By CNN's Charley Keyes
Note to American diplomats: An old Iranian saying may carry a message for a new year.
"There's on old Persian expression that when you have a wildcat trapped in a room, you need to leave a door open to let it out," Carnegie Endowment analyst Karim Sadjadpour said.
The New Year has dawned with new saber-rattling from Iranian leaders, new displays of its military hardware and new claims of progress in its nuclear program. All this comes amidst new frustration in the United States about how to tighten the screws on the Iranian economy.
With the U.S. and allies working to isolate Iran's Central Bank and to impose additional restrictions on various high-ranking individuals and institutions, exits are slamming shut.
"The question is: What is the way out for the Iranian regime?" Sadjadpour said. "Can the Obama administration allow the Iranian regime a diplomatic way out in order for it to save face?"
And Iran must plot its course of whether to submit to pressure or resist.
"The strategy of the Obama administration is to try to exact enough pressure on Iran to try to get it to make meaningful nuclear compromises," Sadjadpour said. "The question is whether outside pressure will compel Iran to compromise on its nuclear program or go for a nuclear bomb in order to fend off nuclear pressure."
Iran has been testing missiles in recent days during naval exercises in the Strait of Hormuz, claiming that its long range Qadar sea-to-shore missile and surface Nour hit their targets.
The state news agency said the missiles and tests of torpedoes are fresh evidence that Iran could halt any movement in that major oil supply route for the West, prompting the French Foreign Ministry to call the weapons tests a very bad signal to the international community.
David Albright, a longtime observer of Iranian claims about its nuclear accomplishments, said the announcement was the expected follow-though on one Iran made a couple of years ago. He called it an effort to "restore credibility, to show they have the technology now."
Iran has maintained that its nuclear development is for peaceful civilian purposes, prompting deep skepticism from the U.S. and others. Albright, founder and president of the Institute for Science and International Security, says that the fuel rods for the research reactor have nothing to do with Iran's weapons program and that it will take a year or two to see whether they work properly.
Iran has been cutting corners to make progress in its nuclear enrichment program, says Albright, and any shortcuts raise safety questions, especially with the research reactor located in highly populated Tehran.
The rhetoric, especially the threat to choke off the Strait of Hormuz, as well as the fuel rod development and new weapons tests, have raised the temperature in the early hours of 2012.
But Iranian experts say that despite showing off its missiles, Iran's defense budget is less than 2% of the U.S's. And its top-of-the-line missiles still lack the accuracy found in much of the rest of the world.
Sadjadpour says the main focus should not be on hardware but Iran's ambitions. And the U.S. must remember that with all it has invested - politically and financially - in its nuclear program, Iran will hesitate to abandon it.
For their part, U.S. politicians point to Iran's support for terrorist activities by Hamas and Hezbollah, and Iran's opposition to Israel. And in recent months there has been increasing talk that if diplomacy fails, either Israel or the United States might launch a military attack on Iran to at least delay its development of a nuclear bomb.
"My own take is that in 2012, what we can best hope for is that outside pressure and outside diplomacy will avert both a nuclear-armed Iran and a bomb on Iran." Sadjadpour said. "But there is a concern that the hardliners in Tehran will try to provoke some type of military attack on themselves for domestic political expediency. And that is trap that the United States and Israel should be careful about walking into."
CNN’s Pam Benson contributed to this story