diff --git a/README.md b/README.md
index a6410300abc..db3bfa29900 100644
--- a/README.md
+++ b/README.md
@@ -41,6 +41,7 @@ Requirements are extremely minimal.
 If you are running python 2.6 on the 'overlord' machine, you will need:
 
    * paramiko
+   * python-jinja2
    * PyYAML (if using playbooks)
 
 If you are running less than Python 2.6, you will also need
@@ -161,6 +162,9 @@ An example showing a small playbook:
 
     ---
     - hosts: all
+      vars:
+        http_port: 80
+        max_clients: 200
       user: root
       tasks:
       - include: base.yml
diff --git a/ansible.spec b/ansible.spec
index c9aa6516209..b8d36012c5b 100644
--- a/ansible.spec
+++ b/ansible.spec
@@ -13,6 +13,7 @@ BuildArch: noarch
 Url: http://github.com/mpdehaan/ansible/
 BuildRequires: asciidoc
 Requires: python-paramiko
+Requires: python-jinja2
 
 %description
 Ansible is a extra-simple tool/API for doing 'parallel remote things' over SSH
diff --git a/examples/playbook.yml b/examples/playbook.yml
index 4cda6dde3d6..7890c35b06e 100644
--- a/examples/playbook.yml
+++ b/examples/playbook.yml
@@ -1,15 +1,18 @@
 ---
 - hosts: all
   user: root
+  vars:
+    http_port: 80
+    max_clients: 200
   tasks:
   - include: base.yml
-  - name: configure template & module variables for future template calls
-    action: setup http_port=80 max_clients=200
-  - name: write the apache config file
+  - name: write the apache config file using vars set above
     action: template src=/srv/httpd.j2 dest=/etc/httpd.conf
     notify:
     - restart apache
   - name: ensure apache is running
     action: service name=httpd state=started
+  - name: pointless test action
+    action: command /bin/echo {{ http_port }}
   handlers:
     - include: handlers.yml
diff --git a/examples/playbook2.yml b/examples/playbook2.yml
index 342a9e79cad..494d1089a13 100644
--- a/examples/playbook2.yml
+++ b/examples/playbook2.yml
@@ -1,8 +1,10 @@
 ---
 - hosts: '*'
+  vars:
+    a: 2
+    b: 3
+    c: 4
   tasks:
-  - name: config step
-    action: setup a=2 b=3 c=4
   - name: copy comand
     action: copy src=/srv/a dest=/srv/b
     notify: 
diff --git a/lib/ansible/playbook.py b/lib/ansible/playbook.py
index e89ee67cf16..522078abeee 100755
--- a/lib/ansible/playbook.py
+++ b/lib/ansible/playbook.py
@@ -24,6 +24,8 @@ import yaml
 import shlex
 import os
 
+SETUP_CACHE={ 'foo' : {} }
+
 #############################################
 
 class PlayBook(object):
@@ -150,7 +152,8 @@ class PlayBook(object):
             remote_pass=self.remote_pass,
             module_path=self.module_path,
             timeout=self.timeout,
-            remote_user=remote_user
+            remote_user=remote_user,
+            setup_cache=SETUP_CACHE
         ).run()
 
     def _run_task(self, pattern=None, task=None, host_list=None,
@@ -274,6 +277,7 @@ class PlayBook(object):
 
         # get configuration information about the pattern
         pattern  = pg['hosts']
+        vars     = pg.get('vars', {})
         tasks    = pg['tasks']
         handlers = pg['handlers']
         user     = pg.get('user', C.DEFAULT_REMOTE_USER)
@@ -283,8 +287,35 @@ class PlayBook(object):
         if self.verbose:
             print "PLAY [%s] ****************************\n" % pattern
 
-        # run all the top level tasks, these get run on every node
+        # first run the setup task on every node, which gets the variables
+        # written to the JSON file and will also bubble facts back up via
+        # magic in Runner()
+        push_var_str=''
+        for (k,v) in vars.items():
+            push_var_str += "%s=%s " % (k,v)
+        if user != 'root':
+            push_var_str = "%s metadata=~/.ansible_setup" % (push_var_str)
 
