In 1921, Reza Khan, an army officer, effected a coup d'etat and established a military dictatorship. He was subsequently elected hereditary Shah, thus ending the Qajar dynasty and founding the new Pahlavi dynasty. In 1941, two months after the German invasion of the Russia, British and Russian forces occupied Iran. On 16th of September Reza Shah abdicated in favor of his son Mohammad Reza Shah Pahlavi. American troops later entered Iran to handle the delivery of war supplies to the Russian fronts.
At the Tehran Conference in 1943 the Tehran Declaration, signed by the United States, Great Britairt, and Russia, guaranteed the independence and territorial integrity of Iran. However, the Russians, dissatisfied with the refusal of the Iranian government to grant oil concessions, formed a revolt in the north which led to the establishment of puppet governments called the People's Republic of Azarbaijan and the Kurdish People's Republic (December 1945), headed by Russian- controlled party leaders.
When Russian troops remained in Iran following the expiration of a wartime treaty (January 1946) that also allowed presence of American and British troops, Iran protested to the United Nations. The Russians finally withdrew (May 1946), after receiving a promise of oil concessions from Iran subject to the approval by the Parliament.
 

The Russian-established governments in the north, lacking popular support, were deposed by Iranian troops late in 1946, and the Parliament subsequently rejected the oil concessions. In 1951, the National Front Movement, headed by Premier Musaddiq, a militant nationalist, forced the Parliament to nationalize the oil industry and form the National Iranian Oil Company (NIOC). Although a British blockade led to the virtual collapse of oil industry and serious internal economic problems, Musaddiq continued his nationalization policies. Openly opposed by the Shah, Musaddiq was ousted in 1952 but quickly regained power. The Shah fled the country but returned when the apparently monarchist American-British supported elements forced Musaddiq from office in August 1953. In 1954, Iran allowed an international consortium of British, American, French, and Dutch oil companies to operate its oil facilities, with profits equally shared between Iran and the consortium. After 1953, a succession of Premiers restored a measure of order to Iran; in 1957 martial law was ended after 16 years in force.
Iran established closer relations with the West, joining the Baghdad Pact (later called the Central Treaty Organization), and received large amounts of military and economic aid from the United States until the late 1960s. Starting in 1960s and continuing into the 1970s, the Iran government undertook an apparently broaprogram (The White Revolution) designed to improve economic and social conditions. Land reform was a major priority. In an effort to transform the feudal peasant- landlord agricultural system, the government purchased estates and sold the land to the people; it also distributed large tracts of crown land. In January 1963 an extensive plan was approved for further land redistribution, compulsory education, and a system of profit sharing in industry; the program was financed by the selling of government-owned factories to private investors. The Shah was doing everything, even establishing a government-backed political party, in order to ready Iran for an allegedly democratic political set-up.
However, the various reform programs and the continuing poor economic conditions alienated some of the major religious and political groups; there were riots in mid- 1963. In 05 June 1963 Iran's most important religious nation-wide uprising led by the late Ayatollah Khomeini, took place in protest to the so-called White Revolution. The general political instability was reflected by the assassination of Premier Hassan Ali Mansur and an unsuccessful attempt on the Shah's life in January 1965. Arnir Abbas Hoveida succeeded as Premier and was in power until 1977. In October 1971, Iran commemorated the 2,500th anniversary of the Persian Achaemenian Empire of Cyrus the Great with an elaborate celebration in the desert at Persepolis.
Iran's pro-Western policies continued into the 1970s, although improved relations, especially in the economic sphere, were established with the communist countries, including the former Soviet Union. However, relations with Iraq were strained for much of the late 1960s and early 1970s, and there were a number of armed clashes along the entire length of the border. In April 1969 Iran voided the 1937 accord with Iraq on the control of Arvand Rud (Shat al-Arab) and demanded that the treaty, which had given Iraq virtual control of the river, be re-negotiated. In 1971, Britain withdreYV' its military forces from the Persian Gulf.
Concerned that Soviet-backed Arab nations might try to fill the power vacuum created by the British withdrawal, Iran increased its defense budget and emerged as the region's strongest military power.
Although Iran renounced all claims to Bahrain in 1970, it regained control of three of 1ts former small islands at the mouth of the Persian Gulf which were under British occupation until November 1971. Iraq protested Iran's action by expelling thousands of Iranian nationals. In March 1973, short after the termination of the 25-year 1954 agreement with the international oil producing consortium, Iran established the NIOC's full control over all aspects of Iran's oil industry, and the consortium agreed (May 1973) to act merely in an advisory capacity in return for favorable long-term oil supply contracts.
In the aftermath of the Arab-Israeli War of October 1973, Iran, reluctant to use oil as a political weapon, did not participate in the oil embargo against the West and Japan. However, it used the situation to become a leader in the raising of oil prices in disregard of the Tehran Agreement of 1971. Iran utilized the revenue generated by price rises to bolster its position abroad as a creditor, to initiate domestic programs of modernization and economic development, and to further increase its military power. It is a common knowledge that during the whole period of Mohammad Reza Shah's rule in Iran (1941-1979) the United States was given a free hand to all aspects and national resources of the land.