Hezbollah is a state within the Lebanese state. It controls some 25% of the national territory. Almost 400,000 of Lebanon's estimated 4m inhabitants live under its control. It collects its own taxes with a 20% levy, known as "khoms", on all incomes. It runs its own schools, where a syllabus produced in Iran is taught at all levels. It also runs clinics, hospitals, social welfare networks and centres for orphans and widows.
The party controls the elected municipal councils and appoints local officials, who in theory should be selected by the central government in Beirut. To complete its status as a virtual state, the party maintains a number of unofficial "embassies": the one in Tehran is bigger and has a larger number of staff than that of Lebanon itself.
Hezbollah also has its own media including a satellite television channel, Al-Manar (the lighthouse), which is watched all over the Arab world, four radio stations, newspapers and magazines plus a book publishing venture. The party has its own system of justice based on sharia and operates its own police force, courts and prisons. Hezbollah runs youth clubs, several football teams and a number of matrimonial agencies.
Its relationship with the rest of Lebanon is complex; it occupies 14 seats in the 128-seat national assembly and holds two portfolios in the council of ministers. But it still describes itself as "a people-based movement fighting on behalf of the Muslim world".
The backbone of all that is Hezbollah's militia, a fighting force of about 8,000 men, trained and armed with the latest weapons by Iran and Syria. Of these about 2,000 men represent an elite force under the direct command of the party's secretary-general Hassan Nasrallah, a former pupil of the late Ayatollah Khomeini, the man who founded Iran's Islamic republic. But the party also claims more than 30,000 reservists.
Arab and western experts concur that Hezbollah's militia is a stronger fighting force than the Lebanese army that is supposed to disarm it under United Nations resolution 1559. Also, most soldiers in the official Lebanese army are Shi'ites who would balk at fighting their own.
Accounts concerning Hezbollah's arsenal of weapons vary. The militia is said to be armed with Kalashnikov assault rifles and an Iranian rapid-fire gun initially modelled on the Israeli Uzi. The party's crown jewels, however, are an estimated 14,000 rockets and missiles shipped in from Iran over the past six years. Most of these are modified versions of the Soviet-designed Katyusha. The party also has some Chinese-made Silkworm missiles for special use in naval warfare.
"The Israelis would be foolish to think they are dealing with nothing but a bunch of mad fanatics," says a former Iranian diplomat now in exile. "Hezbollah in Lebanon is a state in all but name: it has its territory, army, civil service and economic and educational systems."
A few minutes' drive south from central Beirut takes you into what appears to be a different country. Beirut itself has European-style architecture, shops, hotels and cafes with men and women mostly wearing western clothes.
Once you enter Hezbollah land, the scene changes. You feel as if you are in Qom, the Iranian holy city, with men sporting bushy beards and women covered by mandatory hijab, milling around in noisy narrow streets fronted by nondescript shops. Billboards that advertise global bands in Beirut are used in Hezbollah land for pasting giant portraits of Khomeini and the Iranian "supreme guide" Ayatollah Ali Khamenei. Not surprisingly Hezbollah describes its territory as "Dar al-Iman" (House of Faith).
When it took over southern Lebanon, Hezbollah found a territory devastated by years of domination by the Palestinian al-Fatah (the area had once been called Fatahland) and the Israeli invasion of 1982. There were almost no schools, no hospitals, few jobs and certainly no security.
Hezbollah provided all that. At the same time the movement imposed a strict religious code that gave the poor Shi'ites a sense of moral superiority over other Lebanese who aspired after western lifestyles. A generation of Shi'ites in southern Lebanon has grown up in a world shaped by Hezbollah's radical ideology.
Over the years the Lebanese branch has been woven into Iran's body politic. Many Hezbollah militants and officials have married into Iranian religious families, often connected to influential ayatollahs. Dozens of Lebanese Shi'ites have worked and continue to work in the Iranian administration, especially in the ministries of security, information and culture. Since the mid-1980s, most of the Lebanese Shi'ite clerics have undertaken training in Iran.
