The two most pressing foreign policy problems for the Bush administration in 2006—indeed, they might be called twin crises—are, first, the unraveling of Iraq and the emergence of a theocracy in Baghdad under the control of the Shiite religious parties, and second, the serious (though somewhat overblown and artificial) showdown that is looming over Iran's alleged nuclear program. Not surprisingly, the crises in Iraq and Iran are closely related, not least because Iran's ruling clergy is closely allied to the theocrats in Baghdad.

Handled expertly, both crises might be defused. The war in Iraq could end, meaning that by the end of 2006 the United States could be out of Iraq, leaving behind a unitary state with a semblance of political stability. And the crisis in Iran might be resolved, in the form of a package deal giving broad political and economic concessions to Iran, in exchange for Tehran's agreement to end its nuclear program and accept a Russian-led compromise arrangement.

Handled clumsily, the two crises will become one. Iraq will break up, leaving a majority Shiite-led theocracy (with nearly all of Iraq's oil) in place in southern and eastern Iraq. That regime would align itself closely with Iran, forming a fundamentalist Iran-Iraq axis that would assume an increasingly anti-American (and anti-Saudi) character. Were that to happen, or if the Bush administration's hawks decide to preempt it, the United States will find itself at the end of 2006 fighting a mostly Sunni, Baathist-led insurgency in western Iraq while simultaneously battling a formidable Shiite Iraq-Iran partnership to the east.

Based on its track record, we can count on the Bush administration to take the path of unfettered clumsiness.

On Iran, there are dangerous rumblings that the United States and Israel, possibly in coordination with NATO and other regional powers, are preparing military strikes against Iran's nuclear facilities. Over the past few days, various news reports (in newspapers in Germany, along with Israel's Haaretz and the Jerusalem Post ) reported that Washington is consulting with NATO, Turkey, Pakistan, Jordan and Oman about an assault on Iran's nuclear installations. In Israel, too, top officials have issued rather alarmist warnings over the past few days that Iran will soon reach the point of no return in its quest for a nuclear weapon, while asserting that Israel has no intention of attacking Iran.

The White House continues to argue that Iran is backing Iraq's insurgency, that Iran is a key state sponsor of world terrorism and that Iran harbors Al Qaeda officials. And, according to The New York Times, the United States has imposed unilateral sanctions on Chinese, Indian and Austrian companies accused of arming Iran, an action that could torpedo efforts to solve the Iran crisis peacefully. Noted the Times : "New U.S. sanctions against nine foreign companies accused of aiding Iran's weapons programs could signal a harder line toward Tehran by the Bush administration and could hinder diplomatic efforts by Europe to end the standoff over Iran's nuclear program, EU officials and analysts said Wednesday."

At this stage, it's likely that talk of attacking Iran is just saber-rattling, since such an attack would have incalculable, destabilizing repercussions throughout the region, and among them would be an all-out Iranian effort to overthrow the U.S. mission in Iraq. And an attack on Iran would be strongly opposed by Russia, China, India and most of Europe and the Arab world. But neoconservatives in the United States, and co-thinkers in Israel (notably, Benjamin Netanyahu of the Likud bloc and his allies in the military), undoubtedly are looking for an opening to press for an attack on Iran. And fueling the fire is the bombastic rhetoric from Iran's President Ahmadinejad questioning whether the Jewish Holocaust happened and suggesting Israel be "wiped off the map." In an environment so volatile, it is foolish to dismiss the possibility of a U.S. or Israeli attack on Iran sometime in 2006.

It would be wrong to take comfort in the idea that the Bush administration neocons are contained or weakened and that realists and cooler heads such as Secretary of State Rice are in control. Perhaps, at the moment, the State Department's realists have the upper hand. But that could change in a flash—after, say another major terrorist incident or some bungling provocation by Iran's admittedly unstable, even deranged leadership.

So what does this mean for Iraq?

