It is the country the west fears most - and knows least about. In our exclusive reports, Iranian writers describe the extraordinary contradictions of life under Mahmoud Ahmadinejad's "Loving Government" - and reveal how Iran sees the west. Maziar Bahari, a leading journalist, begins with a drive across downtown Tehran

It's not a promising start, but I'm going to confuse you. That's how I feel about the situation in my country, Iran. If I'm supposed to remain true to my journalistic principles I have no choice but to share my puzzling observations with you. After 40 years of being an Iranian I can say it loud and clear: Iranian politics, economics, society and almost everything about Iran are confusing and confused.

Contradictions and double standards pervade every aspect of our social and political life. The country's economy is a shambles, but you can see more Gucci and Versace billboards than in Milan. Iranians are the most courteous people in their daily lives, but they behave like ruthless monsters when driving. Iranians don't like America, but they are the most pro-American country in the Middle East. Iran has become internationally known as a pariah state, but our president, Mahmoud Ahmadinejad, believes he is the most popular president in the world. Dozens of people are jailed or executed every month but the Iranian government calls itself "the Loving Government". And so on.

I'm in Tehran. To be exact, I'm in Victory Square on my way to see a recently divorced friend near Freedom Square. My cab driver is the septuagenarian Hassan Gharehbaghi, a little man with stubble and thick glasses. Hassan is on his mobile when I get in his car. I tell him the destination, and he continues talking with his son or daughter about the results of the university entrance examinations which were announced a few days ago. Every year, almost one and a half million Iranians take part in the exams and only about 300,000 get in. Around this time, the end of August, everyone talks about so-and-so getting in and so-and-so not making it. Those who make it become celebrities in their families. Those who don't think it's the end of the world. Suicide rates rise at this time of year. Hassan keeps on talking to his son or daughter who, it seems, hasn't received the best grades but has somehow managed to get a place. I can see the joy and pride on the face of the old man, who has tears in his eyes. He goes through the list of people who have to be invited to the party to celebrate his child's acceptance into university.

The friend I'm going to see was the bright star of his generation. He entered university in 1978 with the highest grades possible. A few months later, in February 1979, the Islamic Revolution happened, then the Cultural Revolution followed in 1980 and the universities were closed. He had to leave the country and continue his studies at the University of Houston. He recently divorced his wife of five years. He is desperate for a shoulder to cry on. He also wants to borrow £5,000 for the down payment on a flat in a not-so-chic neighbourhood of Tehran. Moreover, he has to pay about £300 per month in rent.

The price of housing has soared over the past three years, since the election of Ahmadinejad as president in June 2005. Rising house prices in Iran are usually a sign of economic insecurity. People invest their money in the most tangible of commodities - land - and not much else. Blessed with rising oil revenues, Ahmadinejad has managed to compensate for his mismanagement of the economy by distributing handouts. If you're getting married or buying a car or a house you can get loans at 12 per cent, with interest rates running as high as 18 per cent: in other words, sub-prime loans. But the handouts have made the president very popular among the Iranian poor, especially in small towns and villages. These were the same people who elected him in 2005 and most probably will vote for him again in 2009.

My divorced friend is not poor. In fact, he was doing well until 2005, when his medical equipment import company was hit by the international sanctions imposed as a result of Iran's nuclear programme. His revenues halved within a year, and were reduced a year later to 10 per cent of what they had been.

He thought he had hit rock bottom, but then his wife left him. His flat is in his wife's name. He had promised her five years ago when they married that he would eventually move back with her to America and would have children with her. He has procrastinated on both counts. So she has changed the locks on the door to their flat.

"How can she expect me to move to a country where they treat me like a terrorist?" he asks. "I lived in the US during the hostage crisis [when Iranian students stormed the US embassy in Tehran and held 52 staff hostage from 4 November 1979 to 21 January 1981]. I had to hide my Iranian identity not to get beaten up, even at university."

"So why don't you raise a family in Iran?" I reply.

