From the early 1980s until the invasion of Kuwait Aug. 2, Iraqi leader Saddam Hussein aggressively courted U.S. companies and government agencies, securing food, loans and technology to help survive a bloody war with Iran and to promote his dreams of Iraqi greatness.

It was a mutual seduction. The U.S. government, bitterly opposed to Iran and its leader, Ayatollah Ruhollah Khomeini, first tilted toward Iraq to ensure that Iran did not win the war; later, it became equally interested in Iraqi oil and trade.

Iraq, a Soviet client, was anxious to forge closer ties to the United States after years of anti-American rhetoric. The war had drained Iraq's oil wealth, plunged it into debt and left it nearly destitute. Before Iraq invaded Iran in 1980, it was one of the richest nations in the Middle East, with hard currency reserves between $25 billion and $38 billion. By 1982, it was all gone.

"I don't think there's any question he {Saddam} wanted to establish a much better relationship and get as much good out of it as possible, agricultural and high technology," said Richard L. Armitage, an assistant secretary of defense in the Reagan administration.

The U.S. response was schizophrenic: Military and trade officials differed sharply on whether to release sophisticated technology to Iraq that might be used to produce chemical or nuclear weapons. Agricultural interests clashed with Israel's supporters and others in Congress over whether the United States should export food to a nation that used poison gas and harbored terrorists.

In the end, Iraq largely won out. Presidents Reagan and Bush repeatedly opposed Congress's proposed trade sanctions against Iraq -- the last time only two days before Kuwait was invaded. Between 1983 and 1989, annual trade between Iraq and the United States grew nearly sevenfold, from $571 million to $3.6 billion. Using loans from U.S.-based banks, many guaranteed by the federal government, Iraq during that period bought $5.2 billion in U.S. exports of food, technology and industrial goods. The United States in turn bought $5.5 billion in Iraqi petroleum over the same period.

Iraq sent high-ranking ministers to promote its cause, frequently crossing the Atlantic to buttonhole U.S. government officials and woo grain company executives and bankers. It also recruited boosters in the United States, former diplomats, business executives and a pair of Atlanta bankers.

"They sent people around saying they wanted help, any kind of help, and they set out to create a climate in this city partial to Iraq," said Rep. Lee H. Hamilton (D-Ind.), longtime chairman of the House Foreign Affairs subcommittee on Europe and the Middle East. "It was a real pitch and we were receptive because we were anti-Iran."

The Iraqis also benefited militarily from the relationship. While the U.S. government did not engage in arms sales to Iraq, the Commerce Department has approved $730 million in exports of sensitive U.S. technology to Iraq since 1985. Some of it was diverted to Iraq's nuclear, chemical and missile programs, Pentagon officials believe.

A U.S. Customs agent, who has been investigating the sale of U.S. technology to Iraq, said he has no doubt that such exports have augmented Saddam's military capabilities. "If, God forbid, one of our kids gets shot, it's going to be done by a Soviet bullet. If they are exposed to chemical or biological attacks, the rocket that delivered that chemical was probably provided by the Soviets. But chances are the trajectory of the rocket was set by an American computer and the design of that rocket was probably done by American technology," the agent said.

On the day Saddam's forces invaded Kuwait, Iraq had a foreign debt estimated by U.S. Export-Import Bank sources at $80 billion, second in the developing world only to Brazil, a country with 15 times as many people. Iraq owes money to several West European countries, Japan, the Soviet Union and most of the rest of the Eastern Bloc. Kuwait and Saudi Arabia hold half its debt.

Iraq had already defaulted on most of its loans, banking sources said, but the one country where it never missed a payment -- right up to the August invasion -- was the United States. 'A Long-Term Investment'

Iraq's tilt toward the United States began in the early 1980s during some of the darkest days of the Iran-Iraq War. Iraq attacked its neighbor in September 1980, but its early advances had bogged down, resulting in a bloody standoff that favored Iran, the more populous nation.

"We were terrified Iraq was going to lose the war," said Geoffrey Kemp, then head of the National Security Council's Middle East section. By 1982, Iran had destroyed Iraqi oil facilities at the Faw peninsula and crossed Iraq's border to attack the port of Basra, Iraq's second-largest city. "Our policy was never that we wanted Iraq to win the war," Kemp said. "It's just that we didn't want Iran to win."

