Some 65 per cent of Iran's population is under 25. And this younger generation is becoming increasingly hostile to life under the so-called reform movement, reports Margaret Preston from Tehran

The taxi driver, in his limited English, sums up the general disgust with the current regime. Pointing out the lavish houses in northern Tehran, he says, "Shah, Shah, Shah, Shah". The next night, pointing to the same houses, he says "Mullah, Mullah, Mullah, Mullah".

It is this increasingly openly expressed belief that the protagonists of the Islamic Revolution stepped seamlessly into the self-serving hypocritical shoes of their predecessors and dragged the country to near ruin, that is pushing the country towards social unrest and economic chaos.

An astonishing 65 per cent of Iran's almost 70 million population is under 25. The Iran-Iraq war from 1980 to 1988 took a heavy toll on one generation of young men. A new generation, weaned on satellite TV and the Internet, has grown up since the revolution of 1979. Rejecting old-style religious dogma and political posturing, they are demanding change - and they want it now. There are almost daily disturbances in Tehran now involving students.

The younger generation is largely responsible for ushering in the reform movement under President Mohammad Khatami, a moderate cleric, five years ago, but the changes they demand have not been forthcoming. Advocating reform in parliament has failed to provide solutions to public woes and major corruption in every sphere.

Top of the student agenda is "freedom in general". They are tired of having every aspect of their lives scrutinised and controlled. Official prohibition of satellite TV and alcohol, combined with restricted Internet access and strict censorship in every field of the arts, have not deprived them of knowledge or pleasure. Instead, a thriving black market has developed, which can provide anything they want at affordable prices. Public floggings and heavy jail sentences for those caught in serious breach of the regulations have not dented the supply of illicit goods.

It is the hypocrisy of restrictions - and the need for subterfuge - that angers young people most.

"There are no public places for us to have fun, so we have private parties at home, where the women can wear normal clothes and do all the things people do in the West," says university student Ahad Shamsiyan. "The militia knows what goes on and they raid us from time to time but we are prepared for that and know how to pretend nothing is happening."

Recently, students staged a wave of demonstrations calling for freedom of speech following the death sentence handed down to Hashem Aghajari, a liberal university lecturer sentenced to hang for questioning absolute clerical rule. The protests were effective and the Supreme Leader, Ayatollah Ali Khamenei, the ultimate power in Iran, disarmed by the international attention and condemnation that the case and the demonstrations aroused, took the unprecedented step of ordering a judicial review of the case.

Fearing that hard-liners would use the demonstrations as an excuse to inflame the pro-reformers and provide an opportunity for a savage crack down, Khatami appealed to the students to remain calm. The students complied but have been refused further licences for demonstrations. In a counter show of strength, 15,000 hard-line Islamic militiamen in Tehran were granted a licence to demonstrate against US policies and took the opportunity to denounce the students.

Women are also emerging as a powerful influence. Since the revolution, the clergy has stressed the traditional family role of women but Khatami won them over by saying that men and women are equal according to Islam. Many Iranian women are well-educated and are beginning to succeed in politics but they have a long way to go to reach equality in the workplace.

Fatameh Kadivar, a language graduate from Shiraz and a firm believer in Islam, has written off her own career ambitions. She represents the views of many women who spoke to me. She is blistering in her attack on the clergy.

"Those clerics who hold the power in this country are not religious men. They are interested only in gaining more power for themselves. They have sold whatever they could get hold of for their own short-term interests and without thought for the future of the country. They are not interested in the people.

"Nowhere in the Koran does it say that we have to have our lives controlled by the clergy," she adds. "Many of the regulations have nothing to do with Islam. We should have freedom to interpret the Koran for ourselves and not be forced to do what the clerics say. I encourage my children to leave Iran. I see no happy future for them here," she says.

There are signs that some clerics wish to distance themselves from the hard-liners to avoid being tarred with the same brush of public disapproval. This was reflected by the resignation of a leading cleric in July. Ayatollah Jalaluddin Taheri, who had held the prestigious position of Friday prayers' speaker in the major city of Isfahan for 30 years, issued a bitter condemnation of the way the country is being run. His resignation letter was a devastating indictment of the establishment in power since the Islamic revolution, in which he had played a prominent role. Accusing the rulers of "deviating from the true path of Islam", he said the system was "deeply corrupt, self-serving, hypocritical and repressive".