"How can she expect me to have children in a country where finding crack, heroin, crystal meth and opium is easier than finding a pint of milk? I have to pay thousands of dollars for a decent education in Iran and even then my children may not be able to find a decent job." Iran has the highest divorce rate in the Muslim world. Divorce here has gone up 7 per cent in recent years. Drug addiction and economic problems are the main reasons for this.

Raisin vodka and tax-free goods

My friend has two choices. He can either live full-time with his mother or try to sell his apartment in Houston, Texas, where he studied, and buy something much smaller in Tehran. For now he lives part-time in his office, where he has had to fire all 12 of his employees, and goes to his mother's house for a decent meal and a shower. I offer him extensive use of my shoulder. He will need it for a while. I don't have any money to give him. But it shouldn't be difficult for him to get a mortgage to buy a house, eventually. While the rest of the world is in sub-prime mortgage crisis, the Iranian government hasn't done anything to regulate borrowing since the election of Ahmadinejad. As a university professor, my friend wouldn't have any problem getting a mortgage. God willing, he will also find a way to repay the money at some point.

Like many men around the world who are reluctant to grow up, my friend entertains himself by watching Judd Apatow comedies. He asks me to get him bootleg versions of You Don't Mess With the Zohan and Step Brothers on my way to his office. At the time of writing, Will Ferrell's Step Brothers had only just been released in London but had been widely available in Tehran market for weeks. My friend has also ordered a gallon of raisin vodka in preparation for his night at the office. Drinking alcohol is forbidden in Islam, and selling alcohol is illegal in the Islamic Republic. But Iranian Christians, mostly Armenians, are allowed to produce alcohol for their own consumption. Naturally, they like to share their enjoyment of their produce with their fellow citizens. And, of course, they make some money from selling it. My friend's Armenian supplier is a former pilot. He earns more money distributing alcohol than an IranAir pilot, who has an average salary of around £500 per month, a very large amount for an Iranian.

But in Iran your official salary doesn't mean much. People usually have several jobs to make ends meet. They also try to make more money while doing those jobs. It is not unusual for teachers and government employees who have official monthly salaries of £150 to have a second job as a cab driver. Receiving bribes is an acceptable form of supplementing one's income. An Iranian pilot may officially earn £500 per month but he makes three times as much by bringing tax-free goods from abroad and selling them on the black market. Yet even if an IranAir pilot has an actual monthly income of £2,000, my friend's Armenian vodka supplier makes more than that and never wants to be a pilot again. The local products are not sufficient for the Iranian market. I once visited a very large warehouse, near Suleymaniye in Iraqi Kurdistan, filled with bottles of whisky, cognac and vodka destined for Iran. The owner of the warehouse was a happy man, with impressive love handles, who told me about his house in Majorca.

I'm supposed to pick up the illegal DVDs on the corner of Islamic Republic Avenue and Bobby Sands Street, next to the British embassy. The Iranian government named the street adjacent to the embassy after the Provisional Irish Republican Army volunteer who died while on hunger strike in a British prison.

I once asked an Iranian official: how would he feel if the British named Princes Gate, where the Iranian embassy in London is located, Salman Rushdie Gate? He told me that there was no comparison - Bobby Sands is a martyr and Sal man Rushdie a heretic. He then told me that his next visitor had arrived and asked me to leave his office.

Lying is also forbidden in Islam but, unlike alcohol, it is widely tolerated in the Islamic Republic. If you're caught with a bottle of raisin vodka you can receive 50 lashes on your buttocks. But lying has become something of a virtue among Iranian officials. The government spokesman has several times announced that he knew nothing about the resignation of such-and-such a minister, while the minister himself had announced his decision to resign days earlier. The head of the sports organisation praised the victorious Iranian Olympics team, even though Iran won only two medals at the Games. And the guy selling the illegal DVDs said that they were originals, but when I watch the film I can see the guy sitting in front of the dodgy cameraman in the auditorium choking with laughter on his popcorn as Will Ferrell sings "Por ti volare" at the end of Step Brothers.

To get from Islamic Republic Avenue (which used to be called Shah Avenue) to Freedom Square (formerly Shah's Memorial Square), I have to go through the busy traffic around Revolution Square (formerly 14 March Square, after the shah's father's birthday). Consecutive governments in Iran have acted as if by changing names they can change the nature of things. When the Danish cartoons of the Prophet Muhammad were published in 2005, Danish pastries were officially renamed Muhammad flower pastries. (My American friends, don't laugh! Remember freedom fries?)

