The Star Students Of The Islamic Republic.(Special Report; THE EDUCATION RACE)

Forget Harvard--one of the world's best undergraduate colleges is in Iran.

In 2003, administrators at Stanford University's Electrical Engineering Department were startled when a group of foreign students aced the notoriously difficult Ph.D. entrance exam, getting some of the highest scores ever. That the whiz kids weren't American wasn't odd; students from Asia and elsewhere excel in U.S. programs. The surprising thing, say Stanford administrators, is that the majority came from one country and one school: Sharif University of Science and Technology in Iran.

Stanford has become a favorite destination of Sharif grads. Bruce A. Wooley, a former chair of the Electrical Engineering Department, has said that's because Sharif now has one of the best undergraduate electrical-engineering programs in the world. That's no small praise given its competition: MIT, Caltech and Stanford in the United States, Tsinghua in China and Cambridge in Britain.

Sharif's reputation highlights how while Iran makes headlines for President Mahmoud Ahmadinejad's incendiary remarks and its nuclear showdown with the United States, Iranian students are developing an international reputation as science superstars. Stanford's administrators aren't the only ones to notice. Universities across Canada and Australia, where visa restrictions are lower, report a big boom in the Iranian recruits; Canada has seen its total number of Iranian students grow 240 percent since 1985, while Australian press reports point to a fivefold increase over the past five years, to nearly 1,500.

Iranian students from Sharif and other top schools, such as the University of Tehran and the Isfahan University of Technology, have also become major players in the international Science Olympics, taking home trophies in physics, mathematics, chemistry and robotics. As a testament to this newfound success, the Iranian city of Isfahan recently hosted the International Physics Olympiad--an honor no other Middle Eastern country has enjoyed. That's because none of Iran's neighbors can match the quality of its scholars.

Never far behind, Western tech companies have also started snatching them up. Silicon Valley companies from Google to Yahoo now employ hundreds of Iranian grads, as do research institutes throughout the West. Olympiad winners are especially attractive; according to the Iranian press, up to 90 percent of them now leave the country for graduate school or work abroad.

So what explains Iran's record, and that of Sharif in particular? The country suffers from many serious ills, such as chronic inflation, stagnant wages and an anemic private sector, thanks to poor economic management and a weak regulatory environment. University professors barely make ends meet--the pay is so bad some must even take second jobs as taxi drivers or petty traders. International sanctions also make life difficult, delaying the importation of scientific equipment, for example, and increasing isolation. Until recently, Iranians were banned from publishing in the journals of the Institute for Electrical and Electronics Engineers (IEEE), the industry's key international professional association. They also face the indignity of often having their visa applications refused when they try to attend conferences in the West.