We describe an inverse free electron laser (IFEL) interaction driven by a near single-cycle THz pulse that is group velocity-matched to an electron bunch inside a waveguide, allowing for a sustained interaction in a magnetic undulator. We discuss the application of this guided-THz IFEL technique for compression of a relativistic electron bunch and synchronization with the external laser pulse used to generate the THz pulse via optical rectification, as well as a laser-driven THz streaking diagnostic with the potential for femtosecond scale temporal resolution. Initial measurements of the THz waveform via an electro-optic sampling based technique confirm the predicted reduction of the group velocity, using a curved parallel plate waveguide, as a function of the varying aperture size of the guide. We also present the design of a proof-of-principle experiment based on the bunch parameters available at the UCLA PEGASUS laboratory. With a THz peak field, our simulation model predicts compression of a electron beam by nearly an order of magnitude and a significant reduction of its initial timing jitter.