If you read the headlines a few weeks ago, you might have thought the world was on the verge of a major crisis. The media in America and abroad were flooded with speculation about an impending Israeli attack on Iran's nuclear facilities, perhaps with American support. The New York Times reported that the Israeli Air Force was gearing up and conducting war games. The price of oil spiked. And some commentators jumped to the conclusion that the world was close to another war.

If that's what you thought, you were misled. The scare stories masked the fact that after almost three decades of bitter mutual hostility, the United States and Iran are now closer than ever to burying the hatchet.

It's becoming clear that Washington and Tehran are maneuvering to conclude a grand bargain that will include both Iran's nuclear program and the future shape of Iraq. If you don't believe me, just forget the headlines and look at what the two countries are actually doing.

1. Although they have been talking about both subjects through back channels for some time, the dialogue is now becoming public.
2. A week after the leak to the New York Times about the Israeli preparations, the State Department leaked to the Washington Post that the United States is considering a significant upgrade in its diplomatic representation in Tehran. The speedy positive response from Iranian officials indicated they had already been sounded out in private.
3. Admiral Mike Mullen, chairman of the U.S. Joint Chiefs of Staff, made it publicly clear the Pentagon does not wish to attack Iran, and warned the Israelis to back off. The nation's top military officer would not have taken such a stand without approval from the White House.
4. A Saudi Arabian newspaper reported that in negotiations with the Iraqis over the future status of American forces in Iraq, the U.S. has dropped its demand to control all Iraqi airspace. If true, that would be a positive gesture toward Iran, which wants Iraq to be a neutral buffer on its border rather than an American satellite.
5. The Iranian government has now given what sounds like a potentially positive (though initially confusing) response to Western offers of economic and technological carrots in return for suspension of Iran's uranium enrichment program.

What we are seeing is a good cop/bad cop operation in which Washington is giving the Iranians a choice between being hit by the Israelis or being flooded with Western goodies. The Iranians may think an Israeli air strike is unlikely, but they cannot be sure it won't happen if the U.S. were to give Israel a green light.

Besides, Iran's prime concern is ensuring that Iraq – which engaged Iran in a costly, bloody war for a decade – becomes a stable, non–threatening neighbor. Iran's nuclear program is secondary, even though most Western governments see it as a potential military threat. Some Western experts believe the Iranians are using it as a bargaining chip to obtain a better deal on Iraq. Whether or not that is true will become apparent when the outlines of an American-Iranian agreement become clear.

Meanwhile, when you read new headlines like the latest, which shout that Iran's elite Revolutionary Guards have begun military exercises with a warning that Tel Aviv and American shipping in the Persian Gulf will be prime targets if Iran is attacked – take a breath. Pause and reflect on what is really happening. The Iranians want a deal. Indeed, they need a deal. So does the United States, which is so overstretched in that critical part of the world.

There are likely to be more crises before a final agreement is reached between these two (publicly) bitter enemies. Some parties may try to blow it out of the water. The possibilities for sabotage are endless, but the trend of events seems to be leading to a peaceful conclusion to a 28-year shouting match.

If it happens on his watch, President Bush will have to be given credit for some creative diplomacy. Unkind critics will of course say he could have reached an accommodation with Iran much earlier. But earlier administrations also missed chances to come to terms with the Iranians.

Iran, of course, is the remaining member of the trio of rogue regimes that Mr. Bush dubbed “the axis of evil.” He attacked Iraq on the false grounds that it threatened the world with weapons of mass destruction, and both countries are paying a terrible price for the mistake. He more wisely tried diplomacy to persuade North Korea to give up its small nuclear arsenal, and seems to be succeeding. If he reaches an agreement with Iran, that would give Mr. Bush a success rate of two out of three – a mixed record but perhaps a better legacy than most people expected from this unpopular president.