YESTERDAY'S verdict in the "Mykonos" case, in which the court ruled that Iran ordered a political assassination in a Berlin restaurant five years ago, dealt a fatal blow to Germany's policy of "critical dialogue" with Tehran.
Bonn's policy of maintaining a dense network of economic and political ties with Iran has angered the US and bewildered some European partners.
But Germany's Foreign Minister, Klaus Kinkel, like his predecessor, Hans Dietrich Genscher, defends the strategy as the best means of influencing Iran and winning Tehran's backing for the Middle East peace process. Mr Kinkel points to Germany's role in securing the release of American hostages in Lebanon and its efforts to secure the release of the missing Israeli airman Ron Arad.
But Bonn's critics argue that the policy undermines the tougher steps against Iran advocated by Washington and encourages Tehran to ignore international protests against its violations of human rights at home and sponsorship of terrorism abroad.
They say Germany is Iran's biggest trading partner, with exports to the Islamic state of almost £1 billion last year while imports were worth £500 million. More significantly, Tehran owes Germany almost £5 billion, which Bonn can ill afford to lose as it attempts to keep its own public debt within the limits laid down for entry to Economic and Monetary Union. The US is especially irked by Bonn's policy of subsidising German companies' activities in Iran with this credit guarantee programme. When Iran ran into economic difficulties during the early 1990s, Germany rescheduled its debt on generous terms.
Bonn insists that economic considerations are insignificant in its relationship with Iran, which ranks 42nd in the list of Germany's trading partners. Germany refuses to supply Tehran with weapons or dual use technology and resisted the temptation to accept a £700 million contract to complete a nuclear reactor there.
Germany's "critical dialogue" policy is partly an extrapolation of what Bonn regards as the success of its Ostpolitik during the 1970s. Germany believes that its economic and diplomatic support has buttressed the position of moderates within the Iranian regime and that the US policy of isolating Tehran is counterproductive.
Germany's interest in the region goes back to the end of the last century when Persia and the declining Ottoman Empire became key targets for German commerce.
The Persians saw Germany as a useful source of technology and as a neutral foreign power that had no colonial record in the Middle East and could serve as a counterweight to Britain and Russia.
German military experts helped to build up Iran's army and air force in the 1920s and Shah Reza Khan had cordial relations with Hitler until the Allies invaded Iran in 1941 and forced him to abdicate.
His heir, Shah Mohammad Reza Pahlavi, courted West Germany after the end of the second World War, inviting most of Germany's biggest firms to set up operations in Iran. The Iranian government acquired 25 per cent of the electrical giant, Krupp, and Bonn valued his friendship so dearly that it banned an Amnesty International conference on Iranian human rights abuses.
The relationship between the two countries became frosty after the 1979 revolution and Germany sold goods worth billions of pounds to Iraq during the 1980-1988 Iran Iraq war. Tehran announced this week that it would sue 24 German companies it accused of helping Iraq to make chemical weapons during the war.
But Mr Genscher was determined to reopen ties with Iran and he flew to Tehran at the head of a trade mission a few months before the war ended. The end of the Cold War and Germany's enhanced status on the world stage encouraged Bonn to expand its links with Tehran.
Dr Helmut Kohl's intelligence chief, Bernd Schmidbauer, admitted recently that Bonn supplied technology to the Iranian secret service. The government prevented police from arresting the Iranian intelligence chief Ali Fallahian when he visited Bonn in 1993, despite evidence that he ordered the "Mykonos" murders.
Bonn announced yesterday that, following the Berlin court verdict, policy of "critical dialogue" is at an end. The German ambassador has been recalled from Tehran and four Iranian diplomats have been expelled from Bonn. For its part, Tehran has recalled its ambassador from Bonn and the speaker of the Iranian parliament dismissed the court's ruling as "political".
Germany hopes the EU will take concerted action against Iran and that Tehran will not take retaliatory action against the 500 Germans who live in Iran. But Bonn was at pains to point out it had no intention of breaking off diplomatic relations with Tehran.
Meanwhile, there is little sign that Germany's lucrative trade with the Islamic state will be interrupted by yesterday's verdict, despite Mr Schmidbauer's prediction of a "diplomatic ice age" between the two countries.
One of the prosecuting lawyers in the Mykonos case predicted yesterday that this ice age would be represented by the clinking of ice in cocktail glasses as new contracts are signed.
