I'm not sure about this. I think there's a double standard. I remember everybody supported South Africa banning from sports international competitions during the apartheid, for example. Can't see much of a reason to no apply the same principle to Iran: it may not be an ethnic apartheid, but there is a religious and sexual apartheid, besides their regime being way more beligerant towards their neighbours than South Africa's ever was.
As a basketball team, they completely suck. And Serbian coaches are all over the world (besides USA, of course), though I had never heard of their coach before.
Recently, I've seen a very interesting documentary on an Iranian national sports team, Football Undercover:
http://www.imdb.com/title/tt1160008/Israel play in FIBA Europe (Israel plays under Europeans confederations in all sports). But it's not unusual to see matches between Israel and arab countries. With Iran it's more rare, but of course they would play if they met in an international competition. But that's not going to happen in the Olympics Basketball Tournament, Israel didn't qualify.
Here's a famous match between Iran and Israel, the Asian Cup final in 1968:
http://www.youtube.com/watch?v=uuB4GCZ0MCM