By John Lancaster and Nora Boustany
Washington Post Foreign Service
Sunday, March 1, 1998; Page A01

BAGHDAD, Iraq—Saad Hassani, a professor of modern drama at Baghdad University, still recalls the day seven years ago when American bombs toppled a communications tower near his home, so terrifying his 5-year-old son that the child did not utter a word for nearly two weeks.

A bearded, British-educated scholar whose literary tastes run from Samuel Beckett to Edgar Allan Poe, Hassani has since endured crippling international trade sanctions that have wiped out Iraq's middle class, pulverized its industrial base and ruined education and health care systems that once were the envy of the Arab world.

But Hassani, 45, is daring to believe in the future again. Like many Iraqis, he considers last week's visit here by U.N. Secretary General Kofi Annan a potential turning point in his country's long struggle to shed its pariah status and rejoin the modern world.

PRE-WAR AND CURRENT ECONOMIES IN IRAQ Iraq has been punished by international trade sanctions since it invaded Kuwait in 1990. Some Iraqis view last week's visit by U.N. Secretary General Kofi Annan as a potential turning point in their country's long struggle to shed its pariah status and rejoin the modern world. A look at the Iraqi economy before the war and now: POPULATION PREWAR: 17.6 (1989) NOW: 21.2 million (1996) URBAN POPULATION PREWAR: 72% (1986) NOW: 75% (1996) GROSS NATIONAL PRODUCT PREWAR: $35 billion (1985) NOW: $41 billion (GDP, 1995) PER CAPITA INCOME PREWAR: $1,740 (1984) NOW: $2,000 (1995) IMPORTS PREWAR: $7.4 billion (1987) NOW: $1.9 billion (1994) EXPORTS PREWAR: $9 billion (1987) NOW: $450 million (1994) In a deal negotiated with the United Nations, Iraq is allowed to sell $2 billion in oil every six months; of the proceeds, about two-thirds goes toward food and medicine and the rest toward war reparations to Kuwaitis and others, as well as U.N. costs. SOURCES: World Almanac, Population Reference Bureau

It is not only that Annan and President Saddam Hussein managed to resolve, at least for now, a crisis over U.N. weapons inspections that had threatened to mushroom into the biggest American military strike since the 1991 Persian Gulf War. Just as important, in Hassani's view, is the effect Annan's visit had of spotlighting Iraqi suffering under the sanctions regime and of easing Iraq's sense of physical, diplomatic and psychological isolation.

"The sense of optimism is rather high now," said Hassani, whose son, now 13, still stammers as a result of his wartime trauma. "A great number of people seem to be thinking of us. . . . For the first time, we do not feel quite so aloof from the rest of the world."

Hassani and his countrymen may be in for a big disappointment.

The Clinton administration has reacted with extreme caution to the unexpected deal between Annan and Saddam Hussein. It has warned that U.S. military forces now massed in the Persian Gulf are poised to respond immediately to subsequent breaches of Iraq's disarmament obligations -- a highly plausible scenario, given the Iraqi leader's long history of challenges to the inspection regime.

Some foreign envoys here say Saddam Hussein's decision to permit inspections of "presidential" sites -- the crux of the latest crisis -- is a tactical retreat that merely has postponed an inevitable bloody showdown with the United States. Even if Saddam Hussein cooperates with the inspections, there is no guarantee that the United States -- one of five permanent members of the U.N. Security Council -- would permit sanctions to be lifted as long as he remains in power.

But if Washington, in particular, remains deeply skeptical of Saddam Hussein's intentions, his handling of the latest crisis -- and his courting by the U.N. secretary general -- seem to have won points for him among Iraqis desperate for any sign of an end to their long ordeal.

"People don't know what the future is going to bring, but to be fair, they do give him credit for avoiding a military strike, which he didn't do in '91," said an intellectual who, like many of Iraq's 20 million people, secretly blames Saddam Hussein for much of the nation's agony. "Even his enemies would say he is learning."

If the mood in Baghdad seems brighter these days, it is partly because the sanctions' effects have been ameliorated by a successful smuggling industry and the U.N. oil-for-food program, which permits Iraq to sell limited quantities of oil and use the proceeds to buy food and medicine.

Although most Iraqis are mired in poverty, a conspicuous class of "war rich" has emerged in the last several years, fueling a boomlet in restaurants, clothing boutiques and neon-lighted ice cream parlors, some filled to capacity on weekends.

Government officials, encouraged by signs of growing international sympathy toward Iraq, are planning to rehabilitate the country's infrastructure and industry, a process that by some reckonings could take six years and $60 billion once sanctions are lifted.

