WHEN BARACK Obama steps into the Oval Office for the first time .as president, he will be in the unique position of having earned the support not just of Americans who chose him in a historic and dramatic election but of millions around the world who would have voted for him if they could have. It has been widely observed that on November 4 the United States held the first-ever world election and Obama was the clear winner.

No other American president in memory will have started in office with such broad public support overseas. His international star power will help to recover some of America’s credibility and trust lost during the past decade due to Iraq, Guantánamo and Abu Ghraib. And, it will allow Obama and his team to more easily negotiate the treacherous foreign-policy waters ahead in their first months in office.

Obama will surely need that capital. Obama mania is so fervent in many parts of the world that expectations for what he might do to transform America’s international standing are absurdly high and, in some countries, wildly distorted. German Social Democrats will undoubtedly be disappointed that Obama does not recreate in the United States their version of the welfare state. Arabs and Pakistanis will find that an Obama administration continues to exercise power diplomacy in their regions. Hugo Chávez will undoubtedly discover that a summit in Caracas is not the first step Obama will take in our own hemisphere.

His beginning in office will be unique in another regard. He faces the most difficult and daunting set of domestic- and foreign-policy challenges since at least Franklin D. Roosevelt’s own inauguration in 1933. When the postmortems are written on his presidency four to eight years from now, will he have succeeded in constructing, as Woodrow Wilson and FDR before him, a new U.S.-led global order to meet the complex challenges of our time? Or, will America retrace the fate of the British Empire of a century ago and begin a long, gradual slide from world power? Obama faces no less of a test than this: Can America once again reinvent both its future and the international system and thus change history itself?

It will be on Obama’s watch that the United States will respond to perhaps the most vital challenge we face—how to guide the American people toward a new type of international leadership in a changing, globalized world. With the cold war long past and America’s unipolar moment over, Obama’s high-wire balancing act will be to both repair the cracks in America’s dominant global position and reach out to others—at home and abroad—bringing them into a more cooperative, collegial and collaborative virtual governing board of the world. Obama’s America will need to lead as the strongest global player but do so more consciously with others, especially rising powers China, India and Brazil.

Becoming a more effective global leader requires the Obama team to meet two rather straightforward tests. First, whether President Obama’s rhetoric conveys a convincing sense that the U.S. global agenda will benefit people around the world on the issues they care about most. When American rhetoric is heard overseas as “it’s my way or the highway,” and “you’re either with us or against us,” it is not a winning message.

If, instead, Obama continues his more inclusive campaign language of using the global “we”—of what the people of the world can accomplish together—he will be much more likely to earn the kind of international support that any great power requires to be successful in its international strategy.

A second test will be whether Obama can convey a sense of confidence and optimism to Americans and the rest of the world that the awesome global challenges we face—such as climate change and terrorism—can be overcome by a united international effort. In short, can he inspire hope around the world in American leadership and not fear?

DESPITE THE conventional gloom and doom about America’s current standing in the world, Obama will actually begin his presidency with some rather significant advantages. As he sits down with Joe Biden, Hillary Clinton, Bob Gates and Jim Jones to assess the basic health of U.S. foreign policy, they will undoubtedly note the strengths of America’s international position, and not just the weaknesses.

To start with, the United States is still the single, strongest global power. It will remain so for decades to come. Consider American power by any metric.

Militarily, Commander in Chief Obama can count on the continued supremacy of U.S. forces worldwide. During his time in office, we will still spend more on our national defense than the next ten countries combined. We will still be the only country capable of projecting force on a global basis and sustaining troops in faraway theaters for years at a time. We will remain the only country that leads powerful multinational military alliances in both Europe and Asia—a crucial underpinning of America’s global power. And, we will retain the remarkable capacity of our armed forces that have demonstrated their quality and competence in the interventions of the last fifteen years in Bosnia and Kosovo, Afghanistan and Iraq.

Politically, the United States shall remain, as Madeleine Albright said during her tenure as secretary of state, the world’s “indispensable country.” While anti-Americanism is pervasive in many parts of the globe, foreign governments still count on us to lead on the toughest problems.

In the Middle East, Palestinians and Israelis still see Washington as the crucial intermediary for peace. In South Asia, we hold, for better or worse, the key to the future of Afghanistan. In Africa, the United States is well respected and many governments desire more American involvement on their continent, not less. In Europe, the United States is still considered by most as the one continental power critical to preserving and safeguarding the peace—a role that has taken on renewed importance with the resurgence of an aggressive Russia. In Asia, we find ourselves called upon to referee tensions between China and Taiwan, and to lead the multinational effort to deal with rogue regimes such as Burma. In our own hemisphere, we are the hub of an axis of market democracies from Canada and Mexico to Brazil, Colombia and Chile that is still a much more attractive model than the one offered by Hugo Chávez and the Castro brothers. The political and diplomatic reach of the United States will be one of President Obama’s principle weapons in negotiating the dangers of twenty-first century global politics.

