Although economic conditions were soon to improve dramatically, the country had not yet fully recovered from the recession of the 1959-63 period, which had imposed hardships on the poorer classes. Mansur attempted to make up a budget deficit of an estimated US$300 million (at then prevalent rates of exchange) by imposing heavy new taxes on gasoline and kerosene and on exit permits for Iranians leaving the country. Because kerosene was the primary heating fuel for the working classes, the new taxes proved highly unpopular. Taxicab drivers in Tehran went on strike, and Mansur was forced to rescind the fuel taxes in January, six weeks after they had been imposed. An infusion of US$200 million in helped the government through its immediate financial difficulties.

With this assistance, Mohammad Reza Shah was able to maintain political stability despite the assassination of his prime minister and an attempt on his own life. On January 21, 1965, Mansur was assassinated by members of a radical Islamic group. Evidence made available after the Islamic Revolution revealed that the group had affiliations with clerics close to Khomeini. A military tribunal sentenced six of those charged to death and the others to long prison terms. In April there was also an attempt on the shah's life, organized by a group of Iranian graduates of British universities. To replace Mansur as prime minister, the shah appointed Amir Abbas Hoveyda, a former diplomat and an executive of the National Iranian Oil Company (NIOC). Hoveyda had helped Mansur found the Progressive Center and the
Iran Novin and had served as his minister of finance.

Hoveyda's appointment marked the beginning of nearly a decade of impressive economic growth and relative political stability at home. During this period, the shah also used Iran's enhanced economic and military strength to secure for the country a more influential role in the Persian Gulf region, and he improved relations with Iran's immediate neighbors and the Soviet Union and its allies. Hoveyda remained in office for the next twelve years, the longest term of any of Iran's modern prime ministers. During this decade, the Iran Novin dominated the government and the Majlis. It won large majorities in both the 1967 and the 1971 elections. These elections were carefully controlled by the authorities. Only the Mardom Party and, later, the Pan-Iranist Party, an extreme nationalist group, were allowed to participate in them. Neither party was able to secure more than a handful of Majlis seats, and neither engaged in serious criticism of government programs.

In 1969 and again in 1972, the shah appeared ready to permit the Mardom Party, under new leadership, to function as a genuine opposition, i.e., to criticize the government openly and to contest elections more energetically, but these developments did not occur. The Iran Novin's domination of the administrative machinery was further made evident during municipal council elections held in 136 towns throughout the country in 1968. The Iran Novin won control of a large majority of the councils and every seat in 115 of them. Only 10 percent of eligible voters cast ballots in Tehran, however, a demonstration of public indifference that was not confined to the capital.

Under Hoveyda the government improved its administrative machinery and launched what was dubbed "the education revolution." It adopted a new civil service code and a new tax law and appointed better qualified personnel to key posts. Hoveyda also created several additional ministries in 1967, including the Ministry of Science and Higher Education, which was intended to help meet expanded and more specialized manpower needs. In mid-1968 the government began a program that, although it did not resolve problems of overcrowding and uneven quality, increased the number of institutions of higher education substantially, brought students from provincial and lower middle-class backgrounds into the new community colleges, and created a number of institutions of high academic standing, such as Tehran's Arya Mehr Technical University.