+        # push any variables down to the system
+        setup_results = ansible.runner.Runner(
+            pattern=pattern,
+            module_name='setup',
+            module_args=push_var_str,
+            host_list=self.host_list,
+            forks=self.forks,
+            module_path=self.module_path,
+            timeout=self.timeout,
+            remote_user=user,
+            setup_cache=SETUP_CACHE
+        ).run()
+
+        # now for each result, load into the setup cache so we can
+        # let runner template out future commands
+        setup_ok = setup_results.get('contacted', {})
+        for (host, result) in setup_ok.items():
+            SETUP_CACHE[host] = result
+
+        # run all the top level tasks, these get run on every node
         for task in tasks:
             self._run_task(
                 pattern=pattern, 
diff --git a/lib/ansible/runner.py b/lib/ansible/runner.py
index 59b0491b34e..a0370e8a393 100755
--- a/lib/ansible/runner.py
+++ b/lib/ansible/runner.py
@@ -29,9 +29,10 @@ import signal
 import os
 import ansible.constants as C 
 import Queue
-import paramiko
 import random
-
+import paramiko
+import jinja2
+        
 ################################################
 
 def noop(*args, **kwargs):
@@ -62,6 +63,7 @@ class Runner(object):
         remote_user=C.DEFAULT_REMOTE_USER,
         remote_pass=C.DEFAULT_REMOTE_PASS,
         background=0,
+        setup_cache={},
         verbose=False):
     
         ''' 
@@ -75,9 +77,10 @@ class Runner(object):
         remote_user -- who to login as (default root)
         remote_pass -- provide only if you don't want to use keys or ssh-agent
         background --- if non 0, run async, failing after X seconds, -1 == infinite
+        setup_cache -- used only by playbook (complex explanation pending)
         '''
 
-        # save input values
+        self.setup_cache = setup_cache
        
         self.host_list, self.groups = self.parse_hosts(host_list)
         self.module_path = module_path
@@ -91,6 +94,7 @@ class Runner(object):
         self.remote_pass = remote_pass
         self.background  = background
 
+
         # hosts in each group name in the inventory file
         self._tmp_paths  = {}
 
@@ -201,10 +205,17 @@ class Runner(object):
 
     def _execute_module(self, conn, tmp, remote_module_path, module_args):
         ''' 
-        runs a module that has already been transferred
+        runs a module that has already been transferred, but first
+        modifies the command using setup_cache variables (see playbook)
         '''
-        args = [ str(x) for x in module_args ]
-        args = " ".join(args)
+        args = module_args
+        if type(args) == list:
+            args = [ str(x) for x in module_args ]
+            args = " ".join(args)
+        inject_vars = self.setup_cache.get(conn._host,{})
+        template = jinja2.Template(args)
+        args = template.render(inject_vars)
+
         cmd = "%s %s" % (remote_module_path, args)
         result = self._exec_command(conn, cmd)
         self._delete_remote_files(conn, [ tmp ])
@@ -217,6 +228,16 @@ class Runner(object):
         '''
         module = self._transfer_module(conn, tmp, self.module_name)
         result = self._execute_module(conn, tmp, module, self.module_args)
+        # when running the setup module, which pushes vars to the host and ALSO
+        # returns them (+factoids), store the variables that were returned such that commands
+        # run AFTER setup use these variables for templating when executed
+        # from playbooks
+        if self.module_name == 'setup':
+            host = conn._host
+            try:
+                var_result = json.loads(result)
+            except:
+                var_result = {}
         self._delete_remote_files(conn, tmp)
         return self._return_from_module(conn, host, result)
 
@@ -303,6 +324,7 @@ class Runner(object):
         # module, call the appropriate executor function
 
         ok, conn = self._connect(host)
+        conn._host = host
         if not ok:
             return [ host, False, conn ]
            
diff --git a/library/setup b/library/setup
index c5de2e9f221..30e16032381 100755
--- a/library/setup
+++ b/library/setup
@@ -96,10 +96,9 @@ md5sum2 = os.popen("md5sum %s" % ansible_file).read().split()[0]
 if md5sum != md5sum2:
    changed = True
 
-result = {
-   "written" : ansible_file,
-   "changed" : changed,
-   "md5sum"  : md5sum2
-}
+new_options['written'] = ansible_file
+new_options['changed'] = changed
+new_options['md5sum']  = md5sum2 
+
+print json.dumps(new_options)
 
-print json.dumps(result)