When Syria shut down Iraq's oil pipeline through that country, Iraq's cash flow was limited to revenue from its pipeline through Turkey. "They ran out of money," said Marshall W. Wiley, a former U.S. ambassador to Oman who formed the United States-Iraq Business Forum in 1985 to promote U.S. investment in Iraq. "So they were looking for credits."

It was an unaccustomed role for Iraq, an insular, isolated nation that was almost xenophobic about protecting its financial independence. Before the war, Iraq paid cash for nearly all its foreign purchases. "It was part of their colonial past," said James Placke, a former deputy assistant secretary of state for the region. "They approached debt with the idea that it was bad."

Overnight, Iraq's debts to other nations exploded: $1.5 billion each to France, Italy and Germany; almost $1 billion to Japan. Iraq managed to defer payment for two years.

The United States escaped this first rude awakening. Trade was minimal between the two countries, which had not had full diplomatic relations since the 1967 war in the Middle East. In Baghdad, the U.S. government was represented by an interests section in the Belgian Embassy.

Soon the relationship began to change. In March 1982, the State Department removed Iraq from its list of countries supporting terrorism, making Iraq eligible for a fuller range of trade and credits with the United States.

U.S. officials justified the action by saying Saddam had diminished his role in international terror. That was a cover, according to Noel C. Koch, then the Defense Department's director for counterterrorism programs. "No one had any doubts about his continued involvement with terrorism," Koch said. "The real reason was to help them succeed in the war against Iran."

It did not take long for American businesses to make overtures to Iraqi officials, and for Iraq to respond. One Sunday morning in Denver, Ghaham Aziz, head of Iraq's grain board, met with U.S. grain representatives and a Department of Agriculture official to arrange $300 million in U.S. guaranteed loans to buy rice and wheat. "He told me they wanted to strengthen both their economic and political ties with the United States," recalled Mel Sims, the official. "They wanted to develop into a long-term customer."

Early in 1983, Iraq's foreign minister, Saadoun Hammadi, met with Secretary of State George P. Shultz and other senior department officials. "It was a very frank discussion," recalled Nicholas A. Veliotes, then assistant secretary of state for the Middle East. "He said, 'We want help from you.' "

Hammadi said he knew the United States was closely allied with the Saudis. "They're our friends too," Veliotes recalled Hammadi saying. "They have lots of wealth and oil. But don't confuse that with power. We have the power."

"Think of it as a long-term investment," Hammadi said.

While publicly neutral in the Iran-Iraq War, the United States was willing to open the door to Iraq and keep it open. Iraq began treating the U.S. Interests Section in Baghdad as a virtual embassy. In late 1983, Saddam sent Nizar Hamdoon to Washington as his diplomatic representative. It was an inspired choice.

Hamdoon perfected his English and became a master of the Washington scene. To his own parties he invited policy-makers from the State Department and the White House, as well as academics, journalists, Jewish leaders, and members of Congress. He was good at promoting the image of a new Iraq: modern, moderate and pragmatic.

Leading newspapers printed glowing profiles of him. In a later article in The Washington Post entitled "How to Survive in Washington," Hamdoon wrote that "everything and everyone is workable, depending on how you approach them and how much time you spend."

On Nov. 26, 1984, just after Reagan was reelected, the United States restored full diplomatic relations with Iraq. It was a controversial decision: For all Iraq's image-making, there were signs that Saddam Hussein had other things than grain on his shopping list.

Eight months earlier, U.S. Customs had seized a half-ton of potassium fluoride destined for Iraq's "Ministry of Pesticides." Potassium fluoride is a principal ingredient in nerve gas.

Because there was an embargo on U.S. arms shipments to Iraq and Iran, Iraq could not legally buy U.S.-made weapons. Instead Iraq sought, with the approval of U.S. officials, intelligence and American technology. Purchases of Sensitive Technology

In 1984, Hamdoon and other Iraqi officials began to hold secret meetings with CIA Director William J. Casey, who passed along sensitive satellite reconnaissance photographs to assist Iraqi bombing raids on key Iranian targets, according to a 1986 report in The Post.