In Iraq, Iran's cat's-paws—namely, the Supreme Council for the Islamic Revolution in Iraq, its paramilitary Badr Brigade, the Al Dawa party of Prime Minister Jaafari, and, to some extent, the forces of Muqtada Sadr's Mahdi Army—are in control. They can cement their alliance with the Kurds (who, like the Shiite religious parties) want virtual independence (under the guise of federalist "autonomy") by refusing to amend Iraq's absurd and dangerously divisive constitution to meet Sunni concerns. Since the Dec. 15 election, Shiites and Kurds have been busy putting together a government that excludes the Sunnis.

And for their part, the Sunnis have accused the Shiites of rigging the vote, and have organized demonstrations of tens of thousands of people to denounce the Dec. 15 result, meanwhile accusing the Shiite militias of death squad activity, torture and even a hit list targeting many prominent Sunni moderates and secular Shiite politicians. At least five Shiite-run torture prisons have been uncovered thus far. And there are signs, reported by Knight Ridder's Tom Lasseter, that the Kurds are preparing a blitzkrieg to seize control of oil-rich Kirkuk province and add it to their fiefdom.

Ambassador Khalilzad is scrambling in an effort to force the Shiites and Kurds to make broad concessions to the Sunnis and to include both Sunni and secular Shiite leaders in the new government coalition. But I suspect he will have little or no success. Those few Sunnis who decide to join the regime—and who are in turn allowed to join by the Shiite mafia—will immediately become targets of the resistance fighters. And the Shiites are not making it any easier. In the latest provocation, the Iraqi election commission unilaterally decided that more than a hundred Iraqis who ran for election on Dec. 15, many of whom were actually elected, are ineligible to serve because they have alleged ties to the Iraqi Baath Party.

So, despite the last-minute (and apparently desperate) efforts by Khalilzad, it seems likely that the new (permanent) Iraqi government that is formed sometime in the next month or so will be overwhelmingly dominated by SCIRI, Dawa and the Mahdi Army. If so, it will adopt an increasingly pro-Iranian character.

For the United States, that means that either Washington will have to accept a pro-Iran regime in Baghdad or opt to confront it. And confronting it means challenging both the Shiite religious parties in Iraq (ironically, Washington's own creation) and, at the same time, taking on Iran. Such a confrontation would be made immensely worse were the United States or Israel to attack Iran's nuclear plants, since that would solidify the Iran-Iraq axis, strengthen the ultra hardliners in Iran's ruling elite, and give this rising new Shiite power enormous credibility in the region. In other words, rather than a retreat from Iraq, the United States would be drawn into a wider conflict.

As of now, the U.S. military—undoubtedly disgusted with the neocons and their bungled war in Iraq—is quietly angling for a drawdown of American forces in Iraq as part of a slow-motion, undeclared exit strategy.  No doubt, some of President Bush's political advisers would prefer to see the same, in the hopes that voters would stop blaming Bush for the debacle in Iraq. But the Trotskyite, permanent-revolution neoconservatives won't be having any of that. Maybe those neocons will in the end be no more than a speed bump on the exit road from Iraq. But it would be wrong to count them out.

Meanwhile, there are few signs that the United States has any intention of doing the one thing most necessary to get out of Iraq while leaving that battered country relatively intact—namely, negotiating a truce with the Baathists, the ex-military and the rest of the non-Al Qaeda resistance. Aside from a few fits and starts, hints of talks and some field operations, the United States appears unwilling to risk a break with the SCIRI-led bloc by stating its intention to bring the resistance into a deal. Khalilzad seems not to realize that a handful of unrepresentative Sunnis, or a party such as the Sunni, Muslim Brotherhood-linked Iraqi Islamic Party, cannot deliver the Sunni population. Indeed, in ongoing talks with the Sunni but non-Arab Kurds, the IPP has seemingly abandoned the rest of the Sunni bloc to hint that it is ready to join the majority Shiite religious government.

As a result, the prognosis for Iraq is a continuing insurgency, a new Iraqi government that leans toward Iran and a regime in Iran unified around the notion of pursuing its nuclear option. So the questions that remain are: Will Iraq, only, get worse in 2006? Or will that include Iran, too?