His first move? That’s expected to be the replacement of a number of cabinet members-especially the ministers of finance and education-with more reform-minded ministers. Khatami is also likely to set up investigative committees to look into breaches of the law by conservative-dominated bodies such as the judiciary and national radio and television.

The first sign of this new approach came a few days after the election, when Khatami’s office, which traditionally does not react to public criticism, published a letter in the local press by a pro-conservative citizen in which she called the president a hypocrite and complained about the allegedly loose morality of Khatami’s supporters.

In a lengthy reply, which was published by every newspaper in Iran, Khatami told the writer that his goal is to create a safe environment for all citizens of Iran whether they were Muslims or not. He then explicitly criticized hard-line opponents who had imprisoned or killed his allies in the name of Islam, calling them “financially corrupt and criminal bands that defame people and murder them through institutions which are supposed to protect the security of the society.”

Unlike his first term, when he tried to create a consensus among different groups to avoid violence and solve their problems within the framework of the law, Khatami’s next term in office will be dedicated to carrying out his four-year-old promises of reforms like upholding the rule of law and establishing guarantees of personal security and free speech.

In his address to the nation after the elections, Khatami emphasized “patience, moderation and prudence” as his main slogans, but acknowledged that the Iranian nation “is resolute in its just demands and expects the government and the system to take greater steps to fulfill them.” Khatami knows that ignoring or betraying popular sentiment will not only undermine his government, but the whole Islamic regime of which he is a part. “Until we have a real democracy in [power] we cannot solve any of our social or economic problems,” Reza Khatami, the president’s brother and the deputy speaker of the parliament, told NEWSWEEK. “If we have poverty, discrimination and corruption it’s because we don’t have civil institutions and independent press which can criticize the power in our country.”

In fact, the biggest success of Khatami’s first four years in office may have been gaining the trust of the majority of Iranians and convincing them that they can only achieve lasting freedom through a democracy that operates within an Islamic framework. “Khatami’s the leader we can understand and trust,” says Akbar Dehghan, a cab driver who displays a small picture of his president next to the fuzzy dice in his taxi. “We know that he’s doing his best, and he’s not lying to us.”

In a country that has been ruled by autocratic masters for thousands of years, this level of trust for a leader is a great achievement. The enduring sense of hope that Iranians seem to share with Khatami doesn’t come out in street demonstrations, but in the conversations of ordinary people in the bazaar, in their offices, and in shared taxis and buses. There is talk, to be sure, about rising prices and the troubled economy-but nobody seems to blame Khatami for those.

Still, Khatami faces huge challenges in winning over the hard-line bureaucrats who wield some of the real power in the country. These include judges who have shut down newspapers and imprisoned reformers; the foundations that control more than 50 percent of economic activities in Iran, and the Council of Guardians, which supervises elections and the parliament.

At the same time, Khatami has to calm the reformist radicals who want more rapid changes-and who constantly risk clashes with the conservatives determined to remind Khatami that while he may be president, it is supreme leader Ali Khamenei who wields the real power in the country.

So far, Khatami has managed to tread the fine line between reining in his more radical supporters while somehow controlling hard-line vigilantes. Still, they are a threat that cannot be dismissed. Just a week after the election a group calling themselves Ansar Hizbollah (Soldiers of the Party of God) attacked a ceremony where Reza Khatami was delivering a speech. As the president’s brother was asking the government to “understand those who did not take part in the elections,” the Hizbollah attacked young reformers with knives and brass knuckles.

These isolated and desperate acts of violence may show that the hard-liners have, in fact, been marginalized. Indeed, moderate conservatives have already started talks with the reformists. “I think the elders of both camps are trying to ostracize the radicals,” says Taha Hashemi, a conservative cleric and newspaper publisher who predicts that moderates from both sides will unite in the next four years. “We cannot hear the voice of the majority at the moment because everything revolves around the extremists.”

“I foresee difficult days ahead,” Reza Khatami agrees. “But there are signs that they [the conservatives] have understood the people’s message and will consider our nation’s hopes and aspirations in their future actions. We see that, unlike a few years ago they bring forward a legal [justification] for anything they do these days.”

For Iranians who have lived through centuries of despotism, even these modest achievements feel like victories. “Iran has changed considerably over the past four years and continues to do so,” says Suzanne Maloney, a specialist in Iran-U.S. relations at the Brookings Institution in Washington. Many here, however are frustrated by the lack of outside understanding for their slow rate of change. “Democratic countries experienced what we are going through decades and centuries ago,” says Khatami’s chief of staff, Mohammad Ali Abtahi. “These are the first steps for us.”

While reformist Iranians ponder how to pick up the pace, U.S. analysts are divided over how-and when-to reward the country by improving relations and lifting sanctions. Former secretary of State Henry Kissinger argues in his new book “Does America Need a Foreign Policy?” that unilateral concessions of any magnitude toward Iran are much more likely to reinforce intransigence than to moderate it. But Kissinger’s former deputy, Brent Scowcroft, argued in a recent Washington Post article that sanctions are counterproductive. “Far from being a sign of weakness,” says Scowcroft, “an unrequited gesture by the United States might encourage the forces of moderation at this key moment.” And moderation, after all, is what the people of Iran chose when they re-elected Khatami.