It had been billed as "the second wave of reform" and an end to "despotism." But when it ended earlier this week, the congress of the Islamic Iran Participation Front (IIPF) was unable even to issue a communiqué. Four days later, a brief statement was circulated, emphasizing the IIPF’s "unbending loyalty to the Islamic system."

The IIPF, which holds 88 of the 290 seats in the Islamic Majlis (parliament), is the principal organization supporting President Muhammad Khatami. The president’s brother Muhamamd Reza is secretary-general while half a dozen close relatives sit on the Executive Council. The IIPF had threatened that if the unelected organs of the state blocked its reform project, it would withdraw from both the Islamic Majlis and the Cabinet where it has six members.

Few people claim to have seen the reform project in question and even fewer are prepared to talk about it. But some tantalizing hints have come from Karim Arghandehpour, the IIPF’s spokesman. "The project envisaged measures to alter the balance of power in favor of the elected organs," Arghandehpour has said. Translated into plain language, this means preventing the unelected supreme guide and the various councils that he appoints from vetoing legislation proposed by the elected president and approved by the elected parliament.

Khatami blames unelected organs for his failure to introduce reforms that he first promised in 1997. The "reform project" was also expected to include a call for a public debate on relations with the United States with a view to opening a dialogue with Washington.

Why was the mysterious reform project withdrawn at the last minute?

One reason may have been the statement issued by the Islamic Revolutionary Guard that warned against "using reform as a smokescreen for treason." The paramilitary force, a veritable parallel army, has strongly sided with the Supreme Guide Ali Khamenei who has the final say on all issues within the constitution.

Reducing his powers would require a constitutional amendment. And that is what the IIPF congress was expected to propose. Calls for constitutional change first came from students who demonstrated in half-a-dozen cities earlier this month. These were echoed by a number of prominent mullas including Grand Ayatollah Hussein-Ali Montazeri and Ayatollah Jalaleddin Taheri.

Arghandehpour says that the IIPF had hoped "to reform the system from within". The alternative, he says, is "popular uprising." The system is blocked, he says. "To unblock it, we have to respond to the people’s demands. If we fail to do so within the system, anything could happen."

Tahmasp Mazaheri, the pro-reform minister of economy, has also expressed the view that the system is blocked. "Nothing can be done to turn our economy around as long as we avoid the hard decisions," he said at a press conference this week. "Such decisions cannot be taken rationally in the context of factional feuds."

Draft laws on property ownership, foreign investment and a gradual end to subsidies that the state can no longer finance are blocked within the system along with a new labor code and an ambitious privatization program. A plan to bring the so-called "foundations", which control almost 40 percent of the national economy, under some government supervision, has been vetoed by the supreme guide.

Mazaheri has revealed that Iran’s oil production, the source of 85 percent of the state’s foreign revenues, dropped by six percent in the past 12 months with no prospects of an early reversal of the trend. Part of the decline in production is due to a series of strikes that have crippled some oilfields since last February. Workers have also gone on strike at the nation’s largest gas refinery at Aghajari and the petrochemical complex at Mahshahr, on the Gulf.

Iran is still far from the "popular uprising" about which Arghandehpour has warned. But there is no doubt that the mood of revolt is spreading. Government-appointed mullas who acted as political-religious commissars have been expelled from many factories and workshops while unofficial trade unions have emerged to lead strikes in a number of cities including Arak, Alborz and Asfrayen. A workers’ strike at Sarcheshmeh last May brought most of the nation’s copper production to a halt. In some cases, the strikes are led by opposition mullas who believe that the mixing of religious and politics is detrimental to the future of Islam in Iran. Opposition mullas are preparing to lead popular marches in the holy cities of Qom and Mashhad at the end of the summer.

The next few months could prove crucial for the future of the reform movement in Iran. What seems certain is that Khatami’s promise of reforming the system from within has hit a wall. "We are now certain that we are going nowhere with Khatami," says Mehdi Rahmani, a businessman and an early supporter of the president. "Khatami may have had good intentions. But by exposing the system’s inability to change, he has led the nation to the brink of insurrection."

One slogan at a recent demonstration in Quchan said it all: "Khatami’s reform plan is dead, long live the people’s reform movement."