arab gulf states would open lucrative markets to Iranian businessmen, increase Arab investment in Iran, and cold give Iran more weight in OPEC, the oil cartel.

Arab gulf states are still mindful of previous Iranian attempts to undermine their regimes. Their strategy is to placate Iran, while still keeping it at a safe distance. In a crunch, they look to Egypt and Syria for protection. For his part, Rafsanjani has been trying to reassure the gulf sheiks, declaring recently that “it’s not good policy to frighten our neighbors.” Governments, he said, “can discuss their difference, and logic and reason can prevail.” Moderates in Iran reason that if Rafsanjani is not awarded a role in the postwar gulf, Washington and its Arab friends will provoke the Iran they fear most: a cornered country that will try to force its revolution on others.