ABOUT 1 P.M. ON DEC. 3, 1986, I PHONED THE DIRECTOR OF THE CENTRAL INTELLIGENCE Agency, William J. Casey. It was a week after Attorney General Edwin Meese III had, at his now-famous nationally televised press conference, disclosed the diversion of funds from the Iranian arms sales to the Nicaraguan contras. Casey was eating his lunch as we chatted. It would be our next to last conversation, one of more than four dozen interviews or substantive discussions we had had in the past four years. The Iran-contra affair was unraveling, and a number of administration and congressional leaders were saying that Casey was finished at the CIA, his days of freewheeling covert operations about to come to a crashing halt.

"We'll come out smelling like a rose," he said between bites, categorically disputing what I had heard, claiming that the chairman and the vice chairman of the Senate Select Committee on Intelligence believed the CIA was clean. "We were barred by law from supporting the contras, and we didn't." He munched on his sandwich, a note of seeming casualness in his voice as if he had spoken the final word on the subject.

The CIA had made two trivial mistakes on the Iran arms sales, he said. "It's not a Supreme Court case," he added. It was one of his favorite lines.

Was the whole thing a big sting operation by the Iranians to get some U.S. weapons?

"Bullshit -- the president said woo them and we did." BOUT 1 P.M. ON DEC. 3, 1986, I PHONED THE DIRECTOR OF THE Central Intelligence Agency, William J. Casey. It was a week after Attorney General Edwin Meese III had, at his now-famous nationally televised press conference, disclosed the diversion of funds from the Iranian arms sales to the Nicaraguan contras. Casey was eating his lunch as we chatted. It would be our next to last conversation, one of more than four dozen interviews or substantive discussions we had had in the past four years. The Iran-contra affair was unraveling, and a number of administration and congressional leaders were saying that Casey was finished at the CIA, his days of free-wheeling covert operations about to come to a crashing halt.

"We'll come out smelling like a rose," he said between bites, categorically disputing what I had heard, claiming that the chairman and the vice chairman of the Senate Select Committee on Intelligence believed the CIA was clean. "We were barred by law from supporting the contras, and we didn't." He munched on his sandwich, a note of seeming casualness in his voice as if he had spoken the final word on the subject.

The CIA had made two trivial mistakes on the Iran arms sales, he said. "It's not a Supreme Court case," he added. It was one of his favorite lines.

Was the whole thing a big sting operation by the Iranians to get some U.S. weapons?

"Bullshit -- the president said woo them and we did."

To another question, he said, "Goddammit, don't needle me. I don't know why I take your calls." But in four years, he had never once denied my request to speak with him.

I said I thought he had to know the contras were receiving diverted funds. The contra cause was his pet covert operation. He had conceived, managed and nurtured it for five years. It was, by his own account, the key to the counter-strategy to thwart the Soviets worldwide. But he denied any knowledge, a position he maintained until a final conversation before his death. Finally he grew impatient with my questions and took a more personal tack. "I expect you to exercise the normal restraint of an adult," he said.

Well, others, many others, are saying that you knew more, had to be involved. The logic was overwhelming.

"That's why I wouldn't have your job for all the money in the world," the director said crisply. "You're destined to be right only a part of the time." THE CIA JOB WAS NOT CASEY'S FIRST CHOICE AFTER MANAG- ing Ronald Reagan's election victory in 1980. He had secretly wanted to be secretary of state or defense. State and Defense counted. They would be the instruments of Reagan's foreign and military policy. A month before the election, anticipating a Reagan victory, Casey had positioned himself for the job at State, creating a little-noticed interim foreign-policy board and identifying the most immediate and important challenge for the incoming administration -- the communist insurgency in the tiny Central American country of El Salvador.

But Casey understood that he might have to settle for less than State. At 67, he was, if anything, a realist. Though a dedicated, lifelong Republican, he had not been a longtime, committed Reaganaut or one of Reagan's California intimates. Nonetheless he felt strong bonds to his candidate. Reagan was only two years older, and the two men shared a generational view. Both had been poor as children. Casey was attracted to the variety in Reagan's life -- sportscaster, actor, labor union officer, governor and conservative spokesman with stamina. It mirrored somewhat the variety in Casey's -- lawyer, author, Office of Strategic Services spymaster in World War II (he was writing a book on the OSS) and former government official. They had both seen the Depression and four wars.

Casey practiced a rich man's law from his office at 200 Park Ave. in New York. Since grammar school in lower-middle-class Queens, N.Y., his life had been a steady march to the other, better side of the tracks. He had learned the art of advancement on two levels: first, through business and personal wealth (his net worth was $9,647,089); second, through political involvement. All this had been earned, he realized, at the partial expense of his reputation. Many saw him as an unsavory businessman, a corner-cutter who had made quick money through a string of opportunistic investments, and as a man who astutely played the stock market he had regulated as chairman of the Securities and Exchange Commission in 1973-74.

