It was the stuff of a Hollywood drama -- a suspected espionage attempt unfolding before hidden cameras deep inside the Pentagon with special agents tailing suspects in a subway chase through Northern Virginia.

The scene opened in the Pentagon's Room 5C885 where two California defense contractors were waiting for a meeting with Air Force officials in hopes of selling them a computer program for a communications system. Unknown to the contractors, their contact was an Air Force computer-crimes investigator posing as a specialist for the Joint Chiefs of Staff.

When a military escort stepped out of the room leaving the men alone, one of the contractors slipped a disc into a Pentagon computer and began copying electronically a program allegedly containing sensitive data on a nuclear communications system.

Hidden cameras rolled. Hidden microphones recorded. Investigators secretly watched monitors in an adjacent room. The next day, the two men returned to finish their business as a special agent secretly continued his vigil in the adjoining room.

When the two men packed their briefcases and left, special agents followed, tailing them as they hopped a Metrorail train at the Pentagon station and stepped off at Rosslyn. The arrests came as the two contractors headed for their rooms at the Hyatt Regency Hotel, according to the arrest warrant.

But things were not as they seemed. Eighteen days after the drama was meticulously detailed in a five-page affidavit filed April 23 in U.S. District Court in Alexandria, the U.S. attorney's office dismissed the charges against James R. Conrad and David W. Weston.

"It was a sting that got stung," said Conrad's attorney, Eugene G. Iredale of San Diego.

Iredale said law enforcement officials could not find any stolen classified data in Conrad's possession when he was searched. Assistant U.S. Attorney Joseph J. Aronica, who handled the case, refused to comment on why he dropped the charges.

The affidavit filed in federal court said that special agents observed Conrad, the focus of their investigation, copying information involving the Ground Wave Emergency Network (GWEN), the communications system that could be used in case of nuclear attack, from a disc visibly marked "Secret."

Iredale charged that the investigator peering at the closed-circuit monitor in the adjoining room made a mistake and said his client was not guilty of misconduct.

"They thought they saw him {Conrad} on tape taking out a disc that was classified and put that in his briefcase," said Iredale, adding, "What he had put in the briefcase was an unclassified disc for which he had the proper access. He placed the classified disc where it was supposed to go. They misinterpreted what went on . . . . "

In conjunction with the Pentagon sting operation, Justice Department officials searched Conrad's office and home in the San Diego area, confiscating boxes of business records, computer files and even his child's home computer, according to Iredale.

Pentagon officials said Conrad has been under surveillance sporadically over the last year because of concerns over suspected security breaches. Conrad's security clearance was revoked in 1983 after Defense Department investigators accused him of mishandling classified information on a nuclear command and control project, including allegations that he transmitted highly sensitive material over unsecure commercial telephone lines.

But two years later, a Defense Department hearing officer reinstated the security clearance, saying that Conrad may have been sloppy in his work, but meant no harm when he violated security regulations. With his security clearance intact, Conrad resumed his involvement with government contracts.

Conrad's attorney accused the government of using the new charges to retaliate against his client for reclaiming his security clearance over the protests of Defense Department investigators.

Some government officials familiar with the incident blame the Air Force for setting up a weak case, first attempting to seek an espionage charge against the men. With no evidence of involvement by a foreign government, the Justice Department, which handled the charges for Air Force investigators, decided to charge them with theft of government property.

But new problems arose when investigators discovered the information found in Conrad's possession after the sting operation was not classified, making it difficult to press even a theft charge, according to government sources.

"They set up a sting to see if he would steal something," Iredale said. "They thought he did, but he didn't. Now they're dismissing the case."