"Imagine a different November 4, 1979, in Teheran. Shortly after Iranian terrorists storm the American embassy and take some 90 American hostages, President Jimmy Carter announces that Islamic fundamentalism is not a legitimate response to the excess of the Shah but a new and dangerous fascism that threatens all that liberal society holds dear. And then he issues an ultimatum to Teheran’s leaders: Release the captives or face a devastating military response."

I don't think this would have worked. First of all, we were still in a Cold war. Did you want the Soviets saying they would defend Iran? I think Carter's hands were tied and could only have a limited affect as far as forcing some resolution to problem

I agree that '79 in Teheran was a turning point, which led the Iraq/Iran war. I agree that the emerging Iranian leadership had made a huge mistake. I think that our focus should not have been about gaining the return of hostages. Instead what we should have focused on is shaping the Iranian leadership. Now, the Iranians wanted the Shah. What they wanted was eliminate the possiblity of him returning to power, they wanted to establish their sovereign status in regard to internal and external relations.
"As Khomeini continued to study and rise from the rank of pupil to ayatollah, he was angered by the interference of foreign powers in Iran. Foreign governments often supported Iranian leaders who promoted modern policies that violated Islamic traditions. The first of these leaders was Reza Shah Pahlavi. In 1921 he overthrew Iran's first constitutioal government with the support of the Russian government. Khomeini wrote this of Pahlavi's government in 1941, "all orders issued by the dictatorial regime... have no value at all." Muhammad Reza Shah Pahlavi came to power in 1941 with the help of Great Britain, France, and the United States. Then in the early 1960s Pahlavi proclaimed a White Revolution in which he introduced many Western ideas. Khomeini vehemently attacked the shah's policies, prompting the shah to expel him from Iran in 1964.

Khomeini then forged his doctrine of the "Rule of the Jurist," which called for the clergy to govern, and spread his ideas through a network of 12,000 students. He urged Iranians to topple the shah and his American allies. The Shah was finally overthrown and forced to flee the country in January of 1979."
http://www.80s.com/Icons/Bios/ayatollah_ruhollah_khomeini.html

I would say the last thing we wanted to do was hand Iran over to the Soviets- and threating overt war would do just that. Instead what we should have done is guarantee that the Shah or his family would ever be tried to be attempted to re-established in Iran. We could have formed a treaty with Iran. We could offer to hold high level discussions. What we could have done is approach this problem as a Muslim would approach it. We should have got the advise and help from Saudi Arabia. We should have done this negotiation in such a way that it would strengthen the moderate muslim clerics- having other clerics talk to Iranian clerics. Our emphasis in regard to hostages, should be that they are treat well and with respect- we should have insisted that they be regarded a "honored guests" opposed to hostages or prisoners. They were holding these hostages in order to gain legitimate sovereignty, so we should have gone a long with this idea because it was in our national interest to have a stable Iran.