"A true, clean, patriotic Iranian"

I'm dozing off in the 35-degree heat while Hassan is still on the phone and his taxi is stuck in a traffic jam in Revolution Square. I'm sure suggesting that Islamic Iran needs another revolution to be free would bring a smile to the face of the US vice-president, Dick Cheney. For years, he has advocated overthrowing the Islamic government through military action, which he is sure Iranian people would welcome. But Cheney would snap out of that mindset, were he in a taxi with Hassan, who has finished his telephone conversation with his son or daughter and now is ready to talk to me.

Hassan declares himself an Ahmadinejad devotee. He has eight children. His eldest son was martyred in 1985 during the Iran-Iraq War. Like many Iranians, Hassan blames America more than any other country, even Iraq, for the war, which cost more than one million lives. He believes that, without American support, Saddam Hussein would not have been able to carry out his savage attacks against Iranian cities. He also believes that the only reason the Americans are against Ahmadinejad and Iran's nuclear technology is that they don't want Iran to be independent.

Like most Iranians, Hassan has a very good long-term selective memory. As we go through Revolution Square, he remembers the CIA coup against the nationalist government of Muhammed Mossadeq in 1953.

"I was here on 16 August 1953. I remember when people brought down the statues of the shah. But then Americans brought him back to power on 19 August," says Hassan. Revolution Square connects Revolution Avenue to Freedom Avenue, which used to be called Eisenhower Avenue, after the American president who helped the shah topple Mossadeq. "Ahmadinejad reminds me of Mossadeq. A true, clean, patriotic Iranian. But he is even better than Mossadeq. Because Ahmadinejad is also a good Muslim."

I ask Hassan why he still drives a cab at his age. "I'm a retired National Railway employee. But my pension is not enough to pay for my youngest son's tuition fees." Hassan's son studies at the Free University, a semi-governmental institution that charges more than state universities, although its degrees are not as valuable. The tuition fees are almost £5,000 per year, more than the average annual income of most Iranians. "So, life is not that good?" I ask Hassan. "I am happy that I'm healthy and can still work at this stage. Otherwise, my family would be in so much trouble," he answers.

"Those things" are a disgrace

Hassan can't understand any part of my divorced friend's story. "It's just unbelievable that people don't respect marriage any more. My youngest son is getting married and the government forces him and his wife to take mandatory family planning courses where they teach them about 'those things'."

By "those things" he means condoms. After the 1979 revolution, the government encouraged people to have more children. "Islam needs more soldiers" was the motto in those days. That created a population increase which scared the government in the early 1990s. Since then, Iran has acquired one of the world's best family planning programmes. Now, every couple who register to get married have to go through family planning classes where they learn about different methods of birth control, including condoms. "It's a disgrace that the government is trying to force people to wear 'those things'. I hope Mr Ahmadinejad changes that policy," says Hassan.

I find my friend half asleep at his desk. He's gone through a quarter of a gallon of raisin vodka. "I like this guy Ahmad inejad," are his greeting words to me. "Why?" I ask. "He's the only one with guts in this country." My friend is happy about Ahmadinejad's defence of an adviser who claimed that "Iranians are friends of Israeli people". The adviser has been chastised by the conservatives and reformists alike for his audacity in declaring compassion for the Zionists. The Grand Ayatollah asked Ahmadinejad to fire him. But the president defied all his critics and stood by him. The same Ahmadinejad who questioned the truth of the Holocaust and allegedly said "Israel will be wiped off the map".

After a long day in the heat thinking about the complexities of my country, my brain is frying. Or maybe years of working as a journalist in Iran are taking their toll on me. In any case, I put on the bootleg DVD of Zohan, in which Adam Sandler plays a counterterrorism agent whose real dream is to be a hairdresser. Now that is a character I can relate to. I, too, wish life was simpler. My friend is absolutely hammered. He's on the phone to his ex-wife, promising her that he is working on their immigration to the United States.

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