Encouraged by recent successes in local elections, opposition factions, democracy activists, and pro-reform clerics say they will bring together progressive parties loyal to former president Mohammad Khatami with so-called pragmatic conservatives led by Ayatollah Hashemi Rafsanjani.

The alliance aims to exploit the president's deepening unpopularity, borne of high unemployment, rising inflation and a looming crisis over petrol prices and possible rationing to win control of the Majlis in general elections which are due within 10 months.

Parliament last week voted to curtail Mr Ahmadinejad's term by holding presidential and parliamentary elections simultaneously next year.

Though the move is likely to be vetoed by the hardline Guardian Council, it served notice of mounting disaffection in parliament.

But opposition spokesmen say their broader objective is to bring down the fundamentalist regime by democratic means, transform Iran into a "normal country", and obviate the need for any military or other US and western intervention. Rightwing political and religious forces, divided and dismayed by Mr Ahmadinejad's much-criticised performance, are already mobilising to meet the threat.

The movement amounts to the clearest sign yet within Iran that the country is by no means unified behind a president who has led it into confrontation with the west over the nuclear issue, while presiding over economic decline at home.

"The past two years have been a very bitter time for Iran," said Mohammad Atrianfar, a leading opposition figure with ties to Mr Rafsanjani, the former president now emerging as a likely future kingmaker in Iran.

"Ahmadinejad has done everything upside down - politics, economy, foreign policy - putting all our achievements at risk. He has done a lot of damage at home and abroad."

Mr Atrianfar said that a majority in the Majlis was now critical of the president and would certainly impeach him but for the support he enjoyed from the supreme leader, Ayatollah Ali Khamenei.

According to Ali Alavi of Siyasat-e Ruz newspaper, some 150 political activists, governors-general, former administration officials and dissident MPs drew up a coalition "victory strategy" at a secretive conference last month presided over by Mr Khatami.

The strategy envisaged "aggravation of the differences among the fundamentalists" and "constant criticism of Ahmadinejad" by "presenting a dark image of the country's affairs," Mr Alavi said.

Opposition sources said that a future reformist-pragmatist government would continue to maintain Iran's claim to nuclear energy and other "national rights" but would seek to settle disputes through talks.

Iran wanted a "normal" relationship with the rest of the world based on mutual respect, the opposition sources said.

In an oblique swipe at Mr Ahmadinejad, Mr Rafsanjani told the weekly Friday prayer meeting in Tehran that the nuclear issue should be settled by negotiations "conducted in a rational atmosphere".

Mr Atrianfar said the economy was the battleground on which Iran's political future would be decided.

The president has faced mounting criticism in recent weeks over high unemployment, especially among younger people, rising inflation and escalating housing costs.

Significantly, for a major oil producer, heavily subsidised petrol prices are due to rise next month, hitting poorer people hardest in a country with poor or non-existent public transport.

"They are playing with fire. Nobody wants to take responsibility for this. It's going to blow up in their faces," said Hussein Dirbaz, a resident of Narmak, the Tehran suburb where Mr Ahmadinejad was brought up.

In an unusual intervention, Grand Ayatollah Yusef Sa'anei, one of Iran's most respected Islamic scholars, has attacked Mr Ahmadinejad's government for failing to tackle social ills such as youth unemployment, drug addiction, and gender inequality.

In a rare interview with a western newspaper at his office in the holy city of Qom, Mr Sa'anei said: "The government should be at the service of the people. But it is putting too much pressure on the people.

"It bans newspapers, sends people to jail, segregates boys and the girls at the universities, makes noise about hijab."

A senior government official said the rising tide of criticism directed at Mr Ahmadinejad was unwarranted. "People say we don't care but that's not true. We've created more credit, more jobs.

"It's too soon to say [Ahmadinejad] has failed. It's too soon to say the reformists will win."

Observers claim that a power struggle is inevitable.

"A very big battle is coming. It's unavoidable," a western diplomat said. "There's a widening gulf between the two sides. There are profound divisions about which way Iran should go. It's going to get very rough."

The looming power struggle could decide whether Iran continues on a path of confrontation with the west or comes in from the cold, the diplomat said.