Last Feb. 24, Iraqi President Saddam Hussein delivered a surprising speech in Amman, Jordan, in which he noted that the world around him had changed dramatically. The Soviet Union, "the key champion of the Arabs," was in decline and had turned inward, leaving the United States "in a superior position in international politics." Without the restraining hand of Moscow, he said, the American fleet was planning to remain in the Persian Gulf indefinitely, a prospect that Saddam found distinctly undesirable.

The reports of Saddam's speech, made at a summit meeting of Arab leaders, landed with an unwelcome thud on the desks of Washington policy-makers and outside experts who follow developments in the Persian Gulf. During the 1980s, the United States had developed a working relationship and increasingly cordial ties with Baghdad, out of a common cause that Iran not be permitted to win the Iran-Iraq war. After the war ended in August 1988, the Reagan and Bush administrations slowly sought to expand their relations with an Iraq that seemed to be more pragmatic than in the past and, at the same time, more powerful.

Washington was puzzled by Saddam's complaints, since its Middle East naval task force had diminished from its 1988 high of about 30 ships to only a half-dozen ships by early this year, the same level of U.S. naval power that had been maintained near the strategic Persian Gulf for 40 years. More than the specifics, U.S. officials were troubled by Saddam's combative anti-American tone.

The relationship of convenience that had developed over the previous decade -- the first time there had been much interaction between Washington and the dictatorial Baghdad regime -- left U.S. policy-makers unprepared for the problems heralded by Saddam's speech. Despite the rapid emergence of one difficulty after another between the two governments, it was not until Iraqi troops poured across the Kuwaiti border on the morning of Aug. 2 that the United States fundamentally shifted its policy of seeking to work with Baghdad.

By that time, Saddam evidently had decided that Washington would not be a serious obstacle to his plans.

The roots of the current crisis between Iraq and the United States go back many years to differing interests and perceptions. Iraq is a new nation whose borders were drawn by the British in 1922, though it has the world's most ancient culture, arising from Mesopotamia. It is a regional power ruled by a party committed to Arab nationalism, and economically dependent on high oil prices.

During the early years after World War II, Iraq -- the only Arab signatory to the anti-communist Baghdad Pact -- had been viewed by both Britain and the United States as a protector of their interests in the Persian Gulf. After the Iraqi revolution of 1958 brought in the Baath Party regime now headed by Saddam Hussein, the United States turned to Iran, where the CIA had engineered the overthrow of the nationalist president Mohammed Mossadeq and restored the pro-Western Shah to the Peacock Throne.

When an Islamic fundamentalist regime hostile to the West took power in Tehran in 1979 -- and especially after Iran threatened to defeat Iraq in the bitter war between them and extend its regional power -- Washington sought to shore up its relations with Iraq. In 1982, it took Iraq off the list of nations supporting international terrorism. In 1983, it began selling about $1 billion yearly in grain with government-insured credits, and in 1984, it resumed full diplomatic relations for the first time since Baghdad broke them off in the 1967 Middle East war.

Despite Baghdad's continuing human rights abuses and its hostility to Israel, the Reagan administration hoped Iraq would play a constructive role in the region. In a National Security Directive in the fall of 1989, President Bush approved a continuation of the Reagan policy of detente with the Baghdad regime.

A series of incidents last spring following the February speech did raise serious questions in Washington about where Iraq, and its relations with the United States, were heading. Journalist Executed as Spy

In rapid succession came the Iraqi execution of Frazad Bazoft, an Iranian-born, British-based journalist, on charges of spying for Israel and Britain; the controversy over Iraq's plans to build a colossal long-range artillery weapon that emerged after the assassination of Gerald Bull, a naturalized American involved in development of the weapon; and a U.S.-British sting operation against Iraq's attempt to obtain sophisticated electronic capacitors, which could be used in missiles.

On April 1, Saddam denounced a "conspiracy" against Iraq in the Bazoft, Bull and capacitor cases, which he portrayed as a prelude to an Israeli attack. If Israel should attack -- as it had in 1981 to destroy an Iraqi nuclear reactor -- "we will make the fire eat up half of Israel," Saddam declared.

