For analysts at the National Security Agency, the transcripts scrolling across their computer screens in May 1997 set off immediate alarms. Bank letters of credit, intercepted by the NSA's electronic snooping, appeared to show that a French company was selling missile components to Iran that could end up in weapons targeting ships in the Persian Gulf.

Within days, U.S. diplomats marched into the French Embassy here to formally protest that the private deals were helping Iran build C-802 missiles. In numerous tense meetings on both sides of the Atlantic, senior administration officials repeated the charges to French authorities, who denied as vehemently that the sales had anything to do with missiles.

Ten months of acrimonious exchanges failed to resolve the issue. But today, U.S. intelligence agencies believe Iran possesses as many as 150 of the anti-ship cruise missiles, most bought from China, but some manufactured by the Iranians themselves based in part on copies of the French engine.

The story of how the C-802 missile and its high-tech French engine made its way first to China, and then to Iran, is a case study in one of U.S. foreign policy's central preoccupations: the proliferation of missiles and other weapons, particularly those, such as the C-802, that in theory terrorists could use to mount a germ war attack. Although the U.S. government has the political will and the world's most sophisticated intelligence network, preventing the spread of these missiles and their components has been one of U.S. intelligence's most frustrating tasks. The effort has produced victories and defeats -- and many inconclusive dead ends.

Counterproliferation is hard work in part because American allies do not necessarily share Washington's view of which countries should be redlined from high-technology commerce. And in the world of 1999, where a U.S. nuclear weapons lab scientist and American satellite makers are under investigation for communicating with the Chinese on sensitive technical matters, it might be next to impossible to control every bit and byte of information streaming overseas via every kind of data network.

One hundred pages of secret and top-secret documents of the NSA, State Department and Pentagon tell the inside story of the Chinese C-802, a little missile that gets around, and in particular its most crucial component, the TRI-60 engine manufactured by the French firm, Microturbo SA.

The papers detail how Microturbo developed the engine in the 1980s and sold it to China starting in 1987 for use in the C-802. Later the Chinese sold completed C-802s to Iran. Finally, U.S. intelligence picked up what it considered evidence that the French firm sold the same engines to the government in Tehran last year.

Doubts about that conclusion have grown as the French have insisted that Microturbo was sending power generators rather than engines to Iran. But the fact remains, U.S. officials say, that Iran has the missiles and made some of them itself.

Weapons experts say U.S. intelligence must monitor the spread not only of missiles such as the C-802 but also their components, especially engines. "Engines are the key element a Third World country must get to develop a cruise missile," said a former Pentagon expert on missile engines. "It's the critical choke point."

The papers -- supplied by the National Security News Service, a nonprofit group that has researched the C-802 -- show U.S. intelligence in the mid-1980s started scrutinizing development of the missile, which China called "Ying Ji" or "Strike Eagle." The TRI-60 engine powered the C-802 and its armor-piercing warhead near the speed of sound, making the missile akin to France's highly regarded Exocet.

Beijing's missile agency, China Precision Machine Import & Export Corp. (CPMIEC), bought its first shipment of 50 Microturbo engines in 1987. The French sent 50 more engines in 1995, and possibly another 50 in 1996.

In 1988 a Chinese laboratory called the 31st Institute began "reverse-engineering" or copying the engines for itself. But the Chinese found this rough going, said a Chinese engineer taped by the NSA. The lab made only 20 new engines after eight years, an NSA report said.

Microturbo gave the Chinese key design data on the engine during this research, the papers said. But Microturbo Chairman Jean-Bernard Cocheteux said in a statement to The Washington Post that the firm "never trained any Chinese engineer to design missile engines or reverse-engineer engines for missiles."

In 1990 U.S. officials were alarmed to learn China was selling C-802s to Iran, plus the means to build their own C-802 factory. U.S. spy cameras in space snapped away as a Chinese ship delivered the first C-802 to an Iranian port in the fall of 1993.

U.S. officials soon asked the Beijing regime to stop selling Iran C-802s or components, to no avail. In late 1996, Chinese President Jiang Zemin told President Clinton in Australia that China wouldn't sell more C-802s to Tehran. But the papers say China continued parts sales until late 1997, when Chinese officials promised Secretary of State Madeleine K. Albright that they would end the shipments of C-802s and related technologies.

The NSA noted the Iranians' fury as the Chinese stalled deliveries and failed to provide promised help fixing balky C-802 launch tube doors. An Iranian official demanded that Beijing "provide an official explanation of the current situation within two weeks or face suspension of cooperation between Iran and China," which turned out to be a hollow threat.

In the end, China delivered 150 or so of the 400 missiles Iran ordered.

