President Obama’s attention is primarily directed at domestic matters. Far-ranging reforms on health care, energy and the environment have reached critical junctures on Capitol Hill. With Republican opposition firm, the White House is having to work hard to keep Democratic waverers in line. Obama’s need to preserve political capital for his domestic priorities is having an impact on foreign policy. Regarding Iran, he has toughened his criticism of Tehran in the light of the=2 0widening crackdown on the opposition. He took this action in the face of fierce Republican criticism, including from his opponent last November, Senator McCain. Our Administration contacts tell us that the rising opposition in Washington to Iran’s post-election actions will delay – or at worst derail – Obama’s hopes of engaging Tehran in direct talks. An official told us: "This entire election episode has required us to slow our Iran plans down considerably.  While we accept that there will be no change in leadership in Iran, it would be inappropriate to proceed with any kind of meaningful talks for the near term.  The dust needs to settle." The Administration will pursue some form of détente with Tehran, but some delay will ensue. Elsewhere, the increased violence in Iraq has raised concerns in Washington ahead of the July 1st date for withdrawal of US troops from Iraqi cities. However, with US eyes now firmly set on Afghanistan, we do not expect any change in this timetable. Pentagon officials tell us that they have what they describe as “just about enough” confidence in the Iraqi army to maintain security. On the economy preparations are in hand for the July 8th-10th G-8 summit in Italy with the Treasury believing that the US has a more optimistic story to tell abut economic recovery.