Iraq was deeply upset and suspicious, according to Iraqi Ambassador to the United States Mohamed Mashat, of what it suspected was an Israeli-orchestrated "campaign" against it by the U.S. government and press starting late in 1989. At the same time, commencing at an Arab League summit meeting last May, Saddam began to issue explicit threats against Kuwait, charging it with "economic warfare" and demanding billions of dollars in compensation. The demands against Kuwait would intensify as the summer wore on.

Former deputy assistant secretary of state James Placke, who had been one of the Reagan administration's leading experts on Iraq, and who had seen Saddam on a visit to Baghdad as a private business consultant in June 1989, was startled by the changed Iraqi posture in the early months of 1990. Saddam "suddenly seemed to snap back" to the more radical views of his earlier years, Placke observed. "He went off on a tangent that the United States is trying to take over the Middle East . . . {that} Iraq and the United States were irreconcilable, and that the only course was to confront the United States." Saddam Rejected Debt Plan

Placke, like many other U.S. specialists, believes Iraq's deepening economic problems were an important part of the reason. Iraq had emerged from the stalemated war with Iran as by far the most militarily powerful state in the gulf, but with a foreign debt estimated at $80 billion, about half of it to the West and Japan. Saddam adamantly refused to submit to a Paris Club rescheduling of his debts, recommended by Western bankers. By early 1990, Baghdad was in deepening economic trouble as oil prices, and Iraqi oil revenues, remained low and debts piled higher and higher. Iraqi fury was directed especially at Kuwait, which it accused of deliberately sabotaging its economy by overproducing oil and keeping prices low.

Former assistant secretary of state Richard W. Murphy, who visited Baghdad as an adviser to a U.S. bank last March, said Saddam "came to realize in early 1990 that he was being regarded as one of the world's worst credit risks and facing bankruptcy." Murphy, referring to the invasion of Kuwait, said, "To get out of bankruptcy, you rob a bank."

Starting in April, the Bush administration began reviewing its policy toward Iraq. It decided not to provide a scheduled installment of $500 million in U.S.-assisted grain sales but, at the same time, not to seek to isolate or confront Iraq.

The reason for the policy adjustment rather than a policy reversal was the continuing hope of influencing Iraq toward moderation. Iraq was not seen as a serious menace to its neighbors, or to U.S. policy, until it began moving troops to the Kuwaiti border in July.

"Before that, you had all these pieces of stuff, all these speeches and behavior that one didn't like," said this official, but no individual or agency of government heard at senior levels added them up to such overtly aggressive behavior as an attack on Kuwait. When the Iraqi military buildup began on the Kuwaiti border in mid-July, it was seen in the administration as "gunboat diplomacy," to intimidate Kuwait into meeting Iraqi demands, rather than the prelude to an invasion. When Saddam suddenly called in U.S. Ambassador April Glaspie on July 25, she had no instructions to protest or warn against the troop movements. According to an Iraqi version of the conversation, Glaspie said she had "a direct instruction from the president to seek better relations with Iraq" and "no opinion" on Iraq's longstanding border disputes with Kuwait.

"It wasn't until Aug. 1 that you began to sense they may use {force}, that they're not just posturing," said the Washington official, who was involved in high-level administration discussions. "Even then, to the extent anyone suggested they might use it, it was only in a limited way," such as to occupy border areas of Kuwait for bargaining purposes rather than annexation.

"We were guilty of a kind of mindset or a framework" about Iraq, this official said. "The idea that a country would march up to the border, put 100,000 troops there, go in and do what they've done -- I don't think anybody here thought they'd do it."

There is no consensus within the administration about why Iraq's change of behavior in 1990 was not recognized as a serious danger to the international order or U.S. interests, or why the comforting "mindset" prevailed. According to Prof. Allan Goodman of Georgetown University, such intelligence failures in the past have been attributed to "cultural blinders" or "group think" that tends to rule out the possibility of seemingly unthinkable actions until they happen, such as the Soviet placement of nuclear missiles in Cuba in 1962 or the fall of the shah of Iran in 1979.

There are even more controversial questions: If the administration had recognized a coming menace from its former friends in Baghdad, could it have taken effective action to stop Iraq's invasion of Kuwait? Did the absence of forthright U.S. warnings, and the continued expression of hopes for improved relations, encourage what Secretary of State James A. Baker III has called Iraq's "miscalculations," and the belief in Baghdad that Kuwait could be seized with impunity? Those questions remain to be clearly answered.