Since 1985, the Commerce Department has granted 486 licenses for shipments of sensitive technology to Iraq after being assured that it was intended for non-military purposes. A total of 160 were pending at the time of the Kuwait invasion.

"The Iraqis saw it as in their long-term interest to get as much technology from us as possible," said Stephen Bryen, a former Pentagon official whose office complained repeatedly that the technology could be used for military purposes. "Their strategy was to try and have some fail-safe weapons capability so they could pursue expansion without risk of serious retaliation."

Defense Department officials repeatedly objected to the sale of computer technology, according to internal government documents. In one case, the Pentagon said it was "inclined to deny completely this export because of the high likelihood of military end use." In a second case, defense officials said "this system has uses in the production of chemical weapons and we have no credible assurances that it will not be used in that way." The department called a third system "ideal" for designing and testing weapons, and rejected Iraq's contention that the computers were for bookkeeping as "not believable."

The sales went through anyway. Commerce Undersecretary Dennis E. Kloske said in an interview his department had no proof the technology was to be used for military purposes and that, in the end, Defense Department officials acquiesced.

Paying for all this was a constant problem. The war continued to gobble oil revenue as quickly as Iraq could earn it. In 1986, Iraq opened a pipeline through Saudi Arabia, but collapsing oil prices negated any benefit. By then, Iraq had defaulted on its debts at least once in most countries.

"The Iraqis developed a line," said an Export-Import Bank economist. "It went like this: 'The war will end soon, and after the war, once we've rebuilt our oil export capacity, Iraq will be a huge boom market.' "

The Europeans and Japanese complained, not only because they were not being paid, but also because Iraq was trying to reschedule its debts separately with each country, hoping to get better individual deals. In international finance this tactic is considered bad form. Debtors are encouraged to renegotiate in a multilateral setting: the "Paris Club" and the International Monetary Fund.

Iraq was having none of it. An 'Impeccable' Record

"Saddam had a psychological block about that," said Wiley, who got to know Saddam through his work with the U.S.-Iraq business forum. "He thought it would make Iraq look like a banana republic."

By refusing to deal collectively with its creditors or open its books, Iraq could never obtain U.S. government loan guarantees for major development projects. The Ex-Im Bank would offer Iraq only a $200 million revolving line of short-term credit guarantees -- a pittance in the banking world -- with strict repayment terms and minimal risk to the U.S. government.

Iraq thus turned to private banks in the United States. Its favorite was an unlikely one: the Atlanta branch of the Italian-owned Banca Nazionale de Lavoro, or BNL. Between 1984 and 1990, BNL arranged about $3 billion in loans to Iraq.

BNL Atlanta was not as odd as it seemed. The Italian government was the majority owner of the parent bank in Rome and BNL was one of Italy's largest.

By the mid-1980s, under the aggressive leadership of branch manager Christopher Drogoul and chief foreign trade expert Paul Von Wedel, BNL Atlanta had a growing reputation as a financier for U.S. agricultural exports.

Looking to broaden the bank's clientele, the two men flew to New York in late 1984 to meet with Iraqi Central Bank Director General Sadik Taha. "They took a liking to the both of us," Von Wedel said in an interview. "Things went well, and they finally agreed to do $100 million {in loans}."

Those loans were used to buy commodities through the Agriculture Department's Commodity Credit Corp. Under the program, Iraq borrowed money from U.S. banks and bought grain from U.S. exporters. The Commodity Credit Corp. guaranteed the loans and Iraq had up to three years to repay, a welcome respite for the cash-starved country. Should Iraq default, the U.S. government would assume the debt.

Iraq's position in the program grew dramatically, from $215 million in 1983 to $567 million in 1987 and $1.045 billion in 1989. It became the second-largest user of the credit program after Mexico, the eighth-largest purchaser of U.S. wheat and the leading purchaser of U.S. rice.

And Iraq always paid its U.S. creditors on time. "I think the word our international section liked to use . . . is 'impeccable,' " said Jack Cassidy, a senior vice president for CoBank in Denver, one of the participating banks.

