The money was to be used to buy tanks and other weapons from international arms dealers, the officials say, as part of an accelerated effort to assemble an armored division for the fledgling Iraqi Army. But exactly where the money went, and to whom, and for precisely what, remains a mystery, at least to Iraqis who say they have been trying to find out.

The $300 million deal appears to have been arranged outside the American-designed financial controls intended to help Iraq - which defaulted on its external debt in the 1990's - legally import goods. By most accounts here, there was no public bidding for the arms contracts, nor was the deal approved by the entire 33-member Iraqi cabinet.

On Friday, the mysterious flight became an issue in this country's American-backed election campaign, when Defense Minister Hazim al-Shalaan, faced with corruption allegations, threatened to arrest a political rival.

In an interview on Al Jazeera television, Mr. Shalaan said he would order the arrest of Ahmed Chalabi, one of the country's most prominent politicians, who has publicly accused Mr. Shalaan of sending the cash out of the country. Mr. Shalaan said he would extradite Mr. Chalabi to face corruption charges of his own.

"We will arrest him and hand him over to Interpol," Mr. Shalaan thundered on Al Jazeera. The charge against Mr. Chalabi, he said, would be "maligning" him and his ministry. He suggested that Mr. Chalabi had made the charges to further his political ambitions.

Mr. Chalabi first made the allegation against Mr. Shalaan last week, on another Arabic-language television network. He said there was no legitimate reason why the Iraqi government should have used cash to pay for goods from abroad. He implied that at least some of the money was being used for other things.

"Why was $300 million in cash put on an airplane?" Mr. Chalabi asked in an interview this week. "Where did the money go? What was it used for? Who was it given to? We don't know."

The $300 million flight has been the talk of Iraq's political class, and fueled the impression among many Iraqis and Western officials that the interim Iraqi government, set up after the American occupation formally ended in June, is awash in corruption. It is not clear whether the money came from Iraqi or American sources, or both.

"I am sorry to say that the corruption here is worse now than in the Saddam Hussein era," said Mowaffak al-Rubaie, the Iraqi national security adviser, who said he had not been informed of the details of the flight or the arms deal.

That charge is echoed outside of Iraq as well. Isam al-Khafaji, the director of the New York-based Iraq Revenue Watch, said corruption had become an "open secret" within the Iraqi government.

"There is no legal system to bring charges against anyone not following the rules and not abiding by the law, especially if you're a powerful politician," Mr. Khafaji said. "That's the tragedy of Iraq: Everyone runs their business like a private fiefdom."

Mr. Shalaan did not respond to several requests for an interview, but one of his aides insisted that the arms deal was legal and that the money had been well spent.

Reached by telephone in Lebanon, the aide, Mishal Sarraf, said the arms deal had been approved by four senior members of the Iraqi government, including Prime Minister Ayad Allawi and Mr. Shalaan. He said it had been carried out quickly because of the urgency of the guerrilla war. He said he had not realized that the deal had been done in cash.

"We don't want to hide anything," Mr. Sarraf said.

He said the armaments themselves had been manufactured in Poland, the Czech Republic, Turkey, Ukraine and the United States. He said the money had bought armored personal carriers, tanks and even Humvees.

Mr. Sarraf refused to say who received the money, saying it was too dangerous.

"They could be killed," he said.

The public fight with Mr. Shalaan is the latest political twist for Mr. Chalabi, once the darling of the Bush administration and one of the main proponents of the invasion of Iraq. He has since become a pariah in the United States, accused of exaggerating Mr. Hussein's prohibited weapons activities.

After a bitter falling out with the Bush administration, which accused him of passing secrets to the Iranian government, Mr. Chalabi has begun to mend fences with the Americans, and is positioning himself to make a run for the prime minister's seat.

In threatening to arrest Mr. Chalabi, Mr. Shalaan appears to be trying to change the subject to Mr. Chalabi's own legal problems. In Jordan, Mr. Chalabi faces charges that he embezzled millions of dollars from the Petra Bank, which collapsed in the 1990's.

Mr. Chalabi has long maintained that the charges against him in Jordan are baseless, part of a vendetta being carried out for his opposition to Mr. Hussein.

Mr. Chalabi was campaigning in southern Iraq on Friday and could not be reached after Mr. Shalaan's threat to arrest him.

Details of the arms detail are still sketchy, but according to Mr. Sarraf and other Iraqi officials, it began late last year as part of the effort to beef up the Iraqi armed forces in the face of the relentless guerrilla insurgency.

Mr. Sarraf said that though the arms deal had been approved by four senior cabinet members, it had not been put before the entire cabinet because of the urgency in dealing with the insurgency. "It was all proper," he said.

Dr. Allawi's office did respond to repeated requests for an interview.

According to a senior Iraqi financial official with knowledge of the deal, who spoke on condition of anonymity because of the sensitivity of the subject, the $300 million was then transferred to the Warqa Bank, a private Iraqi financial institution with a capitalization of about $7 million. That bank, the Iraqi official said, does not have the ability to transfer money electronically to another account in another country. An equivalent amount of cash was then taken from the vault of the Central Bank of Iraq, taken to the airport, loaded on an airplane and sent to Lebanon.

"The government here knows it is coming to an end," the official said. "This is what governments do when they are coming to an end."

A second Iraqi financial official, who also spoke on the condition of anonymity, confirmed the transaction. The official described the arrangement as "unusual" and said he had ordered an investigation of the transaction.

The senior Iraqi financial official said the arms deal appeared to bypass the elaborate financial mechanism set up by the Americans at the end of the war that was intended to help Iraqi import goods from abroad. Under that system, Iraqi revenues intended for imports are routed through the Trade Bank of Iraq and are facilitated, and largely controlled, by large American financial institutions.

The system was intended to stop creditors from tying up Iraqi money needed for imports and also to control the way in which the Iraqi government spends its money.

Indeed, the Iraqi official with knowledge of the deal said he was concerned that the $300 million could be seized by the many creditors who have liens against the Iraqi government.

Mr. Khafaji of Iraqi Revenue Watch said the financial mechanism had been set up to cover all government transactions dealing with imports, including arms purchases.

But one American official with knowledge of the transaction said taking the $300 million out of the country, although unorthodox, was probably the only way for the Iraqi government to buy weapons.

The reason, according to the American official, is that the financial mechanism set up after the war's major combat operation ended requires that Iraqi oil revenues be spent for "humanitarian" purposes. That meant that the Trade Bank of Iraq could not be used for arms purchases, thus necessitating the use of cash.

That has since changed, the official said, with the signing of an executive order by President Bush late last year.

by DEXTER FILKINS , New York Times
January 22nd, 2005

Jad Mouawad contributed reporting from New York for this article