In 1948 the Jewish Agency envoy in Tehran wrote back to the Jerusalem headquarters a short letter stating that the situation in Iran is hopeless for the Zionist organization. Paradoxically, those were fascinating years for the Jewish population in Iran. During that time Jews began to climb up the social ladder, leave the Jewish quarters and integrate into Iranian society. They enjoyed religious and political freedoms that Iran had offered since Mohammad Reza Pahlavi ascended to throne in 1941. What was it, then, that caused such discomfort to the Zionist envoy in 1948? My paper analyzes the relationship between the Zionist and the Jewish Iranian identities in Iran during the Pahlavi era, from documents of a myriad of Jewish and Zionist organizations, and Iranian writings on this topic. Unlike the Arab Jewish communities, the Iranians did not flee en masse after the establishment of the State of Israel, and their approach to Zionism was ambivalent. While they sympathized with the Zionist cause, and celebrated the establishment of a Jewish homeland, they felt better than ever before regarding their chances to flourish and succeed in Iran, which in turn strengthened their Iranian national identity. As a result, the majority of the community stayed in their Iranian homeland. The American Joint Jewish Distribution Committee efforts to rehabilitate the community in the postwar era was at odds with Israel’s attempts to bring the community to Israel at once, thus causing a minor rift between the JDC and Israel.