Iran has dispatched hundreds of agents posing as pilgrims and traders to Iraq to foment unrest in the holy cities of Najaf and Karbala, and the lawless frontier areas.
Tehran's hard-line regime has also allowed extremist fighters from Ansar al-Islam, a terror faction with close links to al Qaeda, to cross back into Iraq from its territory to join the anti-American resistance.
The Pentagon believes that Iran is building a bridgehead of activists inside Iraq, ready to destabilize the country if that serves its future interests.
"They are provoking sectarian divisions, inciting people against the Americans and trying to foment conflict and anarchy," said Abdulaziz al-Kubaisi, a former Iraqi major who was jailed by Saddam Hussein and is now a senior official in the Iraqi National Congress.
"The last thing that certain elements in the regime want is to see a stable democratic and pluralistic Iraq next door, so they are trying to export trouble here," said a leading official in another Iraqi party.
Although Iran's president is a political moderate, true power remains in the hands of the fundamentalist clergy. At a time when Iran is facing domestic discontent over the slow progress of democratic reform and mounting international pressure over its nuclear program, hard-line elements believe that instability in Iraq will distract attention from the regime's problems.
The National Council of Resistance in Iran (NCRI), an opposition group, claims that some translators working for the U.S. forces are reporting back to Tehran.
It also says that its informants within the regime have supplied details of senior Iranian intelligence commanders who are operating inside Iraq.
"The Iranian agents have melted into the population and are just waiting until the moment is right," said one NCRI official.
L. Paul Bremer, the American head of the Coalition Provisional Authority, has already accused Iran of "meddling" in Iraq's internal affairs and backing some attacks on American forces.
On Friday, he confirmed that several hundred members of Ansar, which set up a Taliban-style ministate in Kurdish-controlled territory in 2001, had re-entered Iraq.
"They are a very dangerous group," he said in Washington. "The flow of terrorists into Iraq is the biggest obstacle to the reconstruction of the country."
Mr. Bremer said that U.S. forces are holding 248 non-Iraqi fighters captured in Iraq. Most came from Syria, but the second-largest group was Iranians.
At the start of the war to topple Saddam, Kurdish militia and U.S. Special Forces had crushed Ansar's 750-strong force of Arabs, Pakistanis, Chechens and Kurds.
About 250 Ansar fighters were killed and another 100 captured, but Iran's military turned a blind eye as the rest escaped across the mountainous border.
Most have returned to the violent flash points west and north of Baghdad, according to U.S. military officials, Kurdish political leaders and former mukhabarat officers.
Ansar adheres to the same extremist Sunni Muslim interpretation of Islam as al Qaeda.
Although Iran follows the alternative Shi'ite version of Islam, its hard-line military rulers have allowed Ansar to regroup and return to Iraq because they share its anti-American cause.
Iran has also taken advantage of its largely unpoliced border with Iraq — a 210-mile stretch of which was turned over Friday to an American-trained police force by the U.S. Army — to deploy agents who are building networks of spies and sympathizers.
One Iraqi of ethnic Iranian origin, who returned to Najaf after 23 years in Iran and who has contacts with Tehran's intelligence services, told the Sunday Telegraph that he has seen many Iranian agents mingling with visitors to the city of golden-domed mosques and shrines.
Najaf, an ancient seat of Shi'ite learning, is fertile ground for the Iranian agents. Last week, many of the visiting pilgrims were speaking Farsi (Persian).
Long-banned pictures of Ayatollah Ruhollah Khomeini, leader of the Islamic revolution in Iran in 1979, are once again on sale in the markets of the town where he spent part of his early exile before moving to Paris.
The returning Iraqi exile said that several agents from the political wing of the Revolutionary Guards had been deployed to Najaf, some operating within the Supreme Council for Islamic Revolution in Iraq (SCIRI), one of the five political parties represented in the U.S.-appointed Iraqi Governing Council.
"They are gathering information on the Americans and establishing their contacts with anti-U.S. groups," he said. Iran denies interference or sending agents to Iraq, saying that it has already recognized the Governing Council.
The Iranian opposition, however, says that the Quds force of the regime's Revolutionary Guards, which specializes in foreign operations, commands the loyalty of key commanders within the Badr Brigade, the Iranian-trained militia army of the SCIRI.