http://www.nytimes.com/2002/11/12/international/12CND-IRAN.html All sorts of things going on here: 1. Khatami is obviously on the outs in Iranian government. 2. There is still considerable distaste for the current oppressive regime. 3. It's an odd situation that the current regime is. If they felt more secure in their position, they'd crack down on the students immediately. Autocratic regimes always suffer from public displays of disapprobation, since their power is premised on the "silence" of dissidents. Autocrats are rarely popular - but at the same time, it's rare that enough people are willing to risk their lives over a particular issue. Freedom of the press, assembly, etc jeopardize their position by letting individuals that they're not alone in discontent. At the same time, if they were more insecure, they'd also crack down on the students. An authoritarian regime on the brink of collapse must crack down, or lose the deterrant value of coercion. Power will erode where it is not used. There's been considerable debate on this board as to the state of the dissent in Islamic nations. This is a pretty illustrative article, imo. It shows vibrant dissent among the populace... but dissent that is impotent in governmental structures. Khatami means well... but it seems he's lost. And his defeat in government, has led to the near-death of the political reform movement. Now, it's back to the grass roots level... again.
Maybe they're waiting for the most opportune time to crack down (i.e. American/Western aggression in the Middle East) to "justify" their actions. They still hold most of the power anyways, why not wait for the most opportune moment to maintain it...