"While our slush funds grew steadily, unusual overhead costs diminished the profits. True, we were selling weapons to the Iranians with a 50 percent to 400 percent mark-up on the ex-factory price, but the actual cost of procuring and delivering them was high, too. There was a huge network of arms brokers to be paid, money to be handed over to those involved in "smokescreen" deals, bribes to be paid to politicians and civil servants, campaign "donations" to be made around the world, and other expenses. The "donations" sometimes cost more than the weapons themselves.

Contributions were even made from the slush fund, albeit indirectly, to U.S. politicians, including Democrats on the Iran-contra panel. This may be one reason that the full story behind the Iran-contra scandal never materialized. Even though Israel leaked details about some of Oliver North's activities, the Democrats, many of whom were well aware of what was going on, kept quiet about the huge flood of arms that had been running to Iran through Israel. Tel Aviv, not wanting its own arms deals with Tehran to be exposed, had paid them off through various, often convoluted, contributions to the American Israel Public Affairs Committee (AIPAC). I don't know who at AIPAC knew the ultimate source of these contributions, but it was clear someone did.

In Britain our committee passed money in the same fashion to the Jewish Reform Movement, confident that this money would be channeled to the Conservative Party. Because of the friendship with Britain, the Mossad European operations headquarters was moved in 1982 from Paris to London and set up in a building on Bayswater Road.

A further example of the very special friendship that Israel established with Britain came when the Falklands war erupted. Israel froze the sale of weapons to Argentina, despite existing contracts for Kfir aircraft. As a result, the British government, covertly but officially, reimbursed Israel for its losses on the contracts. Of course it was known throughout the intelligence community that Israel was also keeping British politicians happy through the Jewish Reform Movement's Torah Fund. The friendship soured, however, in 1988, when Margaret Thatcher supported the sale of military equipment for unconventional warfare to Iraq. It was particularly abhorrent for Israel that her son was involved in it.

Aside from the contributions being made in the United States and Britain, payments were being made all around the world, and those who received them kept their mouths shut -- even in faraway Australia. Australia was often used by the Joint Committee for "parking purposes," aircraft refurbishment, and stationing of slush-fund monies. In 1982 I first visited Australia to hire an accounting firm and open accounts in four major banks. Eventually monies deposited in Australian banks reached the amount of approximately $82 million U.S.

Starting in early 1986, 12 C-130 aircraft we had purchased from Vietnam were shipped to Western Australia for repairs and refurbishment. In 1987, while the Iran-contra hearings were going on in the U.S. Congress, some of the arms going to Iran were temporarily parked in Western Australia. Approximately 60 containers of artillery shells from North Korea were parked in Fremantle Port. Four thousand TOW missiles that went from the U.S. to Guatemala were shipped to Western Australia and held for approximately two months at a naval base on Stirling Island. Silkworm missiles purchased from China for Iran were also parked at Stirling Island for approximately two months.

In February 1987 a "contribution" was made to the West Australian Labor Party by our U.S. counterparts in the CIA. In gratitude for the use of Australian soil for the transfer of arms to Iran, Richard Babayan, a contract operative for the CIA, received a check for $6 million U.S. from Earl Brian, who was acting on behalf of Hadron, a CIA "cut-out." Babayan traveled to Perth and stayed at the home of Yosef Goldberg, an Australian businessman of Israeli origin who was well connected to Israeli intelligence and to the local Labor Party headed by Brian Burke, then premier of Western Australia. Babayan handed the check to Goldberg, who in turn gave it to Alan Bond in his role as the guardian of the John Curtin Foundation funds. This money was passed on by one of Robert Maxwell's companies in Australia to be held by the Pergamon Press Trust Fund in Moscow. Babayan later corroborated the details of this operation in a sworn affidavit.

Despite the high costs involved, profits were still made on the sales to Iran. At various times the fund reached peaks of more than $1 billion. At its height it stood at $1.8 billion, with money constantly coming in and going out -- a huge turnover that would have made a successful conventional enterprise very envious. The Likud leaders running the government intended to use the money for three main purposes.

The first was to finance activities of Yitzhak Shamir's faction of the Likud Party. Between 1984 and 1989 no less than $160 million was funneled to Shamir's faction, handled by the deputy minister in the Prime Minister's Office, Ehud Ulmart, who was very close to the prime minister. Other funds were contributed to the whole Likud Party, especially to its 1984 and 1988 election campaigns. That amount totaled about $90 million.

Second, the slush fund helped finance the intelligence community's "black" operations around the world. These included funding Israeli-controlled "Palestinian terrorists" who would commit crimes in the name of the Palestinian revolution but were actually pulling them off, usually unwittingly, as part of the Israeli propaganda machine.

