President Carter applied economic pressure by halting oil imports from Iran and freezing Iranian assets in the United States. At the same time, he began several diplomatic initiatives to free the hostages, all of which proved fruitless. On Apr. 24, 1980, the United States attempted a rescue mission that failed. After three of eight helicopters were damaged in a sandstorm, the operation was aborted; eight persons were killed during the evacuation. Secretary of State Cyrus Vance, who had opposed the action, resigned after the mission's failure.

In 1980, the death of the shah in Egypt and the invasion of Iran by Iraq (see Iran-Iraq War) made the Iranians more receptive to resolving the hostage crisis. In the United States, failure to resolve the crisis contributed to Ronald Reagan's defeat of Carter in the presidential election. After the election, with the assistance of Algerian intermediaries, successful negotiations began. On Jan. 20, 1981, the day of President Reagan's inauguration, the United States released almost $8 billion in Iranian assets and the hostages were freed after 444 days in Iranian detention; the agreement gave Iran immunity from lawsuits arising from the incident.

In 2000 former hostages and their survivors sued Iran under the 1996 Antiterrorism Act, which permits U.S. citizens to sue foreign governments in cases of state-sponsored terrorism. The following year they won the lawsuit by default when Iran did not offer a defense. The U.S. State Dept. sought dismissal of the suit, arguing it would hinder its ability to negotiate international agreements, and a federal judge dismissed the plaintiffs' suit for damages in 2002, ruling that the agreement that resulted in their release barred awarding any damages.