The U.S. policy that sought to influence Iran with penalties but without incentives has failed. Washington has been unable to induce change by the Islamic Republic in three areas of concern to U.S. policymakers: sponsoring terrorism, acquiring missiles and weapons of mass destruction, and opposing the Arab-Israeli peace process. Opponents of change in Tehran have counterparts in the U.S., where calls for a different policy have also been unpopular. This article argues that the U.S. must devise a policy with a greater chance of success. As Iranian society and the regional environment change, Washington must formulate an approach that relies on inducement for change and sanctions for non-compliance. Engagement is a two-way process that requires patience. Its ultimate payoff, beyond a historic reconciliation, could be the emergence of a stable, independent, democratic Iran, ready to play a responsible role in the region and in the world.