The Iranian leader's rebuff on Saturday to President Barack Obama's offer for dialogue was swift and sweeping: Words from Washington ring hollow without deep policy changes. But Supreme Leader Ayatollah Ali Khamenei's response was more than just a dismissive slap at the outreach. It was a broad lesson in the mind-set of Iran's all-powerful theocracy and how it will dictate the pace and tone of any new steps by Obama to chip away at their nearly 30-year diplomatic freeze. "It's the first stage of the bargaining in classic Iranian style: Be tough and play up your toughness," said Abdulkhaleq Abdulla, a professor of regional politics at United Arab Emirates University. "The Iranian leaders are not about concessions at this stage. It's still all about ideology from the Iranian side." For Khamenei and his inner circle, that means appearing to stay true to the 1979 Islamic Revolution and the political narrative of rejecting the United States. Any quick gestures by the ruling clerics to mend ties with Washington could be perceived by hard-liners as a betrayal of the revolution. Iran's non-elected leaders also are carefully weighing how any openings - even small ones - could affect the June 12 presidential race between their apparent choice, hard-line President Mahmoud Ahmadinejad, and reformists led by a former prime minister, Mir Hossein Mousavi. "This is why this will be a very slow, very complicated process between Iran and the United States," said Abdulla. "Even the theocracy can be pragmatic. When they feel it's in the national interest to reach out to America, they will find a way." There are no signs of a spring thaw. Khamenei set the bar impossibly high - demanding an overhaul of US foreign policy, including giving up "unconditional support" for Israel and halting claims that Iran is seeking nuclear arms. Iran insists its nuclear program is only for peaceful energy purposes. "Have you released Iranian assets? Have you lifted oppressive sanctions? Have you given up mudslinging and making accusations against the great Iranian nation and its officials?" Khamenei said in a speech in the northeastern city of Mashhad. The crowd chanted "Death to America." Despite Obama's offer, the State Department still lists Iran as a sponsor of terrorism for its backing of militant groups such as Lebanon's Hezbollah. In Iraq, US officials accuse Iran of aiding Shiite militias whose targets have included American soldiers. "He (Obama) insulted the Islamic Republic of Iran from the first day. If you are right that change has come, where is that change? What is the sign of that change? Make it clear for us what has changed." Still, Khamenei left the door open to better ties with America, saying "should you change, our behavior will change, too." Khamenei's response carried a particular bite following Obama's important shift in U.S. tactics in his video released Friday, offering to speak directly to Iran's theocrats rather than encouraging only pro-democracy reformists inside the country. The move appears to recognize two key realities for U.S. policy makers: Iran's establishment is firmly entrenched and it holds all the cards in all important decisions. "There's a thinking that they will do what the US did with Libya: engagement and incentives in return for moderated policies," said Patrick Clawson, deputy director of the Washington Institute for Near East Policy. "Iran, however, is a vastly more complicated place that has influence in Iraq, Afghanistan and across the region." The Obama administration hasn't outlined details of its next steps, but White House Press Secretary Robert Gibbs told reporters Friday that "many more" initiatives are expected. Last week, US officials raised the possibility of regular diplomatic contacts between U.S. and Iranian diplomats around the world. On Tuesday, Secretary of State Hillary Clinton and Iranian envoys will have an opportunity for informal talks on the sidelines of a U.N.-led conference on Afghanistan at The Hague, Netherlands. In Iran, any contacts or messages will undoubtedly be viewed through the prism of the country's presidential elections. Some experts believe that Ahmadinejad could benefit from Obama's overtures by claiming that his tough stance toward the West brought Washington to the table. Reformers, meanwhile, could struggle with an identity crisis. "These are people who considered the U.S. an honest broker and committed to regime change," said Ilan Berman, an Iranian affairs specialist at the American Foreign Policy Council. "Now the reformers are going to feel left out in the cold." Saeed Leylaz, a prominent Tehran-based political analyst, saw Khamenei's tough language as just an opening flurry in what could be a gradual easing of tensions - similar to the decades of slow rapprochement with Britain despite a history of troubles dating back to disputes over oil fields more than a century ago. "The U.S. is the sole country in the world capable of destabilizing Iran. Khamenei is concerned about this," he said. "If Iran's concerns are eased, it will be willing to have relations with the US in the same way it has relations with the UK"