Yugoslav defense companies have been working for two years on the development of a cruise missile for Iraq, according to a document delivered by U.S. diplomats to Yugoslav government officials this month.

The allegations were made in a "non-paper," or aide-memoire, accompanied by a stern letter to the country's top officials from the U.S. ambassador in Belgrade. The letter asked Yugoslavia to end its breach of the U.N. arms embargo on Iraq, according to a senior Yugoslav official who has knowledge of the U.S. document.

The official said the document asserts that Yugoslav scientists have been working on the development of a turbojet engine for a medium- to long-range cruise missile called CM 1500. It also alleges that Yugoslav scientists have made repeated visits to Iraq since early 2001 to complete work on the project, and that the contracts were arranged by the state defense conglomerate, Yugoimport.

The claims followed a State Department announcement this week that the same company had cooperated with a Bosnian aviation firm to help repair and sell spare parts for MiG fighter planes destined for Iraq.

The revelations were made after a raid by NATO troops on an aviation plant in the Bosnian Serb Republic on Oct. 11. The Yugoslav government has since dismissed the head of Yugoimport, Gen. Jovan Cekovic, as well as a deputy minister of defense, Ivan Djokic.

Senior government officials have publicly sought to play down the extent of any deal between the two countries. The Yugoslav president, Vojislav Kostunica, said Thursday that the contracts boiled down "to overhauling older-generation aircraft engines, rather than to selling state-of-the-art weapons."

But sources within the Yugoslav government said the evidence presented by the United States directly contradicted those claims and suggested Yugoslav firms had been working to update Iraq's military arsenal and equip Iraq with a weapon that could accurately target neighboring states.

In February 2000, the U.S. document alleges, Yugoimport concluded a contract with a company called Al Fatah for the development of a cruise missile. Until now, Iraq has had access only to ballistic missiles, which are more difficult to control.

Yugoimport, the document states, then worked with five smaller private companies to fulfill the contract.

The companies were named Infinity, Brunner, GVS, Temex and Interdeal. They were all said to be associated with or controlled by active or retired Yugoslav army officers. Brunner was assigned to develop an MM 400 turbojet engine for use in a cruise missile. The company is also alleged to have helped build a facility in Libya that manufactures rocket propellant, and to have assisted the Libyan government in obtaining U.S. software designed to improve the accuracy of rockets.

The paper goes on to say that some of the directors of these companies, as well as some from Yugoimport, met with representatives of an Iraqi trading company called Al Rawa at the beginning of 2001 and that Yugoslav scientists employed by the firms have been based in Iraq intermittently since then.

A senior security adviser to Kostunica refused to comment on the claims made in the U.S. document. The Yugoslav government has closed Yugoimport's office in Baghdad and formed a commission to investigate whether U.N. sanctions on Iraq have been breached.

Yugoslav officials appear to be divided on how to deal with the U.S. allegations. Some are pushing for a public inquiry, while others favor a more discreet approach.

Milos Vasic, a defense analyst in Belgrade, said Yugoslav scientists had the expertise to develop such technology but he questioned whether Iraq had the resources to build a missile.

"The problem is not whether they have the know-how, but how they could get the high quality materials that are needed for it," he said.

In Croatia, meanwhile, the Interior Ministry confirmed today that several crates of gunpowder that could be used in mortars, artillery shells and rockets were seized from a freighter in the port of Rijeka. Western officials said police will try to determine whether the powder could be used in Iraq's weapons program.

On Friday, the Belgrade daily newspaper Blic published documents suggesting that Yugoimport had also exported several thousand tons of munitions and explosives to countries in the Middle East, including Iraq and Syria.

These discarded Yugoslav MiG-21 jet fighters are similar to Iraqi aircraft that a Yugoslav company is accused of helping to repair and sell spare parts for.