The graph above charts the chances of war with Iran as judged over the past few months by the wisdom of the crowd. More specifically, it reflects betting on the Intrade.com proposition "USA and/or Israel to execute an overt air strike against Iran before midnight ET 31 Dec 2012."
As you can see, the collective wisdom of people who are willing to put their money on the line is that the chances of Iran getting bombed by the end of the year is hovering around 40 percent. And that number has dropped sharply in recent weeks.
This roughly reflects my own view. Certainly the last week, in particular, has reduced the chances of war happening this year, for reasons I'll enumerate below. But, as I'll also argue below, the price paid for a reduced chance of war in 2012 is an increased chance of war in 2013.
As for why chances of an airstrike during 2012 have dropped:
1) A few weeks ago, Iran offered to return to the bargaining table, increasing the chances of a negotiated solution.
2) Within the last week, we learned that President Obama had rebuffed Bibi Netanyahu's request that the negotiations not start unless Iran first suspended its enrichment of uranium. With that obstacle cleared, the P5+1 (the permanent members of the UN Security Council plus Germany) has accepted the Iranian offer, and negotiations are expected to start in April.
3) Obama also did something that increased the chances of the negotiations succeeding. He had long held that Iran shouldn't be allowed to develop a nuclear weapon. Netanyahu had long held that Iran shouldn't be allowed to have even a nuclear weapons "capability"--that it shouldn't be left with the technical wherewithal to produce a bomb should it decide to do that.
Netanyahu's position, if adopted by Obama, could have impeded a deal with Iran. A ban on an Iranian nuclear "capability," if interpreted broadly, would mean that Iran shouldn't be allowed to enrich its own uranium for peaceful purposes, since even a modest enrichment infrastructure reduces the amount of time it would take to produce a weapon (if only reducing it to, say, two years). And pretty much nobody thinks Iran would agree to a deal that meant giving up its entire enrichment program; the hope had been to keep the enrichment modest and place it under intrusive monitoring that could detect any moves toward a weapons program.
Happily, Obama stood firm against Netanyahu. He signaled this in an interview late last week with The Atlantic's Jeffrey Goldberg, when he repeated that what was unacceptable was Iran's developing a nuclear weapon. He maintained that position through Netanyahu's visit to Washington this week.
4) Standing firm against Netanyahu on this issue not only increased the chances that negotiations will succeed; it decreased the pressure Obama will feel to conduct or support air strikes during 2012 in the event that negotiations fail. Depending on how loosely you define "nuclear weapons capability," Iran could have it well before the end of the year--in fact, if you define it loosely enough, Iran has it now. So if "capability" was the "red line" that Iran can't cross, Netanyahu could argue that Obama is obliged to start bombing any moment now. But there's pretty much no chance that Iran will have a nuclear weapon by the end of the year. So Obama can get through the November election and beyond without bombing Iran and without anyone claiming that he's reneged on his promise to keep Iran from going nuclear.