In that endeavor, they got some encouragement from Annan, who proposed more than doubling the oil-for-food program, to $5.2 billion every six months. Under the proposal, the details of which still must be negotiated with Baghdad, oil revenues also could be used to pay for rehabilitation of schools, hospitals and, potentially, oil facilities.

Although U.N. officials are reluctant to discuss the subject, saying they have no information on the Iraqi national budget, an expanded oil-for-food program almost certainly would free government resources for other areas, including improvements to the military.

"The people of the world are fed up with the embargo against Iraq," said Salah Mukhtar, editor of the government-owned al-Jumhuriyah newspaper. "It is no longer a problem for Iraq. It is a problem for the United States."

A rehabilitated Iraq would be once again a formidable power in the Middle East. Unlike most Arab countries, the ancient land of Mesopotamia is abundantly supplied with oil -- it has the world's second-largest reserves, after Saudi Arabia -- as well as water, which permits it to grow its own food.

Even a grueling eight-year war with Iran in the 1980s did not prevent Saddam Hussein from spending lavishly on infrastructure, social programs and benefits for the middle class. Clothing was so heavily subsidized, Mukhtar recalled, that a $100 European suit could be bought for $40 in Baghdad. The reputation of Iraqi doctors, many of whom studied in the West, is such that even today people from neighboring countries travel here for medical treatment -- although now they must bring their own pharmaceutical and hospital supplies.

Although the capital is grimy and ill-kept after seven years of sanctions, echoes of its comfortable bourgeois past are evident in its palm-lined boulevards, spacious villas and abundant parks and cultural centers. On weekends, young couples enjoy the Tigris River from the deck of a cruise ship operated by the Iraqi national airline, whose planes are grounded under the sanctions regime. Families head into the surrounding countryside to search for precious desert truffles, now flourishing after plentiful winter rains.

Such glimpses of normal life, however, only underscore how far the country has fallen under the trade embargo, imposed after Iraq's 1990 invasion of Kuwait. Much of the country's educated elite has fled; power generation is only 40 percent of prewar levels; and poultry production has plummeted by 95 percent, according to the office of U.N. humanitarian aid in Baghdad.

Perhaps most alarming to U.N. aid workers is the effect of the embargo on children under age 5: An estimated 30 percent suffer from chronic or acute malnutrition. "There has to be a better way of doing it," said a senior U.N. official who spoke on condition of anonymity.

Another conspicuous category of victims is the large class of salaried professionals -- doctors, university professors, engineers -- whose incomes were rendered almost worthless by the plunge in the Iraqi currency, the dinar.

Mona Elwan, for example, earns the equivalent of $5 a month as head of the English department at Baghdad University College for Women. Elwan, who earned a doctorate from a university in Washington state, gave up her washing machine because there were no spare parts to fix it and sold her dryer for extra cash.

"I used to buy mayonnaise," she said. "Now I have to make it."

At the English department, meanwhile, professors struggle to do their jobs with manual typewriters, no copy machines and chronic shortages of stationery and supples. "Students have a desire to learn, but they need good teachers," she said. "Even if the teacher goes to class, if he is unhappy and worried he cannot reach the students."

Physical hardships aside, educated Iraqis speak of their frustration at being largely cut off from technological advances, like the Internet and mobile telephones. "We are backward in the world," said Murtaza Khafaf, 58, recalling her first encounter with a fax machine during a recent trip to neighboring Jordan. "I said, 'My God, I'm so ignorant.' "

In the view of diplomats and U.N. humanitarian officials here, Iraq's isolation has had a profound psychological effect on young people, encouraging strains of nationalism and xenophobia. Many of these young people, moreover, are assuming positions of leadership in the ruling Baath Party, which held regional elections last year.

Central to their beliefs is the idea that the United States and Britain are determined to deny Iraq its rightful place as leader of the Arab world, no matter who runs the country. "Iraq has had the leadership of the Arab countries throughout history," said Ali Abdel Amir, 19, the son of a retired army captain and a second-year geography student at Baghdad University.

"Iraq is not just a robot that moves simply under instruction to others," added Amir, who carried a battered -- though unloaded -- Kalashnikov assault rifle, which is issued to members of the student militia. "We live under the survival law. It's just an international jungle."

Other Iraqis, however, warn foreigners against reading too much into public displays of support for Saddam Hussein in a country where political dissent can have lethal consequences. Many students, said one government employee, participate in the "volunteer" militia simply to avoid trouble with university bureaucrats or security officials.

And Hassani, the drama professor, disputed the suggestion that young Iraqis are turning their backs on the outside world. "On the contrary, they would like more openness," he said of his students. "They would like to know more about the world, and they like the world to know more about us."