Economically, America is of course in a far more tenuous position. But despite the fact that the American economy is in a downward spiral, and that even worse days could be ahead of us, the United States will remain the largest global economy for years to come. Our economic weight and fate are still the most important factor in global prosperity and stability. The dollar, though weakened, remains the single, most important world currency. Furthermore, as Fareed Zakaria points out in his excellent new book, The Post-American World, the United States is the undisputed leader in two key areas where international economic competitiveness may play out in the future—nanotechnology and biotechnology. And we are well positioned to maintain our lead in science and technology if President Obama launches aggressive government support for a new era of green technologies.

Culturally, we are, as Harvard professor Joe Nye has said, the world’s most effective practitioner of soft power. Our most successful companies are still the single, greatest exporter of American influence in an increasingly integrated global market. Microsoft supplies the nerve center for millions of computers worldwide; Starbucks and McDonalds are in every global capital; and Boeing is still the dominant force in international air travel. As Zakaria noted, we still attract the greatest number of foreign students to what is arguably our most successful global brand—our colleges and universities. This pervasive American soft power is a real factor in determining the global balance of power and it helps to augment American strength in the short- and long-term.

THERE IS even more positive, perhaps even surprising, news for Team Obama—it will not need to start from scratch on all of the most difficult foreign-policy challenges. President Bush will have left them some truly daunting problems, to be sure. But, in certain key areas, President Obama will inherit policies that are working well for the United States.

Even Bush administration critics acknowledge that its most important, and perhaps least heralded, accomplishment is the strengthening of our ties to the rising powers of the world. The United States has built an effective and stable relationship with China, no small feat considering the explosive issues—the trade imbalance, differences on human and religious rights and consumer product safety, to name a few—at its heart. On India, President Bush took the baton from President Clinton and constructed a new and promising global-strategic partnership with the world’s largest democracy through the Civil Nuclear Accord and newfound military cooperation in the Indian Ocean. This growing strategic partnership promises concrete, long-term benefits for Americans—from increased trade and investment, to growing military ties, to a genuine regional partnership in Asia with the soon-to-be largest country in the world by population. With President Lula of Brazil, Bush engineered a joint biofuels initiative and elevated our joint work for peace and recovery in Haiti.

Led by Secretary of State Condoleezza Rice, the Bush administration also repaired and rebuilt, in its second term, the critical bridges across the Atlantic linking us to our European allies that had been badly shaken by the Iraq crisis in 2002–2003. Secretary Rice established close diplomatic bonds with the UK, France, Turkey and Germany, in particular, which are vital for us on nearly every global problem.

Her skilled and exhaustive efforts to lasso North Korea’s nuclear ambitions are also close to fruition. While the final deal is not yet set, it is within reach for an equally deft and determined Obama effort in 2009–10.

In Africa, the United States is highly regarded due to President Bush’s strategic and humanitarian commitment in the massive HIV/AIDS- and malaria-relief programs. This is recognized and appreciated by millions of Africans, as is our newfound partnership with Nigeria and South Africa and our work with the African Union on regional security issues. Finally, and most important, President Bush has put in place counterterrorism policies that have contributed to the prevention of a single, catastrophic attack in our country since 9/11.

NOW COMES the hard part. It will be up to Obama to build on these strengths but also take on the other enormous challenges ahead.

If there is one great strategic shift that the Obama team will focus on in its first day in office, it is that America’s vital, national interests are now more engaged in South Asia and the Middle East than in any other part of the world. For nearly all of the last century, America was active on all global fronts but focused more on Europe than anywhere else because that was where the five-alarm fires were burning. From Woodrow Wilson sending more than a million American soldiers to the Western Front in the Great War to Bill Clinton’s interventions in Bosnia and Kosovo more than seventy years later, Europe was America’s key concern. Those twenty-first century fires now burn in South Asia and the Middle East.

In spite of the Bush administration’s success on India, South Asia presents two huge, negative fault lines. The war in Afghanistan-Pakistan may turn out to be for Obama the crucible that Iraq was for George W. Bush.

