It was shortly after the bipartisan Iraq Study Group issued its recommendations to Congress in late 2006 that a directive came down from the highest levels of the Pentagon: an order for another war game involving Iran.

The study group had proposed that the Bush administration engage in direct diplomatic talks with its nemesis, a nation that Washington says supports terrorism, encourages attacks on U.S. troops in Iraq, and, most ominously, is developing nuclear weapons. The Chairman of the Joint Chiefs of Staff at the time, Gen. Peter Pace, asked the Defense Department's top war gamers to construct a scenario to be played out in early 2007. "We postulated that the president of the United States actually took the advice of the Iraq Study Group seriously and tried to engage diplomatically with Iran," says one defense analyst who took part.

Talks stall. There may be few greater symbols, senior officials point out, than the nation's military gaming diplomacy to illustrate the Pentagon's wariness of war with Iran. Such a conflict remains among the options "on the table," as President Bush reiterated in July, if Iran continues its nuclear program. The alternative approach, the European-led multilateral talks with Iran, stalled this month after the deadline expired on yet an-other offer of economic incentives. Iranian President Mahmoud Ahmadinejad vowed that his country would not surrender its "nuclear rights" in the face of U.S. and European demands to halt uranium enrichment, the process that produces fuel for generating electricity and making nuclear bombs. He has also threatened to shut down the Strait of Hormuz, the strategic waterway through which some 40 percent of the world's oil passes, in the event of any American military attack.

In the wake of these events, the Bush administration expressed its exasperation. "In case he hasn't noticed," White House Press Secretary Dana Perino quipped, "we are trying to talk to them."

The Pentagon has noticed, well aware that the White House is capable of doing more than throwing up its hands in frustration. Military leaders recognize the precarious ambiguity of America's red line with Iran—and that of Israel, which says Iran's nuclear program poses an "existential threat." Mindful of these dynamics and engaged in wars on two fronts, there have been few greater proponents for U.S. diplomatic overtures than the Department of Defense.

Since taking over as chairman of the Joint Chiefs of Staff last year, Adm. Mike Mullen has repeatedly warned—often quite publicly—that military action against Iran, though possible, would be "extremely stressing" for an already overstretched U.S. military. "I'm fighting two wars, and I don't need a third one," Mullen said recently. "There's a real danger of any strike not only causing more instability in the region than there already is," adds a senior military official, "but of actually having the opposite effect of what you want." Secretary of Defense Robert Gates has also weighed in against action, noting recently that it would be "disastrous on a number of levels."

The forthrightness on the part of the top two American defense officials has fed speculation that this is pushback against those within the Bush administration—Vice President Dick Cheney's name often comes up here—who might be inclined to open up a third front for U.S. forces with a strike against Iran. In light of the Iraq experience, "generals are more willing to push back against things they think are stupid, and Gates is more willing to listen," says Andrew Bacevich, professor of international relations at Boston University. "Mullen isn't just saying these things for our benefit—I think it is a real effort to communicate with the civilian leadership."

Or the Pentagon brass is simply stating the obvious, as some senior officials contend, mindful that the final word comes from the White House. "There are lots of opinions about where we're headed with Iran and a lot of healthy discussion" in the administration, says the senior military official. "But to set the debate along the lines of 'to bomb or not to bomb' isn't a fair characterization." Says Pentagon spokesman Geoff Morrell, "The views the secretary has expressed on this issue are entirely his own, and they are entirely consistent with his colleagues in the administration."

The widely held view within the Pentagon is that any military strike on Iran would be a dangerous, highly complicated undertaking. "There's a lot about Iran that we still just don't understand," says the senior military official. "They are very, very hard to predict." Adds the defense analyst, "A lot of generals are saying, 'Are you sure you really want to do this? Are the gains worth the risk?' "

Shadow games. In scenarios routinely war-gamed by the Pentagon, the recurring answer tends to be no. The risks are considerable, and these shadow games—conceptual exercises intended to test out ideas—often end badly for the U.S. side. "In so many scenarios, it's a nightmare," says Bruce Riedel, a former CIA officer and Middle East fellow with the Brookings Institution who has taken part in war games.

One of the biggest nightmares, a land invasion of Iran, is widely dismissed as a nonstarter. "Unless it's happened in the deepest recesses of the Pentagon, I've never been involved in a war game that seriously considered a land invasion of Iran," says the defense analyst. At the Command and General Staff College in Fort Leavenworth, Kan., Maj. Bruce Terry estimated in his widely circulated master's thesis last year that it would take at least four years to mobilize the more than 1 million U.S. troops required for such an endeavor, followed by U.S. casualties in the tens of thousands for each year of occupation.

