Yesterday's IAEA report confirms what everyone knows: Iran has not only failed to meet the UN Security Council's two-month deadline to stop uranium enrichment, but has expanded those activities. The regime's statements and actions are an open challenge to the international community to make good on its promise to tighten sanctions against Teheran. It should not be necessary to spell out the consequences of an international failure to prevail in this confrontation with the Iranian regime. Since 9/11, the regimes in Afghanistan and Iraq have paid a price for their support for terrorism, and Libya has capitulated. But Iran and Syria sense that sowing mayhem in Iraq, Lebanon and Gaza presents them with an opportunity to turn the tables and intimidate the West into permanently living with terrorism. While some intellectuals fantasize that a nuclear Iran would be less belligerent, European leaders know that this is not the case. Iran's ambitions, unlike those of Libya and North Korea, are not just regime survival, but regional and even global domination. Why doubt Iranian leaders when they say this, especially when such tyrants have a long record of acting on statements that had been dismissed as mere rhetoric? Now, one of the greatest impediments to action is the notion that sanctions will not work, as claimed by a recent official EU report. This has become a self-fulfilling prophecy - of course sanctions cannot work before they have been tried. In this vein, at least as important as imposing new sanctions, which may take some time to negotiate, is for the US and Europe to immediately take steps that need no further international authorization. In the US, while financial sanctions are being pursued vigorously on the federal level, state pension funds still have hundreds of millions of dollars invested in companies doing business with Iran. Some states already have laws preventing their pension funds from investing in states that support terrorism, but most don't. In Europe, the situation is much worse. As the Wall Street Journal recently pointed out, Europe is Iran's largest trading partner, and these economic ties have only grown since 2003, when it became clear that Iran was lying about its nuclear program. Nor does the extent of this trade represent a refusal to intervene in free markets; it is heavily subsidized by European governments. The Journal notes that a 2004 report by Berlin's Economics Ministry boasted of German support for trade with Teheran. "Federal Government export credit guarantees played a crucial role for German exports to Iran; the volume of coverage of Iranian buyers rose by a factor of almost 3.5 to some Euro 2.3 billion compared to the previous year," the report said. "The Federal Government thus insured something like 65% of total German exports to the country. Iran lies second in the league of countries with the highest coverage in 2004, hot on the heels of China." At Euro 5.5b., Iran has more outstanding German export guarantees than any other country. Italy is close behind with Euro 4.5b. in trade guarantees, while France has issued Euro 1b. in subsidies to Iran. European nations, particularly Germany, consider themselves to be friends with Israel. To a degree that is perhaps surprising, a recent poll indicated the feeling is mutual. About 75 percent of Israelis favor joining the EU. The poll, released by the Konrad Adenauer Foundation and reported in The Jerusalem Post yesterday, found that 67% of Israelis had a favorable view of Germany, second only to the US. It is hard to see, however, how such warm ties would remain unaffected when Europe in general, and Germany in particular, refuses to substantially curtail its economic ties to Iran. This hesitancy may not be surprising, given that the German Chamber of Commerce claims that 10,000 jobs could be lost if tough sanctions are imposed on Teheran. But imagine the cost of Iranian nuclear blackmail, growing terrorism and a sharp jump in oil prices engineered by Teheran. The mullahs are betting that short-term financial interests will prevent Europe from defending itself and acting against an existential threat to Israel. Europe, this time, must prove the tyrants wrong.