Have administrators approve user accounts after users confirm their e-mail addresses and set passwords
Easiest way is kinda like what frazras said, leave the regular auth process but use rules to send an email to admin group/role when a user confirms registration.

You'll probably want to use views to create a view then that looks for the user role (the default confirmed user) and create a confirmed or approved user role (be sure to strip the user role of all permissions &amp; grant permissions to your new role that are how you want them). In the view you are creating make sure to exclude anyone that's a member of any role other than just user &amp; maybe anon.

The link to that view in an email to admins makes it easy to monitor You could probably put in a link to approve via the email though I'd strongly advise not letting users approve users without verification unless you're comfortable with your ability to secure it.

http://drupal.org/project/Rules
http://drupal.org/project/views