The working war scenarios involve surgical strikes by cruise missiles and warplanes on key targets, such as Revolutionary Guard facilities and Iranian nuclear sites, often coupled with covert operations on the ground. These attacks have been war-gamed regularly since 2004, according to another defense adviser, and the results point to some considerable stumbling blocks. "The No. 1 problem we have is: 'Where are the targets?' We still have trouble accurately locating all of the pieces of the nuclear program that we need to take out in order to have a relatively decisive effect," says Bacevich.

That uncertainty extends to assessments of when Iran could have nuclear-bomb capability, something that Iranians assert is not their plan. The consensus U.S. intelligence view points to the 2010 to 2015 timeframe, while Israeli estimates predict it as soon as late 2009. The differences reflect disagreements about the intelligence, as well as about what level of capability should be viewed as the weapons threshold.

What is clear is that Iranian nuclear facilities are buried, dispersed, and protected—and U.S. bombs may not be able to reach deeply enough to destroy them. Some are also in close vicinity to schools, hospitals, and other facilities where there could be civilian casualties that would further inflame anti-Americanism across the Muslim world. By most accounts, bombing might set back Iran by only a few years—at a high cost to the United States.

Such strikes come with the prospect of retaliation in the Strait of Hormuz, though such a move would cut off Iran's own oil exports as well. It is a narrow chokepoint, and an Iranian attempt to obstruct tanker traffic would cause oil to soar far above even recent record prices with dire consequences for western economies. Iran could employ swift boat-swarming tactics and the threat of Chinese-made antiship cruise missiles launched from patrol boats and from small islands off its coast. "The Strait is always the key for war games in the Gulf," says Paul Van Riper, a retired Marine three-star general who unleashed an imaginary salvo of Silkworm-style missiles, overwhelming the sensors on U.S. warships, while playing a "red team" country that closely resembled Iran in a now legendary 2002 war game.

"High stress." There is, too, the issue of mines. "Nobody's underestimating Iran's ability to disrupt access to the strait," adds a senior Navy officer who recalls serving on a U.S. warship accompanying Kuwaiti oil tankers in 1988. "People brush over the tanker wars, but the Navy hasn't forgotten," he says. "It was high stress," and two Navy ships were heavily damaged by mines. Despite antimine technology, the officer recalls that the crew set up a chair and built a shade for it, so that a seaman on deck could scan the water round-the-clock for mines. The Navy practiced repelling swarming Iranian swift boats and mounted machine guns for just such an event on the side of its ships.

Most believe that the U.S. military could, with some effort, quickly reopen the strait and most likely sustain little damage at the hands of the 1970s-era planes and weapons that make up the bulk of the Iranian Air Force. But the greater concern is the asymmetric chaos that Iran could unleash in neighboring countries, says Larry Wilkerson, who was chief of staff to Secretary of State Colin Powell. Wilkerson recalls that in his first briefing after taking that job in 2002, the topic was the attacks Iranian-backed Hezbollah could mount against Israel and elsewhere. "They said Hezbollah is the A-team, and not someone we want to take on, because they were essentially 10 or 15 times the capability of al Qaeda," says Wilkerson.

U.S. troops in Iraq likely would face stepped-up attacks by Iranian-backed militias, and the Karzai government in Afghanistan would collapse, says Riedel. "He couldn't choose between us and the Iranians." A U.S. strike, analysts warn, could also have the undesired effect of bolstering Ahmadinejad—as a nation under attack rallies around even an unpopular leader—and alienating the more progressive, anti-Ahmadinejad factions.

An Israeli strike on Iran—with or without U.S. support—would offer all of these risks and more minuses, say senior defense officials. For this reason, in recent meetings in Israel, Mullen "conveyed his less-than-enthusiastic view of an Israeli attack," says a senior military official. Says Riedel, "From an Iranian perspective, Israel would be flying American-made F-15s and F-16s, dropping bombs made in the USA," he adds. "Within the Pentagon, not only do they see the downsides, they tend to think that if someone's going to do this, they don't want to see it outsourced to another air force."

Still, it is in the best interest of the Bush administration to show that it takes Iran's threat to Israel seriously "in hopes of being able to restrain the Israelis," says Bacevich. The decision by scandal-damaged Israeli Prime Minister Ehud Olmert to step down once his party chooses a successor in September creates a new uncertainty. "I don't know whether that keeps an operation from happening. Olmert may want to do this one thing on his way out," says Riedel. "I, for one, am convinced that it's a very real possibility."

That possibility increases each time diplomacy falters. But the Pentagon's diplomatic war game concluded that talking doesn't guarantee resolution, either. There were some useful findings—the benefits of engaging Middle East neighbors, for example. "Regionally, there was very strong interest in limiting Iran's growth and power that we haven't exploited as a country," says the defense analyst.

Yet, just as in real life, direct talks with Iran proved consistently tricky in that exercise. "We could get small concessions and promises to talk again," the analyst adds. "But there were no significant breakthroughs or eurekas that made us say, 'This idea is so wonderful that we need to run down the hall and try it right now.' "