In the May 2005 issue of GQ, which I’m “borrowing” from my neighbor, Joshua Kurlantzick reports on the rollup to war against Iran. Seymour Hersh reported in January that military action may take the form of airstrikes or a US-intelligence-backed coup, and Kurlantzick's story confirms that assessment and adds much in the way of neoconservative-Pentagon as well as diplomatic context. The story's also paired with an interview with president Mohammad Khatami, from which I quoted earlier. Here's the knockout paragraph, which will no doubt be ignored:
Despite the administration’s lip service in support of European diplomacy, the hardliners’ plan also requires the scuttling of any deals with the ruling mullahs that the Europeans put on the table. According to one State Department official I recently spoke with, when Tim Guldimann, then Swiss ambassador to Iran (who served as the link between the United States and Iran), came to Washington in the spring of 2003, he brought with him a possible offer from Tehran—a “grand bargain” in which the United States would open relations with Iran and, in return, Iran would give up its nuclear-enrichment program. “The Pentagon and the National Security Council learned about it,” the State Department official told me. “There was no hashing this out. They said, ‘No, no discussion on this.’ That was it.”(Emphasis mine.)
You read that correctly. The Bush administration balked at the chance to end the standoff with Iran and ensure that they abandoned their uranium-enrichment program. The reason why is clear.
UPDATE: After reading an article on Iran and oil by Michael Klare, a professor of peace and world security studies at Hampshire College, I sent him the above-quoted paragraph from GQ. His response is below.
...[I] find this report [of the Bush administration killing a possible deal, as cited above] highly credible. However, that was in 2003, before the outbreak of the insurgency in Iraq and the ensuring quagmire, so today the situation may be a bit different - Bush might favor a solution that can be viewed as a victory if it avoids another debilitating war.
UPDATE: Here's Kurlantzick's article in HTML. The PDF (2.76mb) is here.