After Reagan's election, Alexander M. Haig Jr. emerged as the front-runner for State. Nancy Reagan thought of him as a dashing figure, a kind of leading man. Casey wasn't. The few strands of wiry white hair on the edges of his bald head each embarked on its own stubborn course, contributing to the appearance of an absent-minded professor. His ears were overlarge, even flappy. Deep facial wrinkles shot down from each end of his flat nose, passing his mouth on either side to fall beyond his chin and lose themselves in prominent jowls. His face and head seemed not just old, but haggard, and he walked with a rickety swagger as if he might tip over. He told a friend, "I won't get State. We all supported Haig. We need the prestige." But when he didn't land Defense, he was miffed and went home to New York to catch up on the rest of his life. When Reagan called with the offer to head the Central Intelligence Agency with the additional responsibility for U.S. intelligence agencies as director of central intelligence, or DCI as it was called, Casey's first response was cool. He said he wanted to think it over and consult his wife, Sophia. THERE WAS NO QUESTION THAT THE CIA JOB APPEALED TO him. He was an intense, driven man who believed in ideas -- his ideas -- and in risk-taking. In the couple of years before he joined the Reagan campaign, Casey had written a book. Tentatively titled The Clandestine War Against Hitler, the 600-page manuscript recounted OSS spying operations in World War II and had two main characters. The first was Casey. The second was Casey's mentor and surrogate father, Gen. William (Wild Bill) Donovan. Casey drew a loving portrait of the OSS founder, a roly-poly man with soft blue eyes and an unrelenting curiosity and drive. Donovan had been twice the age of the 30-year-old Lt. j.g. Casey when they met in Washington in 1943, but Donovan had closed the multiple gaps of generation, military rank and social background. Donovan wanted to know what someone could do. Results counted. "The perfect is the enemy of the good," Donovan said often. Casey would have walked through fire for him. Donovan always visited the scene of the action, showing up at nearly every Allied invasion as if it were opening night on Broadway.

Donovan had bestowed great responsibility on Casey during the last six months of the war. Casey had written a memo saying, "OSS must be ready to step up the placing of agents within Germany." Donovan wanted an instant spy network behind German lines, and he named Casey chief of secret intelligence for the European theater. As best as Casey could remember, Donovan's command was no more than "Get some guys into Germany." What was lacking in detail was made up in authority. Casey, by then a 31-year-old full lieutenant, commanded colonels and dealt with British and American generals more or less as equals. Ordered out of uniform, he was sent to Selfridge's on Oxford Street in London to buy a gray suit that would blur, if not conceal, the distinctions in rank.

Casey had thrown himself into every detail of spy-running. Selecting credible spies was difficult. Americans just wouldn't cut it at Gestapo headquarters in downtown Berlin. About 40 anti-Nazi POWs were chosen -- a violation of the Geneva Convention prohibition against the use of prisoners of war for espionage. Casey didn't blink. Necessity.

By February 1945, there were two agents inside Berlin. By the next month, Casey had 30 teams. "A chess game against the clock," he wrote in the OSS manuscript. By the next month, he had 58 teams inside Germany. One team, code-named Chauffeur, used prostitutes as spies. It was war.

Now, as he contemplated the post of DCI, Casey summarized his conclusions about intelligence. He called it "the complex process of mosaic-making." Bits and pieces formed the intell-igence puzzle. Things didn't turn out as you expected. It was possible to infer if you had many pieces, but to infer with a few was a mistake. After the liberation of Germany, Casey had been thunderstruck on a drive from Munich through southern Germany to Pilsen when all he could see were white flags. A sheet here, a towel, a shirt. No one had asked the Germans for this abject display. It mocked the idea that this had been a master race. The Germany he had imagined when he sat in London headquarters creating a spy network didn't exist.

"Intelligence," he wrote in his book, "is still a very uncertain, fragile and complex commodity." Besides gathering the information, evaluating its accuracy, seeing how it fit into the mosaic and determining meaning, he wrote, intelligence included attracting the attention of powerful people and then forcing a decision. The intelligence person should not be passive. It would be a giant miscalculation, Casey felt, to limit the role of intelligence or of the intelligence-gatherer.

Getting, sifting, distributing intelligence was only the start. "Then you have to get him to act," he wrote.

There was also, Casey figured, a moral dimension to life that could not be escaped. He had gone to Dachau a few days after it was liberated in April 1945. And he would never forget the piles of shoes, the bones and the decaying human skin. People had done this to people? It was unthinkable. There was verifiable evil in the world. There were sides, and a person had to choose.

As he reflected on Reagan's offer, Casey came to realize that he yearned to go back to intelligence work where evil -- particularly the Soviet threat -- could be confronted. His talk with Sophia lasted only 10 minutes. She called it a "love-story" job for him. He told Reagan yes. CASEY'S FIRST WEEKS WERE A DELIGHT. HE WAS THE OLD OSS hand come back as the leader, a brother. It had not leaked that he had wanted State, and the widely held view in the agency was that, as Reagan's campaign manager, he could have chosen any job, and he had picked them. People noticed him in the corridors, moved out of his way, very nearly saluted. Perhaps no head of an agency or department is treated with such deference as the DCI. Nearly everyone used the appellations "the director" or "Director Casey" or "the DCI" or "sir." That was the culture. Every message leaving Langley was headed "Cite Director," followed by a sequential number giving those messages -- the cables, requests and orders -- the stamp of ultimate authority, though Casey saw only several dozen of the hundreds that went out each day. Every message from the stations to headquarters was addressed to the director.