The Iranians sought to find a new source of C-802s. Like Beijing, Tehran started "reverse-engineering" the weapons to make them itself. But first it needed Microturbo engines and parts. Tehran officials retained a Hong Kong firm, Jetpower Industrial Ltd., to act as a front in purchasing the French engines, components and technical help from both the Chinese and Microturbo, the reports said.

Jetpower has repeatedly purchased arms illicitly for Iran, U.S. officials said. In 1993 it pleaded guilty in Hong Kong to smuggling $2.5 million worth of U.S. fighter jet parts to Iran.

The documents describe the delivery of Microturbo equipment -- which the NSA believed was missile engines -- on a ship traveling from Antwerp to Iran last March.

Meanwhile, the NSA taped Iranian military officials discussing efforts by a Syrian arms dealer named Monzer al-Kassar to procure "802 items" for Tehran so it could reverse-engineer the engine. Al-Kassar, who lives in a Spanish seaside villa, has been investigated by western intelligence for years. Enjoying close ties to Syrian intelligence, he has been reputed to be a source of arms for terrorists.

U.S. intelligence also investigated and then dismissed a suspicion that the machinery Microturbo was shipping to Iran had actually been made at the firm's engine plant in Grand Prairie, Tex. The prospect that a plant outside Dallas, which makes engines for U.S. "drone" missiles, also was supplying gear for Iranian weapons aimed at U.S. ships "gave us a coronary thrombosis," a U.S. official said. Pentagon investigators soon concluded that the firm's equipment bound for Iran had been made in France.

In May 1997, the NSA -- which for years had known of Microturbo's engine sales to China for use in the C-802 -- acquired evidence that the firm now was selling hardware to Iran's military, using a $1.1 million line of credit. As they exchanged faxes, the Iranians and French described what was being sold only as "special items," but the NSA concluded they were C-802 engines. U.S. diplomats immediately launched complaints with the government of new Prime Minister Lionel Jospin.

French officials replied that they wouldn't allow the sale of missile engines to Iran, but U.S. suspicions persisted. Thomas Pickering, undersecretary of state for political affairs, and other U.S. diplomats lodged five more protests with the French government, including several demarches hand-delivered to the embassy here.

French officials said Microturbo was not selling Iran missile engines, but generators. But U.S. officials remained firm.

"Even if only generators were shipped . . . we still do not believe the shipment should have been permitted by France," a State Department report said. "CIA assesses it is relatively easy to substitute the electrical turbine assembly [in a Microturbo generator] with a nozzle to produce a missile engine. . . . Even if Iran is not planning conversion [to missile engines], the basic engines still provide a source of parts for Iran's C-802 missiles and material for a possible reverse-engineering."

But in early 1998, French officials told U.S. diplomats that its export inspectors opened Microturbo crates in Antwerp bound for Iran, and confirmed they contained generators. U.S. intelligence officials then performed a "reevaluation" of the NSA transcripts. Faced with the French denials, the NSA admitted some conversations now seemed more ambiguous than before. It concluded the machines Microturbo sent Iran indeed could have been generators, albeit militarily useful ones, a U.S. official said.

"It doesn't mean we were necessarily wrong" earlier on, the U.S. official said. "But if we'd known of the doubts before, we wouldn't have done things that way."

Speaking of the firm's $2 million sale to Iran, Microturbo Chairman Cocheteux said the generators are "very different from engines used to propel missiles" and aren't useful in building missile engines. "Microturbo SA never assisted Iran in any way" on any missile, he said.

He declined to answer whether his firm sold missile engines to China, because under French law any French approval for such a sale is secret. Microturbo is a division of Labinal Group, a French firm with annual revenue of $2 billion that supplies Boeing Co. and others in the aerospace and electronics industries.

In the end the Iranians got what they wanted; they now can manufacture C-802 missiles themselves, said Jane's Defence, an authoritative industry publication. In December former Iranian president Ali Akbar Hashemi Rafsanjani boasted that Tehran's missile industry is "technologically self-sufficient."


Iran has as many as 150 C-802 anti-ship cruise missiles, mostly bought from China with engines made by the French company Microturbo SA, but some manufactured by Iran itself, according to classified U.S. documents.

C-802 missile (Originally made by China)

Range: 75 miles

Speed: Mach 0.9

Cruising altitude: 60 to 100 feet

Guidance: inertial and active radar

Propulsion: kerosene-fueled turbojet engine

Weight: 1,575 pounds

Length: 21 feet

Diameter: 1.2 feet

Warhead: 365 pounds

SOURCE: Jane's Naval Weapon Systems

CAPTION: TRI-60 turbojet engine (Originally made by the French company Microturbo)

CAPTION: Homing radar

CAPTION: Warhead

CAPTION: Autopilot

CAPTION: Air intake

CAPTION: Folded wing

CAPTION: Fuel tank

CAPTION: Booster

CAPTION: Actuator