As Obama takes office, the war seems to be turning in a decidedly negative direction. Taliban attacks on American and Afghan forces have grown in intensity and effectiveness throughout 2008. The new Pakistani government seems unwilling or unable to exert effective counterforce against Taliban and al-Qaeda safe havens on the Pakistani side of the mountainous border. As American troops fight bravely in the violent east and south, many of NATO’s European forces, including those from Germany, Italy and Spain, are sitting in relative safety and security in the more placid north and west, refusing service in the hot combat areas. NATO’s existential crisis, caused by one half of the alliance squarely taking on the fight and the other avoiding it, must be resolved if there is to be any chance of an eventual success. Even more important, NATO has been unable to create an effective counterinsurgency campaign against the Taliban as its military efforts have been completely separated from the UN’s economic and humanitarian activities. The successful integration of the two that General David Petraeus managed so brilliantly in Iraq is glaringly absent in Afghanistan.

In the Middle East, Obama will inherit an Iraq War in transition. With upwards of one hundred and fifty thousand American troops still in the country, Obama’s first task will be to figure out how and when to draw down their numbers in a way that does not weaken Iraq’s ever-fragile internal power balance. The clear success of the surge is a critical and hopeful basis for a new American policy, but Obama’s difficult balancing act will be to bring our soldiers home in a way that does not reignite the destructive passions that tore Iraq apart for most of the American occupation.

We may not be able to manage such a drawdown or to take on the long-term challenge of instability in the Middle East if we do not craft a more coherent and effective approach to Iran. The challenge from Iran is substantial. Iran is a disruptive and violent force for instability in Iraq, where it has turned some of the Shia militant groups against U.S. forces. In the wider region, Iran is funding and arming many of the Middle East terrorist groups that are shooting at us, the Israelis and our moderate Arab friends. And, the most serious and pressing strategic threat is Iran’s desire to become a nuclear-weapons state. Should it achieve that aim, it will alter the region’s balance of power against the United States and our friends.

American contacts with Iran have been in a deep freeze since the Ayatollah Khomeini’s revolution thirty years ago. During all this time, we have essentially had no meaningful, sustained interaction with the governing authorities in Tehran. It is simply not in the American interest to lack real knowledge of the views and motivations of our primary adversary in the region.

In this sense, Obama is surely right that we should now open a channel to Tehran to explore whether or not the Iranian government is willing and capable of addressing some of our major differences. Obama will choose how and when to do that. But, he will need the political space to try diplomacy without being branded an appeaser, a dynamic that will place great responsibility on the shoulders of Republican leaders to let him try diplomacy.

Obama seems likely to focus first on the nuclear issue by reassembling the international coalition (including Russia, China and Europe), opening talks with Iran and then gauging whether or not Tehran is serious about negotiations. If so, Obama might be able to pursue a complex and difficult diplomatic path to avoid the use of force and a possible third war in the region. If not, he will eventually face a truly brutal choice between military action to retard the nuclear effort or a long-term policy of containing and deterring a more powerful nuclear-armed Iranian state.

Obama will need to decide whether to use American capital to mediate a peace between Israelis and Palestinians. Condi Rice succeeded in launching an Annapolis process that has laid the foundation for an eventual peace built on a state for the Palestinians and long-term security for Israel. Depending on the results of the Israeli elections in February, Obama may have a narrow opening to carry on Rice’s initiative and push the two sides toward an agreement. Nothing would do more to help remove the cancer from the heart of America’s Middle East policy and to change the dynamics in the region toward a greater acceptance of American power.

BEYOND THE Middle East and South Asia, Obama must develop with the rising powers of the world a new global consensus concerning the great security challenges of our era. From climate change to terrorism to global health crises, only resolute international and multilateral action can have a hope of resolving them.

Obama will inherit from his predecessors many strong, emerging partnerships with rising powers India, Brazil, Mexico, South Africa and Indonesia. Yet, finding a way to work effectively with Russia and China will likely turn out to be one of Obama’s most complex foreign-policy challenges.

Obama’s real problem in working with Vladimir Putin will be to balance dramatically opposite and competing ambitions in Washington and Moscow. On the one hand, Washington needs to recover a working relationship with Moscow. We cannot afford a new cold war that will put into a deep freeze our ability to sort out problems with Russia. The United States needs Russia on energy. It needs Russian cooperation to conduct an effective, worldwide counterterrorist campaign. And it will still need Russian cooperation to have any hope of blocking Iran’s nuclear ambitions in the Middle East.