Each day there was a pile of new material. The morning messages from the Langley operations center highlighting occurrences overnight came in a separate folder. Another folder contained the embassy and station reports routed for his attention. He received a nice crisp copy of the beautifully printed President's Daily Brief, 10 pages of the best intelligence that went each morning to Reagan, Haig and Secretary of Defense Caspar Weinberger, and the National Intelligence Daily, a less sensitive but nonetheless top-secret code-word document that was circulated to hundreds in the government. Blue-border reports from human sources were hand-carried to him throughout the day. Big red folders marked TOP SECRET TALENT KEYHOLE -- the code for overhead surveillance -- arrived, containing reports of satellite and other reconnaissance photography. Most of the intelligence reports were all-source, meaning that someone had taken the intercepts and satellite, human and other reports and digested them into a summary. At times, Casey called for or was automatically routed the full intercept. Whenever he wanted more, all he had to do was ask for it, and the file or a summary or a briefing would be provided. At certain times, he had to restrain his instincts as a reader and an amateur historian.

Despite all this paper, he felt dissatisfied. He found himself wondering more and more, What is really going on out there? "Out there" meant the CIA stations abroad. Reports showed that several of the stations provided great intelligence on the host government and the Soviet Embassy in that country, but many stations sent in little of significance, often drivel. He was eager to visit his stations. These would be his opening nights.

In early March, Casey flew off to the Far East. The CIA stations he visited there had operations providing a systematic monitor of the growing Soviet presence in their countries. Using the local police and the host intelligence, immigration and customs services, the stations pretty well tracked all arrivals and departures of Soviet citizens. They generally received a copy of the passport photo; a surveillance team with a photo and audio van could follow and monitor selected targets; observation and photo posts provided good data on the comings and goings of key Soviets; and a so-called Special Collection Element, a joint CIA and National Security Agency team, could conduct telephone tapping and room eavesdropping. Postal interception was possible in selected cases. The stations had "access agents" who knew Soviet targets and provided personality data. Several stations had high-level sources in the host government, but really useful political intelligence was scanty.

The operations officers ranged from excellent to only adequate, Casey found. But no one seemed to be going for the big play. The atmosphere was not creative. No one spent enough time brainstorming, listing the real targets and then maximizing the effort to recruit human agents or place the key eavesdropping device. The stations waited for opportunities, rather than going out and finding them.

Casey came home with an overriding impression: America's allies and friends were looking for the United States to take the lead, and his stations were looking to him.

What kind of direction should he give them?

Nearly 50 years earlier, Casey had learned that rules could be mindlessly obeyed or imaginatively interpreted. That was 1937, when he was a 24-year-old law school graduate. It was mid-Depression, and jobs were hard to come by. Casey found employment with the Tax Research Institute of America in New York. For $25 a week, his task was to read the New Deal legislation closely and issue reports explaining and summarizing it. Businessmen, the leaders of American industry, neither understood nor welcomed FDR's efforts. Casey quickly established that the businessmen wanted neither comment nor praise nor criticism. Instead, they wanted to know how to achieve minimum compliance with the law: How do we get by FDR and Congress' new programs? Casey, dictating his summaries into a primitive machine that used wax recording cylinders, did well at this.

Now in his first year at the CIA, Casey decided he would have to set an example. For some time, one of his Middle East stations had been talking about placing an eavesdropping device in the office of one of the senior officials in that country, a main figure whose conversations would provide vital hard intelligence. At the station, it was back and forth about the risk assessment -- hesitancy and floundering -- as the operations officers debated how to make an entry into the office. They had raised irresolution to an art form.

"I'll do it myself, goddammit," Casey said. Though it was totally against tradecraft practice to risk using even an operations officer for such a mission, the DCI insisted and placed the bug during a courtesy visit to the official -- another violation of tradecraft. By one account, he inserted a thin, miniaturized, long-stemmed microphone and transmitting device shaped like a large needle in a sofa cushion during his visit. By another account, the listening device was built, Trojan-horse style, into the binding of a book that Casey brought as a gift for the official. One senior agency officer insisted that the story was apocryphal, but others said it was true. Among several Directorate of Operations (DO) officers, it was accepted gospel.

Casey only smiled when I asked about this incident several years later. But he glowered dramatically when I mentioned the name of the country and the official. He said that should never, never be repeated or published. BUT INTELLIGENCE GATHERING, EVEN IN ITS MOST DARING form, was still passive. Casey wanted active anti-communism. The first plan in Central America approved by the White House and the president was to support democracy in El Salvador. Again, that was comparatively passive. Casey wanted more. Secretary of State Haig had come in with a cry of alarm but no plan. Casey dipped into the CIA institutional memory some more -- the files, briefings. He probed the minds of key CIA people, frequently jotting on small index cards. World history in the last six years had been dominated by one conspicuous trend -- the Soviets had won new influence, sometimes predominant influence, in nine countries:

South Vietnam, Cambodia and Laos in Southeast Asia.

Angola, Mozambique and Ethiopia in Africa.

