Iran isn't a conventional military threat, if a threat at all.
The problem is, it's rather hard to tell just how sincere the religious leadership is in its belief in the doctrine of the 12th Imam. The doctrine calls for violence and chaos which will in turn presage the return of a historical Shi'ite religious figure to secure worldwide peace. To the extent that it is believed, the leadership (which really controls the country, not Ahmadinejad) is liable to see a silver lining in an escalation of violence in the Middle East, or perhaps even in the use of a nuclear device.
So, the question is, how should the West behave given the difficulty of ascribing beliefs to the Iranian leadership? Personally, I think Iran has rationally promoted its survival thus far and is unlikely to become suicidal once it gets breakout capacity. They won't use a device or let terrorists get a hold of it, nor will they ever close the Strait of Hormuz (all of which would be suicidal to the regime).