Iago transfers his jealousy to Othello because he feels that Othello should share the pain and rejection that he feels over not having been appointed lieutenant.  When the position was announced, Iago assumed that he would be named lieutenant because of his previous service to Othello.  However, Michael Cassio receives the promotion, and this angers Iago because Cassio is much younger than him and Cassio is not as close to Othello as Iago is.  Iago feels that Othello has disrespected his character and spited his name, so he thinks that his plot for revenge is justified.  In his scheming, Iago plans to make Othello feel just as jealous of Cassio as he does, so this is why Iago baits Cassio with the embroidered handkerchief.  And Othello does end up feeling a jealous rage towards Cassio, although, of course, for a different reason.