South Yemen in the Middle East and Afghanistan in South Asia.

Nicaragua.

It was clear to Casey that the Soviets, exploiting the aftermath of the U.S. withdrawal from Vietnam, had used surrogates and proxies to stage revolutions and takeovers. Was there a way to do it to the communists? Not just a piecemeal approach. He was interested in taking one back from the Soviets -- a visible, clean victory.

"Where can we get a rollback?" Haig had asked.

"I want to win one," the president had said.

Casey realized that this meant guerrilla warfare. He had reinforced his education in the importance of guerrilla movements five years earlier while researching his book on the American Revolutionary War. Published in 1976, for the Bicentennial, the 344-page book, Where and How the War Was Fought, was the result of the Casey method -- extensive reading and on-scene inspection.

The real joy of his research had been a string of weekend field trips. Casey loved traveling with his wife, Sophia, and his daughter, Bernadette. It was a comfortable trio. One Thursday they all took a night flight to Maine, and for four days they followed the route of Benedict Arnold along the rivers to Quebec, then along the St. Lawrence to Montreal, and the Richelieu to Lake Champlain. A three-day weekend was spent following Gen. Washington's trail from Valley Forge across the Delaware to New Jersey battle sites. They did Boston, Philadelphia, New York, the Carolinas, Georgia. On a cruise they retraced the route from Annapolis to Yorktown down Chesapeake Bay. Casey had his notes, books, photocopies of the relevant maps, Boatner's Landmarks of the American Revolution. He went to the hilltops, walked the trails, carefully eyed the relics. Sophia and Bernadette followed each step.

"I found the most vivid and immediate sense of being there, actually seeing the tactical and strategic significance along the Arnold trail . . ." he wrote. Each time he wanted to go to the exact spot and unravel the Revolutionary geography as it was then, often hidden under modern cities and pavement.

On the excursions, and as he waded through the books, Casey asked the central question: How and why did the Americans win? How had such a ragtag group been able to defeat the foremost world power, the British? The Revolutionaries, he finally wrote, were victorious because they used "irregular, partisan guerrilla warfare." They were the Vietcong, the rebels in Afghanistan. The spirit, the techniques, the tactics were with the irregulars. You really had to appreciate a native resistance, he said. It was the side to be on. This was, Casey felt, a point of continuity between the 18th and 20th centuries. Now he could apply it. If the native resistance did not come banging on the door of the CIA, then maybe the CIA had to go out and discover it.

BY LATE 1981 CASEY SUCCEEDED IN ESTABLISHING AN OF- fense. The president signed a formal intelligence order, or finding, authorizing a covert support operation of $19 million to the Nicaraguan resistance, or contras, who were attempting to overthrow the leftist Sandinista government. The CIA operation was ostensibly designed to support the contra effort to interdict the communist arms flow from Nicaragua to other leftist rebellions in Central America, particularly in El Salvador.

Adm. Bobby R. Inman, Casey's deputy, was deeply skeptical of the contra operation. In nearly three decades of naval service, Inman had achieved preeminence in the intelligence world as director of naval intelligence (1974-76) and director of the National Security Agency (1977-1981), the largest of the spy agencies, which intercepts communications worldwide. He knew the intelligence business cold and had close ties to Congress, which had virtually insisted that he be Casey's deputy. With his boyish, toothy smile, large head and thick glasses, Inman looked like a grown-up whiz kid. He was a technician and did not like covert action.

Casey and Dewey Clarridge, the Latin American division chief in the DO, were running the project without input from other key people normally involved. Clarridge's boss, Deputy Director for Operations (DDO) John Stein, had complained to Inman that he was being cut out. Though the general operation was not kept from Inman, he had to crowbar in to find out details, and he did not like what he found. Covert assistance was about to be given to contra leader Eden Pastora, the notorious Commander Zero who had broken with the Sandinistas after the revolution. Pastora was a "barracuda," Inman said. Pastora's contra forces operated out of Costa Rica, which is to the south of Nicaragua. El Salvador is to the north of Nicaragua. All someone had to do was look at a map and see that Pastora was operating more than 300 miles from any possible arms-supply routes into El Salvador. That simple fact put the lie to assertions that the Nicaragua operation was for the purpose of interdicting arms. Inman knew that assistance to Pastora was intended to demolish and oust the Sandinistas. The uncompromising, even snarling, comments from Casey about the Nicaraguan regime told Inman all he needed to know. Diplomacy was a long, drawn-out process, very frustrating. Covert action was, at first blush, cheaper and certainly less frustrating. That was naive, Inman believed. The quick, covert fix was a fantasy.

When had one of the directorate's paramilitary covert plans worked? Not ever, in Inman's view. And even if one were to work, a new, U.S.-backed government could easily turn out to be worse than the one it had replaced, or it might not be able to govern or hold power.

Inman left for what was supposed to be a two-week getaway in Hawaii in early 1982. After 10 days, he returned to Langley and intentionally barged in on Casey and Clarridge. They were busy building an army, and Inman had some questions: Where are the contras going? Where is the CIA heading? The administration? Is there a plan? Won't the Pastora connection make it clear that this is not an arms interdiction program? Do we know who these people are? They are not fighting to save El Salvador. They want power, don't they? This is an operation to overthrow a government, isn't it? That raises problems with the finding that authorized the program. The agency is on the verge, in the midst, of exceeding that authority, of breaking the rules, isn't it?