In exchange, thousands of Iranian security officers and members of the Revolutionary Guards have lived and worked in Lebanon. As Ali Yunesi, Iran's former intelligence minister, said: "Iran is Hezbollah and Hezbollah is Iran."
Support for Hezbollah cuts across the political divides within the Iranian ruling establishment. Whether "reformist" or "hardliner", Iran's ruling mullahs and their political associates look to Hezbollah as a reflection of their own revolutionary youth. Last week parliamentary members of the Islamic Majlis in Tehran set aside their disputes to unite in their demand to go and fight alongside Hezbollah in Lebanon if Sheikh Nasrallah called them.
Why has Tehran decided to play its Lebanese card now? Part of the answer lies in Washington's decision last May to reverse its policy towards Iran by offering large concessions on its nuclear programme. Tehran interpreted that as a sign of weakness. Ahmadinejad believes that his strategy to drive the "infidel" out of the Islamic heartland cannot succeed unless Arabs accept Iran's leadership.
The problem is that since the Iranian regime is Shi'ite it would not be easy to sell it to most Arabs, who are Sunni. To overcome that hurdle, it is necessary to persuade the Arabs that only Iran is sincere in its desire and capacity to wipe Israel off the map. Once that claim is sold to the Arabs, so Ahmadinejad hopes, they would rally behind his vision of the Middle East instead of the "American vision".
That strategy pushed Israel to the top of Tehran's agenda. This is why, in May, Tehran became the first country to grant the Hamas government in the occupied territories an emergency grant of £27m to cope with a freeze imposed by European Union aid and other international donations. As moderate Arab countries have distanced themselves from Hamas, Iran along with Syria has stepped in.
The pincer war launched by Hamas and Hezbollah against Israel is also related to domestic politics. In the occupied territories, Hamas needs to marginalise Mahmoud Abbas's PLO and establish itself as the sole legitimate representative of the Palestinian people. In Lebanon, Hezbollah wants to prevent the consolidation of power in the hands of a new pro-American coalition government led by Fouad Siniora, the prime minister, and Walid Jumblatt, the Druze leader.
(Shi'ites make up about 40% of the population, Christians 39% and Sunnis, Druze and others the remainder.) If the pincer war against Israel is won, Iran would be able to expand its zone of influence, already taking shape in Iraq and assured in Syria, to take in Lebanon and Gaza. This would be the first time since the 7th century that Persian power has extended so far to the west.
The strategy is high risk. If the Israelis manage to crush Hamas and destroy Hezbollah's military machine, Iran's influence will diminish massively. Defeat could revive an internal Hezbollah debate between those who continue to support a total and exclusive alliance with Iran until the infidel, led by America, is driven out of the Middle East and those who want Hezbollah to distance itself from Tehran and emphasise its Lebanese identity. One reason why Hezbollah has found such little support among Arabs in Egypt and Saudi Arabia this time is the perception that it is fighting Israel on behalf of Iran, a Persian Shi'ite power that has been regarded by the majority of Arab Sunnis as an ancestral enemy.
In Lebanon, for the first time in two generations, a consensus is emerging among the country's different ethnic and religious communities that the only way they can live together in peace is by developing a sense of Lebaneseness.
This means that Arab Sunnis must abandon their pan-Arab aspirations while Christians must stop looking to France as their "original motherland". In that context Hezbollah's Iranian ideology cannot but antagonise the Sunnis, the Druze and the Christians, many of whom are angry at the destruction of their country that Hezbollah has brought about by once again antagonising Israel.
The mini war that is taking place between Israel and Hezbollah is, in fact, a proxy war in which Iran's vision for the Middle East clashes with the administration in Washington. What is at stake is not the exchange of kidnapped Israeli soldiers with Arab prisoners in Israel. Such exchanges have happened routinely over five decades. The real issue is who will set the agenda for the Middle East: Iran or America?