On the other hand, the United States will also have to push back diplomatically against Russian attempts to intimidate the Baltic states (now our NATO allies) or prevent Georgia and Ukraine from choosing a future of cooperation with NATO and the European Union. We should not and cannot turn a blind eye to Russia’s increasingly aggressive and transparent campaign to recreate a sphere of influence in Central Europe and the Caucasus by bullying and intimidating its smaller neighbors. If one of the greatest benefits of the end of the cold war was the liberation of more than 300 million Eastern Europeans from imperial Soviet hegemony, it cannot now be in our interest to allow the Russians to draw new dividing lines once more in Europe. Obama will find at the sixtieth-anniversary NATO summit in April that our ten new Central European allies are counting on us to stand up to Moscow while the Western Europeans cringe from provoking the Russian bear. Europe is hopelessly divided on how to cope with a resurgent, increasingly aggressive Russia. Obama’s challenge is to mend those differences and thus reunite the NATO alliance.

China poses a different type of challenge. China is the fastest-growing major power in the world in all dimensions. It is now undoubtedly the second-strongest global power. How it chooses to use that power will shape the future of America’s own global role and of international stability in the years ahead.

China also has work to do. Beijing must take more seriously its responsibilities as a rising power. While China has been a largely positive force in pushing North Korea toward a deal in the six-party talks and helpful on the financial crisis, it more often than not seems to be governed by mercantile impulses that place short-term economic gain over global stability. It has protected the Burmese military regime—one of the world’s most brutal—from effective sanctions by the Security Council. It has refused to use its clear influence in Sudan to push the Khartoum government to permit an effective UN force to go into Darfur. On Iran, it has blown a hole in the UN sanctions effort, for which it voted, by encouraging its companies to trade with Tehran when Berlin, Paris and Rome ordered their companies out. As a result, China has suddenly become Iran’s largest trade partner.

It is now increasingly clear, however, that those in the United States who see in China a twenty-first century reincarnation of the Soviet threat from the twentieth are in the minority. There is a growing American consensus that while we will continue to have major differences with China on human and religious rights, on trade and intellectual property and on Beijing’s rising military budget, the best way for us to handle an increasingly powerful China is to engage it in a web of interlocking global responsibilities. Then–Deputy Secretary of State Bob Zoellick’s challenge to China in 2005 to be a global “stakeholder” is still surely the right prescription for a stable U.S.-China relationship in the future.

This is especially true in light of our increasingly symbiotic economic and financial relationship, which the recent crisis has made all too clear. China, the great saver in global finance today, has consistently bailed out the United States, the world’s great spender, by investing in our markets. China has become our most important creditor. It is hard to see how the United States can recover from the global financial collapse without continued Chinese investment. Thus, keeping China close and cooperative will be the primary American challenge.

WITH OR without China’s help, Obama will need to contain the financial crisis and chart an eventual recovery. We simply will not be able to manage an effective foreign and defense policy if the economic foundations of our country are crumbling. Obama will need to find a way to limit the short-term damage to consumers and investors alike. He will need to put in place new regulatory and tax policies to provide for longer-term financial security. Most important, many of the institutions that form the backbone of “the international community” are antique vestiges of the aftermath of the Second World War. Can Obama lead in modernizing them to deal more effectively with the long-term aspects of the financial crisis?

He will have to work with the other leading, economic powers of the world to revive and then redesign the Bretton Woods institutions, and perhaps create new ones, to ensure success in a completely different era in global economics. Obama’s challenge will be to fashion a compromise between interventionist Europeans who may be inclined to overregulate markets and rob financiers of the positive benefits of rational risk and those who still believe self-correcting forces can eventually return us to financial stability. And, he will need to start fast as the second G-20 conference to hash out a new international economic regulatory future may take place just six weeks after the inauguration.

On the political side, the situation is no more promising. Americans should recognize that the most legitimate and credible global institution is the United Nations. But, the most critical UN body, the Security Council, reflects the power balance at the close of the Second World War. The Security Council risks becoming an afterthought when so many of the world’s people are unrepresented there. A Security Council without Japan, India, Brazil or a single African country is doomed to ineffectiveness and irrelevance.

If Obama wants to get ahead of the curve and send a clear and dramatic signal to the developing world that he understands a new age has dawned, he could call for an expansion of the Council. Such an expansion need not be so large as to dilute the effectiveness of the body’s decision making but could be limited to five to six new members, all of whom should come in without the veto. Some will argue that any expansion will weaken U.S. influence. That is old thinking reminiscent of the cold war’s zero-sum mentality. In the twenty-first-century globalized world in which we now live, the United States should want the rising countries of the world to shoulder more of the burden for peacekeeping, assistance to poor countries and annual dues to the United Nations system itself where the United States still must pay the largest share of the costs.