Casey and Clarridge didn't have answers, and they didn't like the questions. This was administration policy, approved all the way up the line to the president -- perhaps not in the finding, but it was what Ronald Reagan wanted. Casey was sure he was on solid ground.

After half an hour, Inman stiffened. Bonfires were burning inside. He marveled momentarily at his absolute consternation. Casey and Clarridge, intoxicated with their certitudes, were not listening. Inman was an outsider. An obstacle.

Finally he rose and stormed out.

Inman had never done that before. His advancement through the ranks of naval intelligence had been based on an ability to convey soothing impressions, avoid confrontations. He had crossed a threshold with Casey, and with himself.

On March 22, 1982, he quit, the first domestic casualty of the contra war. But he believed in loyalty to the commander in chief and never went public with his real reasons for leaving.

Casey was given 48 hours by the White House to come up with a deputy acceptable to the Senate Intelligence Committee, where Inman had been beloved. The obvious choice was John N. McMahon, a 30-year agency veteran, a husky, outgoing Irishman who had had most of the top jobs in the CIA, including three years as deputy director for operations. McMahon had found the fine line between independence and loyalty. He could put up a fuss, but he knew how to take orders. He did so without resentment.

But the contra war was not going down well in Congress. By December 1982, Congress had imposed the so-called Boland Amendment, which prohibited the expenditure of funds "for the purpose of overthrowing the Government of Nicaragua." Casey felt they could live with it. Legalistic descriptions of intelligence operations mattered much less than what was going on in the field. However, in the spring of 1983, McMahon's own worries were increasing -- about Casey, the CIA and the contras. The ranking House Intelligence Committee Republican, J. Kenneth Robinson of Virginia, challenged McMahon one day about the growing number of contras. Why had 500 grown to 5,500? Robinson, an administration and CIA loyalist, was almost harsh. McMahon answered that the intelligence committees were being fully briefed. But Robinson was not happy, and McMahon figured that his testiness meant the Nicaraguan program was headed for further trouble.

McMahon also appeared before a closed session of the Senate Intelligence Committee, where there was sniping from all quarters and suspicion, even hostility, about each number, as well as about the program's broad intentions and goals.

Sen. Patrick J. Leahy (D-Vt.) jumped hard on McMahon: "You guys are setting yourselves up for a fall." The operation was going to get out of hand, and it probably wouldn't succeed. "No one is going to blame the White House," Leahy said, "or the State Department or the Pentagon for this." When the operation fails, Leahy said, the CIA will be blamed. It's the agency's war, not Reagan's war, or even Casey's war, but the CIA's war. Reagan, Casey and McMahon will be out of office someday, but the agency will still be there. The intelligence committee has some obligation to protect the institutions of American intelligence-gathering, Leahy said. "So do you."

Yes, McMahon said, he agreed. The contra operation is going to get the agency in trouble, deep trouble, he said. It's going to get Congress in trouble, too. McMahon turned red and began waving his hands for emphasis. He had been there in the 1970s when the agency was driven right down into the pits. There had been little or no support from the public, the press, Congress.

Deep emotions began to pour forth. McMahon said this exposure would not just hurt his buddies in the agency, or his particular notion of how they ought to gather intelligence and run operations, but would destroy the value of anything the CIA might do. The reputation of the CIA was on the line. No less. At the same time, the CIA had to go along with what the president and the director wanted. They ordered and supported this operation each step of the way. So the task was to find a way to work themselves out of this hole -- to protect the CIA but obey the orders. And they, the senators on the oversight committee, should realize that he understood those high stakes. He needed their help, he said.

There was silence in the hearing room when McMahon had finished. THAT SPRING OF 1983, CASEY HAD TO FIND A NEW NATIONAL intelligence officer for Latin America to coordinate the reports and formal estimates for the region. He selected John Horton, 62, a former senior operations officer who had retired eight years earlier. Horton was stiff and brainy, and he was mentioned with great respect, even affection, by the old-timers. Casey promised Horton he would be kept fully informed about the operational end, particularly the contra war. His operational counterpart, Dewey Clarridge, outlined the problems. First there was the State Department. "At State they are defensive and don't do what the administration wants -- those bastards," Clarridge growled in one discussion with Horton. "If the agency ever gets like that, we don't deserve to exist."

The major stumbling block on Nicaragua, Clarridge said, was that "McMahon is against this. He's never done a thing for this." Tagging McMahon with one of the cardinal sins, Clarridge said that McMahon had friends in Congress and that they were feeding one another's weaknesses.

In early summer 1983, Casey scheduled a secret two-day trip to Central America. He decided to take McMahon along. It was highly unusual for both the No. 1 and the No. 2 to leave the country, but Casey wanted his deputy more closely involved in the Nicaragua operation. The joke around the agency was that Casey was trying to implicate McMahon, to get his fingerprints on the secret war. Of course Clarridge would come. And, making good on a promise, Casey included Horton, his new national intelligence officer for Latin America. The fifth member of the travel party was the head of the International Activities Division (IAD), a unit within the DO that handled the outside contract work, the so-called "talent." The IAD moved from one covert operation to the next, providing logistical support, particularly aircraft, boats and backup for propaganda and psychological-warfare operations.

