The Guardian Council announced today that they would be recounting "Contested" districts, but that Iranian constitutional law does not allow them to annul the vote. This is entirely possibly true, and I really have little enough interest in studying Iranian Constitutional Law to figure this out. Either way, it won't be annulled, which leaves a few options from here.
1) Recount supports status quo. If the Guardian Council wants Ahmedinejad to win, and only really cares about dampening the blow of stealing the election, then they will close the gap a bit, admit some mistakes, but let him squeak by. This, I think, is the most likely outcome.
2) Recount leads to re-vote. If the recount puts Ahmedinejad under 50% and nobody over 50%, then he and Mousavi will face off in a re-vote. The Guardian Council here would have to be either seriously dedicated to honesty or seriously terrified of unrest to go this path. It is possible this will happen if they recount (by which I mean, "accurately report in") enough districts, especially urban areas.
3) Recount leads to Mousavi victory. This is pretty unlikely. One of Mousavi's big complaints was that his districts had problems of intimidation, extortion, and woeful under-balloting--the Guardian Council is ignoring all of these problems by ordering a recount, and not an annulment. Such an outcome would also be pretty obviously admitting massive fraud, rather than just a bunch of mistakes/irregularities, and the Guardian Council would very much like to avoid that. Even if they decide Mousavi should win, they're going to send it to another vote to do that.
If option 1 is chosen, the options for the Mousavi crowd are acquiescence or revolution--the latter being particularly tough given the brutal, fanatical, and gun-toting nature of the Revolutionary Guard (and the "progressive" curtailment of citizens owning weapons in Iran). But they can make enough trouble to seriously cripple the administration in the eyes of the West and even much of the Arab world, but they're going to need to do a lot of dying to do so.
If option 2 is chosen, there is some hope, but Iran continues to block phone service, pro-Mousavi websites, etc, and continues to jail reformist politicians. Organization will be difficult, but it can be guaranteed that anyone that stayed home in the last vote will come out this time as part of the Green Revolution. This is the option where the Guardian Council gets to gain (rather than burn) some popularity by appearing to save the country from some corrupt lower bureaucrats, or something similar.
But, now all one can do is sit back and wait. The US' decision not to publicly denounce the election may be working in their favor--Iran is making a big fuss over the EU having done it, and if there's anything that can kick up Ahmedinejad support, it's the US or Israel appearing to try and interfere with Iranian politics. I give the Clinton/Obama crowd a lot of credit for that level of discretion and wisdom.