``Ahmadinejad was better than Rafsanjani at addressing bread- and-butter issues,'' said Albrecht Frischenschlager, a partner at Tehran-based Atieh Bahar consulting, which advises companies including British-American Tobacco Plc. ``The economic situation of the majority of Iranians has deteriorated in recent years, and the vote was mainly about that in the end.''

A victory by Ahmadinejad gives Supreme Leader Ayatollah Ali Khamenei's supporters absolute control of Iran, holder of the world's second-largest oil and gas reserves, after they won a majority in parliament in February 2004. Ahmadinejad has rejected dialogue with the U.S., which accuses the country of seeking to develop nuclear weapons and sponsoring terrorism.

``My mission is creating a role model of a modern, advanced, powerful and Islamic society,'' Ahmadinejad said on state radio after his victory. Yesterday, supporters of Ahmadinejad, who puts himself in the ``fundamentalists'' camp, painted the U.S., Israeli and British flags outside the mosque where he voted so that people could walk on them.

The Tehran Stock Exchange main index fell 126.9 points, or 1 percent, to 12368.6 when trading ended at 12:30 a.m. local time today.

`Skeptical' U.S

The U.S. remains ``skeptical'' the new Iranian leader will address ``either the legitimate desires of its own people, or the concerns of the broader international community,'' Agence France Presse reported, quoting U.S. State Department spokeswoman Joanne Moore.

Iran is ``out of step with the rest of the region and the currents of freedom and liberty that have been so apparent in Iraq, Afghanistan and Lebanon,'' the spokeswoman told AFP.

Iran is under growing pressure from the U.S. and the European Union to abandon its uranium-enrichment plan. Tehran says the program is only for power generation, while the U.S. says it is a clandestine effort to develop nuclear weapons.

Sanctions

The U.S. has imposed unilateral economic sanctions on the country of 70 million, forbidding U.S. companies from investing or selling goods such as computers or aircraft there. As a result, Iran has had to rely on European and Asian companies for technology to develop its economy.

Ahmadinejad benefited from the support of the core defenders of the revolution -- such as the Basij militia forces, who enforce the country's strict Islamic codes, and the Revolutionary Guards, the military arm most loyal to the ruling Islamic clerics, according to Mohebian.

The public servant, who emphasizes his working-class background and religious faith, mobilized support through the country's mosques. Ahmadinejad kept a low profile throughout the race -- unlike his rival, who spent money on street rallies, television spots and posters.

``We were not expecting such a sweeping victory,'' Morteza Amini, a spokesman for Ahmadinejad's campaign, said in a telephone interview. ``His character and program seem to have appealed to the Iranian people.''

Wealth Distribution

Ahmadinejad has called for a better distribution of the country's wealth. He also opposes World Trade Organization membership, should it hurt the country's $480 billion economy.

``National resources must be freed from the state and given to people to use them for the advancement of the country,'' Ahmadinejad said at the briefing on June 18, adding that his government will ``support the poor,'' and make ``unemployment, marriage and housing'' its main priorities.

Today's failed bid by Rafsanjani may signal the end of his political career. His last venture to the polls in 2000 parliamentary elections also ended in failure.

Rafsanjani, who has wielded power since the creation of the Islamic Republic in 1979, when he served on the Revolutionary Council under Ayatollah Ruholla Khomeini, had said throughout his campaign he would seek detente with the U.S. if elected. He also pledged more economic liberalization.

Seventy-year old Rafsanjani currently heads the Expediency Council, Iran's top political arbitration body, and is deputy chairman of the Assembly of Experts, which appoints Iran's supreme leader. His family is reported to have investments in pistachio farming, real estate, auto-making and a private airline worth a total of $1 billion.

Inflation, Unemployment

``Rafsanjani was associated with his alleged personal wealth and with the inflation and other economic problems he created in his first presidency,'' Atieh Bahar's Frischenschlager said. ``That doesn't to go down well with the poor.''

Iran's official unemployment rate stands at 11 percent, while the consultant puts the effective rate ``between 20 percent and 25 percent.''

Ahmadinejad told reporters he was proud to be Iran's ``little servant and street sweeper,'' after casting his vote in his east Tehran stronghold yesterday.

Born in a village 100 kilometers (62 miles) south of Tehran, Iran's new president is a former fighter in the nation's Revolutionary Guards. As Tehran mayor, Ahmadinejad closed fast- food restaurants. He also prevented billboard agencies from using Western icons such as David Beckham, the world's richest soccer player, to advertise products.

International Isolation

Several candidates who didn't reach the runoff, such as pro- reform Mostafa Moin and former police chief Mohammad Reza Qalibaf, had urged their supporters to vote for Rafsanjani to bar the way to Ahmadinejad, fearing he could lead the country into further international isolation.

``I don't want to go back 27 years,'' Mohsen Karroubi, a 40- year-old architect who abstained in the first round and voted for Rafsanjani in the second to block Ahmadinejad's candidacy, said yesterday after voting in a prayer hall in northern Tehran.

Khatami, whose efforts to move Iran closer to a market economy have been resisted by the religious leadership, is stepping down after serving eight consecutive years, the maximum allowed under Iranian law.