Casey felt comfortable with all four of his traveling companions; McMahon, Clarridge, Horton and the head of the IAD all had experience in the DO.

McMahon and Horton drove out together to Andrews Air Force Base, where a 12-seat special-mission aircraft waited. A summer thunderstorm had just blown in. His initial impression, Horton volunteered, was that, overall, CIA work in Central America was suffering. Stations weren't keeping tabs on the Soviets. Penetration of political groups in most of the countries was weak to nonexistent, much less than he had imagined. It should be better, but Nicaragua was receiving all the attention.

McMahon didn't respond.

Nicaragua is eating them up, Horton said.

"I've been up one side of the decision tree and down the other side," McMahon said. He shook his head. He was worried. The contra effort is too public, too much politics, he said. How can it work? He had a very pessimistic feeling about the program. It isn't going to turn out well, not well at all. But it is bedrock with Casey and Reagan.

When they arrived at the plane, one of Casey's security men begged them not to let Casey nap during the flight. "If he does," one said, "he'll be up talking and asking questions all night."

After the plane took off, Casey settled in. He was a seasoned traveler, laughing off any turbulence in the air. "Like bumps in the road," he said. He was off with his boys to plan war.

They landed in Tegucigalpa, Honduras. Casey had his bags dropped at the residence of the U.S. ambassador and was immediately off on a whirlwind. He wanted to see everyone, and he scheduled back-to-back meetings, making sure he chatted at least briefly with each CIA operations officer in the station. The group piled into cars and went to a safe house, where the contra operation was being run.

Clarridge kept trying to direct the discussion to the nuts-and-bolts issues: How many weapons do we have? Are there enough weapons? How about ammunition? Let's try this, try that.

Casey and McMahon attempted to focus on the next phase. They were thinking about how the operation was going to be explained to Congress. There was also criticism within the CIA that the contras didn't have any political sophistication, that they were just armed bands of malcontents roaming the mountains. Casey said he had a broad goal. The contras had to come down from the hills, enter the cities, spread their message, incorporate the mounting anti-Sandinista feelings, become a political force.

Clarridge didn't like this kind of talk. He was running an army, not a political party. And such notions skimmed precariously close to violating the Boland Amendment, which prohibited efforts or operations "for the purpose of overthrowing" the Sandinistas. A sophisticated political force could overthrow a government, and that certainly would be their goal; an army of irregulars didn't have quite as visible or identifiable a political purpose.

Casey wanted a political message, he wanted the contras to emerge as a political force inside Nicaragua. He believed that the Nicaraguan people would flock to a new force that espoused both democracy and capitalism. People would respond to image and message.

The band flew 140 miles west to El Salvador for another series of political and intelligence meetings. Casey took the time to have a friendly word with each of his operations officers, the cherished field men and women who did the real work. He had a politician's ease with people -- looking them in the eye, offering a brief, informed word of encouragement or asking a pointed question and stopping dead in his tracks to listen to the answer.

At the end of the trip, Horton jokingly asked Casey why the trip had been so short. Why were they in such a hurry?

"What the hell else do you want to do?" Casey replied, smiling. He had proved that he could cover the territory faster and better than anyone. CASEY WAS DELIGHTED WITH THE NEW ASSISTANT SECRE-

tary of state for inter-American affairs, L. Anthony Motley, who coordinated the contra operation for the administration. A profane, happy-go-lucky former U.S. ambassador to Brazil, Motley had guts and the political backing of the White House. And Motley delivered. Casey had been impressed with the intelligence reports Motley, fluent in Portuguese, had filed after regular steak-and-beer evenings with the Brazilian president. Motley had outshone the CIA station and the NSA intercepts.

After settling into his new office on the seventh floor of the State Department, Motley called Clarridge. "I'm devoting a whole day to it, and I want to come out there." Motley wanted the full dose.

Clarridge brought out maps, lists, charts, files. He was a walking encyclopedia on the operation, the detailed geography, hills, roads, weather and every important contra personality. "A real asshole," Clarridge said many times of the various contra leaders. There were, however, many tough fighters, for example "these animals down south." Like Pastora, Commander Zero. On occasion, Clarridge would remark that someone else was a "good guy."

In some respects, the contras were the Hell's Angels of Central America, but overall, Motley was impressed. Clarridge had created an army and had a personal hands-on working knowledge that was staggering.

So, Motley asked, what's next?

"Casey wants something that makes news," Clarridge said, explaining that they were all under tremendous pressure to get the contras to come out of the hills. Beating bands of Sandinistas in the mountains was no longer enough, he complained. Casey wanted the contras to "do the urban bit." Clarridge quoted Casey: "Get something." This "news" was not just going to be for domestic political consumption in the United States. It was to establish credibility within Nicaragua for the contras.

This sounded reasonable to Motley.