It is not only the clerics, however, who are accused of causing widespread problems. Corruption occurs at every level, as evidenced by a rash of spectacular court cases. A prominent businessman, Shahram Jazayeri Arab, was recently convicted of "bribery" and "economic corruption and disruption of the economic system of Iran". The legislature, the executive, the police, the clerics and the Guardian Council were alleged to have been implicated in the scandal. He was sentenced to 27 years in prison. This is one of many cases, however, that have been criticised for failing to bring all guilty parties to justice.

In order to appease the critics, right-wing politicians are slowly beginning to listen to public opinion and accept that the real power balance may lie with the young.

Whatever the outcome of the current power battles, the country's desperate economic state is testament to the government having been alarmingly out of control for many years.

House prices in Tehran are rocketing. The Tehran Municipality is accused, in a recent parliamentary report, of selling a large number of illegal licences for high density apartments despite the mayor stating that he would not authorise extra construction. Official reports reveal that almost two million people in the capital alone go to bed hungry because of economic hardship. Students have stunted growth because of malnutrition.

Drugs are a major problem, with 3 per cent of the population reported to be addicts. It is not unusual to be forced to side-step hypodermic syringes on the streets of the main cities and even at major mosques. Officials say Iranian police seized 112 tons of illegal drugs and arrested 306,000 people for drug-related offences last year.

Air pollution has reached a threatening level in Tehran, according to an ad hoc committee, and the health ministry has announced that 20 per cent of the country's water is contaminated. This summer, it announced that animal and human compost are used on vegetables, which could cause intestinal diseases. A supply of diseased meat is acknowledged to have entered the country with the government admitting that it does not know how much more there might be.

Khatami, one of the moderate clerics, has threatened to resign unless two bills, already approved by parliament, become law. They are aimed at increasing the power of the president and curbing the supervisory power of hard-liners.

Ayatollah Khamenei has retaliated by threatening to bring in the powerful volunteer Basij militia or impose a state of emergencyif the feuding politicians fail to resolve the country's problems. The next few weeks will show whether Khatami can win through or whether Ayatollah Khamenei will fulfil his threats and increase his stranglehold. It is unlikely that Khatami's bills will become law, as they have to be approved by the conservative-controlled Guardians' Council - whose very power the president seeks to curtail. The council is not expected to agree to any reduction in its powers.

As the country waits, Mashallah Shamsolvaezin, a reformist newspaper editor interviewed in Newsweek, said recently that there is "an equilibrium created by fear. The conservatives don't have the popular support of the reformists, who in turn don't have the strongholds which the conservatives possess. They both use their power to scare the other one.

"On the other hand, positive laws have passed. The power of the conservatives has been reduced considerably and the young generation of conservatives is not as rigid as their fathers. In fact, people have advanced much more than government."

• Names of some individuals quoted above have been altered to protect their identity

Iran's complex power structure

The Supreme Leader This is currently Ayatollah Ali Khamenei. He appoints the head of the judiciary, members of the Council of Guardians, the clergy, the the armed forces' commanders, Friday prayer leaders and the head of radio and TV. The leader is chosen by the Assembly of Experts

Council of Guardians The most influential body in Iran is currently controlled by conservatives. It comprises six theologians appointed by the Supreme Leader and six jurists nominated by the judiciary and approved by parliament. It ensures all bills passed by parliament conform to the constitution and to Islamic law.

Assembly of Experts This conservative body, made up of 96 clerics, is comparable to the College of Cardinals which chooses the Pope. Elected by the electorate every eight years, its job is to appoint, oversee and, if necessary, dismiss the Supreme Leader

Expediency Council A policy-making body with some legislative powers comprising prominent religious, social and political figures which acts as an advisory body to the Supreme Leader

The President The president, currently Mohammad Khatami, is elected for four years and can serve two terms. His role is to ensure the constitution is adhered to

Parliament The Majlis, or parliament, is elected by popular vote every four years. The present parliament is dominated by reformists

The judiciary After the 1979 revolution the head of the judiciary became a post appointed by, and answerable to, the Supreme Leader. The judiciary also nominates six members of the Council of Guardians

The electorate It was women and young people - eight million of whom were born after the 1979 revolution - who brought President Mohammad Khatami to power twice. They are demanding freedom, justice, economic and administrative reform, prosperity and the rule of law.

Supreme National Security Council This is a policy-making and co-ordination body on foreign policy, defence and security issues which is chaired by the president