But BNL was driving out CoBank and other competitors by offering Iraq lower interest rates. In late 1985 Iraq asked Drogoul and Von Wedel to finance all of the next year's commodity exports. Soon the Iraqi deals had transformed Atlanta BNL -- what Von Wedel called "a little branch out in the boondocks" -- into Iraq's principal source of credit in the United States.

And not just for commodities. Besides $700 million in agricultural loans, BNL wrote $2 billion in Iraqi loans between 1986 and 1989, financing everything from lubricating oil from a small New Jersey company to oil port machinery from Brown & Root.

When the Ex-Im Bank declined to support an Iraqi plan to buy General Motors automobiles and build an auto plant near Baghdad, the Iraqis turned to Von Wedel and Drogoul. The result: an open-ended contract in 1989, beginning with $150 million in Cutlass Cieras and Chevrolet Celebrities.

In August 1989, Iraq's relationship with BNL Atlanta was interrupted by a federal investigation into allegations that BNL Atlanta had violated U.S. banking laws by failing to report $2.7 billion of its $3 billion in Iraqi loans. BNL Atlanta denied any wrongdoing and the investigation is pending.

As a result, the Agriculture Department suspended $500 million -- half Iraq's annual allotment -- in Commodity Credit Corp. guarantees for 1990. When Iraq invaded Kuwait, it owed the corporation about $2 billion and BNL Atlanta about $1 billion. 'How Far Must They Go?'

After years of improving relations, the Iraq-U.S. courtship took a temporary nose dive in November 1986 with the disclosure that the United States had secretly sold arms to Iran. But the damage was repaired when the United States played a major role in the final stages of the Iran-Iraq War.

In 1987, Iran threatened to attack oil tankers from Kuwait, which was Iraq's ally at the time and had given Iraq huge loans for the war. To protect the tankers, the U.S. government announced that it would "reflag" them and escorted them through the Persian Gulf.

About the same time, an event occurred that could have upset the relationship again. An Iraqi jet hit the USS Stark with a French-made Exocet missile, killing 37 American sailors. Saddam swiftly apologized, called it an accident and paid $27 million to the victims' families.

In August 1988, the long and bloody war between Iraq and Iran ended in a cease-fire. The U.S.-Iraq relationship continued to flourish: Iraq still wanted U.S. technology and know-how to promote its industry and rebuild and develop its military capacity.

The United States wanted Iraqi petroleum and export markets, and overlooked warning signals about Saddam's intentions.

Immediately after the cease-fire Saddam attacked Iraq's Kurdish minority with poison gas. Then, in late 1989, Iraq announced that it had launched a rocket capable of carrying a satellite -- or a warhead.

Last spring, there were more troubling developments: U.S. Customs agents blocked Iraqi efforts to export electrical devices that could be used to trigger nuclear weapons. British authorities seized parts of a huge cannon that could deliver nuclear or chemical warheads. Saddam executed a British journalist for alleged spying.

Some members of Congress pressed for sanctions against Iraq, but the Bush administration opposed them. At a congressional hearing last April 26, several lawmakers expressed astonishment at the administration's position.

"How far must they go before the administration embraces a much tougher policy?" asked Rep. Mel Levine (D-Calif.). "What is the positive conduct you are looking for and what negative conduct would finally trigger an administration in the direction of sanctions?"

Testifying was John H. Kelly, assistant secretary of state for Near Eastern and South Asian affairs. "You have put your finger, congressman, on the dilemma one faces in dealing with a regime like this," Kelly replied. "We want to see them stop violating laws of the United States."

Kelly argued throughout the hearing, however, that sanctions were not the answer. "They would hurt U.S. exporters and worsen our trade deficit," he said.

In late July, as 100,000 Iraqi troops massed on the Kuwaiti border, Kelly returned to Capitol Hill. He said the administration was "profoundly concerned" about Iraq but still opposed trade sanctions. "We believe that what you need are devices that allow you to modulate policies toward countries, not a meat-ax approach."

Two days later, Iraq invaded Kuwait.

Staff writers Guy Gugliotta, Charles R. Babcock and Benjamin Weiser reported and wrote this article. Staff researcher Lucy Shackelford contributed to it.