We can't just jump from the hills to the cities, Clarridge said with exasperation. It is much more complicated. The contras wouldn't do any better than any hill people going into any city. It takes them 40 days to get into a city, creating a resupply nightmare.

So what are you going to do?

Clarridge smiled. There was a way, always some way. He'd find some one-time operation, something to make a big splash. War was hell and you had to improvise. EARLY ON THE MORNING OF THURSDAY, SEPT. 8, 1983, SENS. William Cohen (R-Maine) and Gary Hart (D-Colo.) and a Marine major escort officer left on an Air Force C140, due to land in Managua about 9:15 a.m.

About an hour outside the Nicaraguan capital, the pilots were told that the Augusto Cesar Sandino Airport was closed. There had been some kind of an air attack. A propeller-driven twin-engine Cessna with a 500-pound bomb strapped under each wing had been shot down, crashing into the control tower and the terminal building.

After they finally arrived at the Managua terminal, in the early afternoon, Hart was astonished at the destruction. Smoke damage was everywhere, and the center of the terminal was wiped out. Broken glass and oil were scattered all about. And the fuselage of the downed plane was cut in half. The pilot and the co-pilot were both dead. Forty people waiting for flights had run for their lives. One worker had been killed. The VIP room where the senators were to have given their press conference had also been hit. Cohen calculated that if they had arrived before schedule that morning, they might be dead.

The Nicaraguan news media were there to ask questions.

One reporter said that the bombing attack was obviously a CIA-supported contra raid.

"The CIA is not that dumb," said Cohen, a member of the Senate Intelligence Committee.

The Nicaraguan officials produced a briefcase that had been retrieved from the plane. Cohen and Hart peered inside. There was a manifest instructing the pilot to meet someone in Costa Rica at a certain restaurant, a bill of lading from Miami and the pilot's Florida driver's license, U.S. Social Security card and American credit cards.

And there was more, including some code-word identifications for the operation and the contract. Both Cohen and Hart recognized them as authentic CIA paperwork.

After dinner, Cohen and Hart, both exhausted, went to a midnight meeting with the CIA station chief. They reported that information on contra operations was leaking to the Sandinistas. The station chief hesitated, shuffled around, began to justify the bombing raid, an initial effort by Eden Pastora's "new air force."

Hart was tightly wound and popped off. These stupid operations are what will kill the CIA, thinking you can get away with something like this, he said. The pilot had the name and phone number of a CIA operator from the U.S. Embassy in Costa Rica in his pocket.

A civilian airport, Cohen said, not even a military target. How could they think it would achieve anything? It would be a fundamental mistake to turn the people of Nicaragua against the contras, and that's exactly what will happen. There had been dozens of civilians in that airport. Suppose someone had tried to bomb a civilian airport in the States?

The station chief said that it was intended to show that the contras were serious and could strike at the capital.

What do you think this was, asked Hart, yelling, some kind of first Doolittle raid over Tokyo?

Well, the station chief said, the contras are free agents, and the CIA cannot control them. They pick their targets.

What kind of stupid idiot would carry the CIA paperwork in a briefcase on a covert bombing raid? Hart asked. You're fools, incompetents. Raging and red-faced, Hart shouted, "This is bad politics, bad diplomacy and bad operations."

The station chief sent a high-priority cable to CIA headquarters, explaining that two very, very unhappy senators were about to return to Washington.

The same day, Tony Motley, traveling in Honduras, received word of the failed bombing raid. He called Clarridge.

"Dewey," Motley said, "you're crazy! How can you do this when the assistant secretary of state for the region is in Honduras? I don't want any more {crap} like that going on when I'm traveling."

"Look," Clarridge replied, "there isn't any instant command and control on this. You can't pin down an operation -- whether it's going to happen this day, that day. You can only get within several days." Casey wanted news, something to get attention, Clarridge added. Well, the contras were out of the mountains, as the director had demanded. CASEY REGULARLY GAVE SPEECHES AROUND THE COUNTRY. The first I attended was April 17, 1985, in Cambridge, Mass., at a conference run by the Fletcher School of Law and Diplomacy.

The DCI was aware that I planned to write a book about the CIA, and he came over and asked whether I wanted to fly back to Washington with him on the CIA plane. It was about 10 p.m., and I had checked into the hotel where the conference was being held, but I quickly checked myself out. He came out of the hotel with an expensive, new heavy overcoat buttoned up haphazardly, like a kid who does not understand clothes and has to be dressed up by his mother.

His plane was a propeller-driven Gulfstream that would provide a slow trip. Casey took a seat, loosened his tie and had his security man bring us scotches and a fresh can of mixed nuts, which he stuffed, handful after handful, into his mouth. The security man drew the heavy curtain, leaving us to a two-hour uninterrupted talk. The director said he was a little uneasy about not having someone from the agency there to monitor him. "Everyone always says more then they're supposed to," he had once told me. He reminded me that he required others in the CIA to avoid interviews with journalists alone. But he proceeded to answer most questions as we ranged over subjects including Donovan, an advanced secret satellite system, the Nicaragua operation, his kidnapped Beirut station chief William Buckley, who had been held hostage for more than a year, the Republican conventions he had attended dating back to 1940, Reagan, the Reagan Cabinet, McMahon and the CIA. About his father, Casey would offer only one sentence: "He was a civil servant in the New York pension system his whole life."

