President Bush boasted two weeks ago to a group of congressmen that even before the Iraqi invasion of Kuwait, his aides had blocked the export to Iraq of U.S.-built, high-temperature furnaces that could be used in making a nuclear weapon.

But left unstated were the extraordinary circumstances surrounding the last-minute interception of the three furnaces. For 18 months, U.S. Commerce Department officials had promoted the proposed $10 million sale, approving it in June 1989 even though the manufacturer had warned them that the equipment could be used to make nuclear weapon components.

The administration decided to stop the shipment only after the Pentagon received a tip from outside the government and launched an investigation in June, a year after Commerce's original approval of the export. While a huge furnace sat temporarily detained on a dock in Philadelphia during the administration's late-hour deliberations, Commerce officials continued to argue that the sale should proceed, saying they had no persuasive evidence of potential Iraqi misuse and lacked authority to stop the deal.

Eventually, a National Security Council official intervened, and in a highly unusual closed-circuit television conference involving four federal agencies on July 19, the proposed sale was permanently halted, according to informed sources and internal government documents.

Several participants said the episode illustrates the divisions between the Defense Department, which is concerned with national security issues, and the Commerce Department, which both promotes exports and grants licenses for strategically sensitive equipment and technology.

A former undersecretary of defense for trade security, Stephen Bryen, who helped tip off the Defense Department, said, "The bottom line is that clearly the {furnace} company had given at least enough information to the Commerce Department to send up all kinds of flags, and no flags went up."

The Commerce Department has defended its role in the furnace sale, stating in a detailed press release this week that it could have blocked the sale only if either the manufacturer or the government knew the equipment would be used in sensitive nuclear activities, a possibility it learned of at the last minute.

U.S. officials say the government's involvement began in early 1989, when the furnace manufacturer, the Consarc Corp. of Rancocas, N.J., told Commerce of the proposed sale of three furnaces and sought advice on its legality.

Consarc President Raymond J. Roberts first raised the possibility of nuclear applications for the furnaces in a conversation last year with Commerce Department engineer Jeff Tripp, based in Washington, according to internal Consarc documents.

"I told him . . . there is nothing to stop them from melting zirconium, the main use of which is a cladding material for nuclear fuel rods," Roberts wrote in a memo dated Feb. 15, 1989.

One week later, at Consarc headquarters, Roberts reminded another Commerce representative, Alan C. Stoddart, that the furnaces can be used "without modification" for nuclear applications, company documents state. Roberts noted that the company had no evidence Iraq intended that use.

On Mar. 6, Consarc obtained from the Iraqi Ministry of Industry and Minerals a formal letter of intent to purchase the furnaces. Ten days later, Consarc sought an advisory opinion on the deal from Commerce, saying "we will not proceed with the project until we have received approval to export . . . ," documents state.

Consarc also cabled Russell Smith, Commerce's embassy representative in Baghdad, telling him of the prospective sale. "Hooray for you," Smith cabled back on April 5. "Look forward to your coming. Please do not hesitate to ask us for any service."

The Commerce Department approved the sale after inspecting Consarc technical documents and receiving from Consarc a copy of a written pledge from an Iraqi agency that the furnaces would be used for scientific research and to make prostheses for handicapped war veterans, according to agency officials.

Consarc president Roberts said in an interview this week that "we were being encouraged by the Commerce Department in Washington and by the U.S. Embassy in Baghdad to go get this order. The feeling we got from our government is that this is business we should be going after."

The Pentagon's involvement began in June, when Bryen's tip helped lead to an investigation by F. Michael Maloof, the Pentagon's director of technology security operations. Bryen had learned about the case from a Philadelphia Inquirer reporter, and the newspaper's source later provided information to the Defense Department.

The Pentagon discovered that in all, five Consarc furnaces -- including two scheduled to be shipped separately from a Consarc subsidiary in Scotland -- were to be installed by an Iraqi firm previously associated with weapon-related work at a complex south of Baghdad, far from any medical facilities.

The investigators were told by Western prosthesis makers that the capacity and complexity of the furnaces were "absolute overkill" for medical purposes, one official said.

William N. Rudman, deputy undersecretary of defense for trade security policy, whose office coordinated the investigation, questioned whether Iraqi President Saddam Hussein "is so caring of his own people that they're all going to be walking around with hi-tech wooden legs."

"I don't believe in the excuse Iraq gave," Rudman said in an interview. "In the end, the U.S. government had ample evidence to believe that the end-use was nuclear. The Iraqis were lying."

In early June, Maloof called the Customs Service, which agreed to detain a furnace already at a dock in Philadelphia -- a decision that provoked angry protests by Michael Manning, a trade specialist with the Trenton, N.J., office of Commerce's International Trade Administration. Manning had advised Consarc closely on the furnace exports and complained to Customs on June 22 that its actions were jeopardizing his reputation with the company, according to a July 13 memorandum of the call written for Customs Service Strategic Investigations director John C. Kelly.

Maloof was criticized by Manning in separate calls as someone who "creates issues which cause problems for everyone but never result in any significant findings," according to the memo, which was obtained by The Washington Post from a source outside the Bush administration and authenticated by Customs Service spokesman David Hoover. "Manning further stated that Consarc is a major employer in the South Jersey region," the memo said.

On July 11, Manning telephoned a Customs official from Consarc's headquarters to argue that neither Commerce nor the State Department would support the detention. He said the Defense Department was "running around . . . stirring things up, when there really is no issue," the Customs memo states.

In another phone call from Manning, Customs Service special agent Andrew McCrossan said he and other Customs officials "were disturbed" by some of Manning's comments in the presence of officials of the manufacturer, which McCrossan said might jeopardize the government's legal position in blocking the deal, the Customs memo states.

A Commerce Department spokesman, asked what role trade specialists such as Manning should play in licensing and export matters, said, "None, besides advising them to be in touch with {the agency's} Bureau of Export Administration."

But Elizabeth Dugan of Commerce's International Trade Administration defended Manning's role in the furnace case, saying he "was never in a position to influence the outcome of the licensing decision . . . {and} was not interfering in the substance of the process."

A Philadelphia Inquirer report about Customs's detention of the shipment led to a July 12 letter of complaint to Bush from Sens. Jesse Helms (R-N.C.), Connie Mack (R-Fla.), Jeff Bingaman (D-N.M.) and five other senators, supporting the contention of Undersecretary of Defense Paul Wolfowitz that the immense, state-of-the-art furnaces could process and purify metals for nuclear arms, missiles and jet engines.

Wolfowitz's claim was based in part on information supplied by the Defense Intelligence Agency and the Central Intelligence Agency about the furnaces' probable use in nuclear weapon applications.

The senators' letter got the attention of senior White House officials, who asked the intelligence community to provide more information on Iraq's intentions.

One day before Customs' temporary detention of the shipment was to expire, National Security Council aide Richard Haass chaired the late-afternoon conference call that culminated in the decision to halt the export. After this decision, Consarc voluntarily held back the two furnaces due to be shipped from Scotland.

"We carefully followed Bush administration policy at that time and we acted within the confines of the law and the policy guidance," said Wayne Berman, counselor to Commerce Secretary Robert A. Mosbacher. He said Commerce had worked closely with State Department lawyers to find a "creative way within the law" to revoke approval for the shipment. He also said there had been conflicts with some Defense Department officials and criticized Defense official Maloof as a "low-level clerk" who was part of a group of "ankle-biters."