Here are the things I think I know about Iran.
Iran has a legitimate need for nuclear energy, because even though it has oil resources, it's not enough for true economic independence.
The Iranian regime at present sees acquiring nuclear weapons as a means of survival - an attitude that is not helped by the facts on the ground (see map, via Needlenose). The Iranian public is strongly nationalistic and sees nuclear weapons as a national point of pride, just as India and Pakistan did.
China and Iran are developing close economic ties. Iran will sell gas to China for 25 years. China will be allowed to develop oil resources in the Persian Gulf. The EU meanwhile is offering Iran a nice deal on economic incentives in return for a freeze on uranium enrichment.
A mock wargaming excercise sponsored by The Atlantic Monthly and run by some retired military and intelligence types concluded that Iran will likely develop nuclear weapons, and that a full-scale preventive invasion is not really feasible (even assuming no budget or resources allocated for post-war policing). Airstrikes by Israel analogous to the Osirak reactor bombing in Iraq are not going to work, the Iranian program is decentralized and underground.
That's what we know. So what should we do? Here's my take.
Iran is building economic ties to the EU and China - and the carrot of nuclear power is one we can wave to get on board and compete for that market. The only reason the mullahs are likely to pursue nuclear power is because of perceived threat from America - but if we become an economic partner (and compete with China and the EU) then the incentive for nukes lessens.
Despite boilerplate mullah rhetoric, I don't think that a nuclear Iran would be suicidal enough to attack Israel. Mutually assured destruction, after all. Why would the Iranian regime be so interested in long-term economic alliances if they were really intent on all-out armageddon? I wouldn't be surprised if Iran simply copies Israel's own "strategic denial" policy on nuke capabilities.
I think that N. Korea is the country that we must stop at all costs from acdquiring nukes, because it's far more unstable (and irrational) leadership.
The best thing that can happen is for Iran to succeed in building economic ties to the West. That will lead to a middle class, increase in per-capita GDP, and quality of life. The mullahcracy will stay in power but be forced to incrementally liberalize, in much the same way that China is doing. In many ways the analogy is a close one between the two, and their close relationship only underscores the likelihood that the mullahs will see economic liberalization as the key to maintaing power without descending into North Korea-esque disaster. The Iranian theocracy is much more reality-based, and the enormous youth population virtually guarantees that some accomodation has to be made on their part.
In other words, we should at the very least do nothing. At the very most, we should actively engage Iran with trade (there's a huge population of youth there hungry for our blue jeans and sneakers!), hold Iran accountable to its promises and IAEA oversight (already much more stringent than anything Iraq agreed to), and help Iran with its energy crisis (as Kerry proposed during the campaign). And of course, military containment of Iran should continue - though with a non-threatening posture, so that the nuke incentive remains low.
Iran, like China, is a civilization in its own right - and liberal freedom is likely going to precede democracy there. Unless we intervene militarily as we did in Iraq.
ADDENDUM. Note that Kenneth Pollack's new book on Iran makes much the same general recommendations (though in a more roundabout way). Praktike summarizes Pollack's prescription as follows: 1. Hold Open the Prospect of the Grand Bargain, 2. A True Carrot-and-Stick Approach, and 3. Preparing for a New Containment Regime.