Two weeks later, I flew to New York to attend his luncheon speech at the Metropolitan Club. He again offered me a ride back in his plane. We covered Reagan, the contras, Lebanon, terrorism, his friends, his money, his goals. He talked about his childhood in Queens, a universe of simple, permanent affiliations. Walking to and from public schools 13 and 89, there were fistfights, he recalled. It was the 1920s, after World War I, when boys just circled up and fought. "Win some, lose some," he said. Did he remember any of the kids who beat him? "Of course, do you think I forget anyone?" He stared hard, his dentures full of nuts. "Particularly anyone who beat me?"

Referring back to a recent congressional defeat of an administration request for $14 million for the contras, Casey said, "Abysmal handling. The White House can't do two things at once . . . The president is uninterested. He still has his instincts, but he will not even focus on the objectives, let alone the way to get there." He shook his head in dismay. "The president is not paying attention to Soviet creeping expansionism."

Casey found Reagan strange. Reagan had said he would have stayed in the movies if he had been more successful at it. He probably had no real friend other than Nancy. Lazy and distracted, Reagan nonetheless had a semiphotographic memory and was able to study a page of script or a speech for several minutes and then do it perfectly. Casey was a serious student of Reagan, but he said he had not yet figured him out.

Casey continued to be struck by the overall passivity of the president -- passivity about his job and about his approach to life. He never called the meetings or set the daily agenda. He never once had told Casey, "Let's do this" or "Get me that," unless in response to the actions of others or to events. There was an emotional wall within the man. Perhaps it was a response to his father, who had been an alcoholic and unemployed during the Depression. Casey noted in amazement that this president of the United States worked from 9 to 5 on Mondays, Tuesdays and Thursdays, and from 9 to 1 on Wednesdays, when he'd take the afternoon off for horseback riding or exercise; and on Fridays he left sometime between 1 and 3 for Camp David. During the working hours in the Oval Office, the president often had blocks of free time -- two, even three hours. He would call for his fan mail and sit and answer it. Many evenings he spent alone with Nancy in the residence, where they had dinner on TV trays. On Saturday nights at Camp David, where they could have any guests in the world, the two had a double feature of old or new movies, and the staff joined them to watch. Casey seemed to be saying there was unexercised authority and unmet responsibility.

The passive Reagan approach to decision-making compounded the problem. Casey knew, clear as a bell, where Ronald Reagan stood, what he believed, but there was no telling what Reagan would do. "Yes," the president would say. Then "Well . . ." Then "No." "Yes . . . well . . . no" became a metaphor. There were many other variations -- starting with a "no" and skidding through a "yes" to eventual irresolution. White House Chief of Staff James A. Baker III had buttoned up Reagan's decision-making completely in the first term. Casey could get his say, he could even get a private meeting with Reagan in the White House residence. Casey played this card about twice a year. The president was always so friendly, all ears and nods. But at the end of the meeting or later, through Baker or national security adviser Robert C. McFarlane, came the inevitable questions. What does George or Cap think? That brought Shultz and Weinberger into the issue. Properly so, but then the wobbly seesawing would begin. "Yes . . . well . . . no."

The plane was landing at Andrews Air Force Base, from which Casey was immediately departing for a 10-day swing through the Far East and the Philippines, where there was trouble and where he planned to meet with President Marcos.

"Don't say a word to anybody," he directed. He then asked that I stay behind in the plane to hide until he had embarked on the large jet waiting for him. I could see a group of CIA people waiting for him at the foot of the ramp. A van would take me to a taxi, he said. "They might think I'm indiscreet, bringing you here." The director then bounded down the ramp, leaving me alone in the plane. I REVIEWED MY NOTES IN THE TAXI BACK TO WASHINGTON. He had said some things that resonate today. "I have a lot of freedom in my job. I can take initiatives." He added that he had tolerance for mistakes. "Anyone with ideas has got to have some good ones and some bad ones.

"I never stayed in a government job more than two years, and I often quote {former Treasury Secretary} John Connally that after two years you become part of the problem.

"But I haven't lost interest. I like the importance of it. I like the style, the spirit of the organization.

"I can get a couple of things done a month."

Two weeks later, on May 17, 1985, upon his return, Casey received a five-page memo from his national intelligence officer for the Near East and South Asia. It was headed: "Toward a Policy on Iran."

"The U.S. faces a grim situation in developing a new policy toward Iran . . . The U.S. has almost no cards to play . . . It is imperative, however, that we perhaps think in terms of a bolder -- and perhaps riskier -- policy." :: Bob Woodward is assistant managing editor for the investigative unit of The Washington Post. Staff researcher Barbara Feinman contributed to this article.

FROM VEIL: THE SECRET WARS OF THE CIA 1981-1987. COPYRIGHT

1987 BY BOB WOODWARD. PUBLISHED BY SIMON AND SCHUSTER INC. ALL RIGHTS RESERVED. THIS IS THE FIRST IN A SERIES OF SIX EXCERPTS. THE SECOND WILL APPEAR ON PAGE A1 IN MONDAY'S PAPER.