"The United States did not supply any arms to Iraq until 1982, when Iran's growing military success alarmed American policymakers. It then did so every year until 1988. Although most other countries never hesitated to sell military hardware directly to Saddam Hussein's regime, the United States, equally keen to protect its interests in the region, adopted a more subtle approach. Howard Teicher served on the United States National Security Council as director of Political-Military Affairs. According to his 1995 affidavit and other interviews with former Regan and Bush administration officials, the Central Intelligence Agency secretly directed armaments and high-tech components to Iraq through false fronts and friendly third parties such as Jordan, Saudi Arabia, Egypt and Kuwait, and they quietly encouraged rogue arms dealers and other private military companies to do the same:
"The CIA, including both CIA Director Casey and Deputy Director Gates, knew of, approved of, and assisted in the sale of non-U.S. origin military weapons, ammunition and vehicles to Iraq. My notes, memoranda and other documents in my NSC files show or tend to show that the CIA knew of, approved of, and assisted in the sale of non-U.S. origin military weapons, munitions and vehicles to Iraq."
The full extent of these covert transfers is not yet known. Teicher's files on the subject are held securely at the Ronald Reagan Presidential Library and many other Reagan era documents that could help shine new light on the subject remain classified."

(From T's reference pthread).

"Now, in early August of 1986, when Bush was in the Middle East, C.I.A. officials in Baghdad for the first time began directly providing the Iraqi military with highly classified tactical intelligence information. The C.I.A. also provided Saddam with equipment to receive intelligence information from satellites, which would help him assess he effects of his air strikes on Iran. According to one official, the intelligence provided to the Iraqis during and after the summer of 1986 "was specific to assisting them in their air war."* Saddam's suspicions of the United States may have been eased somewhat by the involvement of an emissary as highly placed as the American Vice-President. *(Jonathan Pollard comments: This is only half the story. The amount and type of intelligence transferred to Iraq was far greater than what was reported here. The transfer also started a lot earlier than August 1986. In fact, I first saw this material headed for Baghdad back in the Spring of 1984. And it very definitely included information pertaining to the Israeli Defense Forces, not just Iran.)

On August 5th, Bush returned to Washington and was debriefed by Casey. "Casey kept the return briefing very close to his vest." One of his aides says. "But he said Bush was supportive of the initiative and had carried out his mission."

On the same day, however, the covert machinations almost came undone. Low-level American Embassy officials in Riyadh, Saudi Arabia, had learned of the Saudi transfer of United States arms to Iraq earlier that year. Unaware that the Reagan Administration had secretly authorized the arms transfer, the officials went so far as to question Prince Bandar Ibn Sultan, the Saudi Ambassador to the United States, who told them that the transfer had been accidental and the amount had been small. The day Bush returned to Washington, the State Department sent a secret cable seeking further information about the bomb sales to Saddam. The cable warned that the that the Arms Export Control Act required the State Department to report the arms transfer to Congress. It said, "We shall be forwarding such notification in the next few days in classified letters to the Speaker of the House and the Chairman of the Senate Foreign Relations Committee." Exposure of the arms transfer could have had significant consequences for Saudi Arabia. President Reagan had recently notified Congress that he intended to transfer the first of five AWACS planes, worth $3.5 billion, to the Saudis. The State Department cable warned that the AWACS sales could be endangered by disclosure of the Saudi's arms transfer. It added:

We are concerned, naturally, about possible reactions to this unauthorized transfer. Section 3 provides for the possibility of a presidential determination of ineligibility of such a country for further FMS credits and guarantees, although Department has always taken the posture the President is not required to do so. The same section also gives the Congress the opportunity, by adoption of a Joint Resolution, to declare a country ineligible for FMS sales. This is a possibility we must treat seriously given the previous debate on arms sales.
In the end, the Reagan Administration had little to worry about. The White House sent a notification letter to the chairman of the Senate Foreign Relations Committee, Richard Lugar, claiming that the arms sales were "inadvertent," that only a "small quantity of unsophisticated weapons" had been transferred, and that the transfers were "unauthorized." In fact, the sales were done purposefully; the Administration knew that fifteen hundred bombs had been sold to Iraq; and most important, the sales had been covertly authorized by the Reagan Administration. One senator said he approached Lugar about rumors that Saudi Arabia was sending United States arms to Iraq. "Dick Lugar told me there was nothing to it, and so I took his word," the senator told us. There the matter ended. The senator said that Lugar told him he was relying on the word of the White House."

From Pollard in the New Yorker

"When Bush became President, in January ,1989, he increased aid to the regime of Saddam Hussein. Why, after the end of the Iran-Iraq War, the Reagan and Bush Administrations accelerated their support for Saddam has never been fully explained. But classified documents and interviews with senior officials indicate that the relationship between the United States and Saddam Hussein became strained after the revelations that the Reagan Administration had also sent arms to Iran. "We had to work doubly hard to recoup the stature we lost with Saddam," one official told us in an interviews. As Whitehead had written in his memo, "It should be remembered...that we have weathered Irangate." More would need to be done to develop closer ties with "the ruthless but pragmatic Saddam Hussein."

Once again, a failed covert policy -in this case, to arm Iran- led to another: increased covert support for Iraq that would facilitate its crash program to develop ballistic, chemical, and even nuclear weapons. Bush implemented the new policy despite the fact that several government departments had repeatedly warned of Saddam's massive military buildup, human-rights violations, and continued support for terrorism. In March, 1989, State Department officials told the new Secretary of State, James Baker, that Iraq was working on chemical and biological weapons and that terrorists were still operating out of Iraq. In June, the Defense Intelligence Agency sent a top-secret report to thirty-eight high-level Bush Administration officials, warning that it had discovered a secret military-procurement network for Iraq operating in countries around the world, including the United States. In September, the Defense Department discovered that an Iraqi front company in Cleveland was funneling United States technology to Iraq's nuclear-weapons program, but the Bush Administration allowed the company to continue operations -even after the invasion of Kuwait.

On September 3rd, a C.I.A. assessment, classified "Top Secret," informed Baker that Iraq had a program to develop nuclear weapons and had "made use of covert techniques" to obtain the high technology it needed to build a bomb. The report identified some of the specific dual-use technology that Baghdad's procurement network was trying to obtain around the world for its nuclear-weapons program, including oscilloscopes, high-speed cameras, and centrifuges."...Ibid