None of this, of course, can happen without effective diplomacy. Since the fall of communism nearly twenty years ago, the United States has fully funded our military and intelligence capabilities but allowed diplomacy to atrophy. It is understandable that the four wars in which we have been involved since that time—in Bosnia, Kosovo, Afghanistan and Iraq—required a major budgetary commitment to the military. And, our ongoing campaign to battle terrorist groups around the world justifies fully capable and well-funded armed forces. The same argument supports a strong intelligence apparatus.

But shouldn’t Americans want to have a world-class, fully equipped diplomatic corps? In many ways, the great majority of the global problems we face can be best confronted by aggressive diplomacy and by a modern, well-funded assistance effort. The problem for the United States is we have neither.

In 1999, the Clinton administration chose to abolish the U.S. Information Agency that did so much to present a positive image of our country around the world. The U.S. Agency for International Development, thirteen thousand officers strong during the Vietnam War and our principal vehicle to extend economic and humanitarian assistance worldwide, is now reduced to a few thousand officers who do not have the resources to cope with the demands placed upon them. And the State Department, our country’s major foreign-affairs arm, has only six thousand five hundred officers. To put that in perspective, our diplomatic corps is outnumbered by the musicians we employ in the marching bands of the U.S. Army, Navy, Air Force and Marines.

In the modern world, there is no substitute for diplomacy. America’s current, glaring weakness is that we are grossly imbalanced in our approach to the world, underfunding diplomacy and often viewing it as a last resort, rather than our first line of offense.

Even if Obama gets all of this right, he is going to need the support of the American people. Will Obama be able to convince them that the era of globalization leaves us no alternative but to be centrally engaged on all continents?

Our national history and DNA suggest otherwise. Since America’s inception as a nation-state, one of the most prominent features of our foreign policy has been the tension between those who have argued for forthright global engagement versus those who believe America should wall itself off from the problems of the world. This vacillation between international leadership on the one hand and isolationism on the other has crippled us at key moments during the last one hundred years, most noticeably after the First World War and Vietnam. We cannot now afford another lengthy national debate about whether and how to lead in the world, much less one complicated by those who argued disastrously over the last decade for a more unilateral approach in foreign policy.

If the largest strategic development of our time is the clear shift from the industrial to the globalization age, how can President Obama right the foreign-policy ship of the United States and steer a clear and safe course into the future unless we choose purposeful engagement in the world? More than any other factor, how Obama fares in convincing Americans to continue to shoulder the burdens of global leadership will determine the success or failure of his foreign policy.

IN THE early autumn as the financial storms hit Wall Street, countless foreign journalists wrote the same script—the American Century was over and American power permanently weakened. But, while American power in the world has indeed been diluted by the financial crisis, all of the other significant powers in the world have been hurt too. And while some, like Russia’s Vladimir Putin, may harbor dreams that the crisis will lead to a permanent diminution of American power, most countries still want the United States to lead. They accept that no other country can guide a return to global stability. President Obama will thus take over leadership of a government that will unquestionably remain the world’s most influential during his time in office and well beyond.

In the final analysis, Obama’s success may well come down to this—can he convince the world that America has a positive and unifying message and policy that will improve the human condition? This is not as Olympian a task as it may seem. And, Obama is perfectly positioned in temperament, style and policy to be one of the rare American presidents who manages to inspire the world and thereby make America again a moral compass.

Our greatest twentieth-century presidents convinced both Americans and those beyond our shores that good people could triumph against the greatest odds. Woodrow Wilson did so in calling for self-determination of the world’s colonized as four empires collapsed at the end of the First World War. Franklin Roosevelt inspired hope in the face of panic when he proclaimed the Four Freedoms. John F. Kennedy overcame America’s fear and distrust of the Soviet leadership by negotiating a limited Test Ban Treaty with Nikita Khrushchev after the near miss of a nuclear holocaust during the Cuban Missile Crisis. Ronald Reagan spoke for the most enduring American values, ringing the bell against communism and in favor of human liberty when the Soviet Union and Warsaw Pact came crashing down.

As he takes the oath of office, Obama can draw upon these examples of American presidential leadership that united, rather than divided the world; that inspired hope and optimism rather than fear and doubt.

Despite the extraordinary challenges he must meet and the awesome burden of a global financial crisis, it is this elementary test of leadership that will be, at once, Barack Obama’s greatest foreign-policy challenge and greatest opportunity. He seems more than ready to meet it.

R. Nicholas Burns is Professor of the Practice of Diplomacy and International Politics at the John F. Kennedy School of Government at Harvard University.