A key player in some of these operations was the former Jordanian Army Col. Mohammed Radi Abdullah, the man who was with Pearson and Davies when I made our approach to Davies. Today in his early 50s, Radi was decorated by King Hussein of Jordan for his bravery in the 1967 Middle East war. However, his family fell out with the king because they were not willing to participate in the mass slaughter of Palestinians by the Jordanian Army in 1970. The family emigrated to London. The colonel married a woman related to Saddam Hussein and went about setting up a number of companies, including shipping offices in Cyprus and Sicily.

Radi became known as a businessman who championed Arab and Palestinian causes in Europe. But he missed his homeland and the days when he was lauded as a hero. He fell to the ways of the West, started drinking heavily and spent a fortune on gambling and women.

In the mid-1970s, to recoup his losses, Radi went to work for Pearson, who was supplying intelligence information to Israel. With Radi's unwitting help, Pearson began to acquire intelligence about Palestinian organizations in Europe. The way he did it was by selling arms to those organizations. An arms dealer named John Knight, who ran a company called Dynavest Limited, located at 8 Waterloo Place, London SWI, and another dealer who operated out of Sidem International Limited, Appleby House, 40 St. James Place, St. James Street, London SWI, acquired arms from Yugoslavia. They would sell them to Radi, who would in turn sell them to the Palestinian terrorist, Abu Nidal, and other Palestinian groups. Radi was unaware of Pearson's Israeli connection, as were the others involved.

While it may seem curious that Pearson, a man working with Mossad, was encouraging a Jordanian to sell weapons to Israel's enemies, it was actually all part of a very cunning plot. In doing business with these groups, Radi learned what they were going to use their weapons for and unsuspectingly passed the information on to Pearson. Pearson, in turn, passed on to Mossad the intelligence about the movements of the groups and the number of weapons they had.

Based on Radi's unwitting tips, over a two-month period 14 or 15 Palestinians were wiped out. Word went out among the Palestinian groups that Radi was working for Israeli intelligence and, fearing for his life, he took a trip to Baghdad and presented his case to Abu Nidal himself. Abu Nidal believed his story that he had been used -- which he had -- and put the word out that Radi was "clean." The blame was placed on Yasser Arafat's group -- Palestinian factions at that time were warring among themselves.

Radi went back to his drinking and womanizing, and the money he made selling arms for Pearson all drained away. At that very vulnerable point, in 1978, Pearson stepped in again and offered Radi a £200,000 loan. This time, Pearson made it quite clear to him that the money was coming from an Israeli source. The desperate Radi accepted the loan and was recruited to work for an antiterrorist group in Israel run by Rafi Eitan.

The group's methods were rather unconventional, one could say heinous, but it had operated successfully for years. An example is the case of the "Palestinian" attack on the cruise ship Achille Lauro in 1985. That was, in fact, an Israeli "black" propaganda operation to show what a deadly, cutthroat bunch the Palestinians were.

The operation worked like this: Eitan passed instructions to Radi that it was time for the Palestinians to make an attack and do something cruel, though no specifics were laid out. Radi passed orders on to Abu'l Abbas, who, to follow such orders, was receiving millions from Israeli intelligence officers posing as Sicilian dons. Abbas then gathered a team to attack the cruise ship. The team was told to make it bad, to show the world what lay in store for other unsuspecting citizens if Palestinian demands were not met. As the world knows, the group picked on an elderly American Jewish man in a wheelchair, killed him, and threw his body overboard. They made their point. But for Israel it was the best kind of anti-Palestinian propaganda.

In 1986, Radi was involved in another slush-fund black operation -- the well-documented attempt to blow up an El Al plane. Or at least what was publicly perceived to be an attempt. In fact, it was a cold, calculated plan conceived by Rafi Eitan to discredit the Syrians. At a secret meeting in Paris, Eitan told Radi that he wanted to implicate the Syrian Embassy in London in terrorism and have all the Syrian diplomats thrown out of England. Radi had a 35-year-old cousin, Nezar Hindawi, living in London, who had two things going for him -- he was friendly with the Syrian Air Force intelligence attache in London, and he had a problem with an Irish girlfriend who told him she was pregnant.

Radi went to his cousin and offered him $50,000. At the same time he told Hindawi that he wanted him to do some work on behalf of Palestine that would also rid him of his troublesome girlfriend.

"This money I'm offering you," Radi told Hindawi, "is from our Syrian brothers on behalf of the Palestinians. We want to blow up a Zionist plane. All you have to do is make sure the girl gets onto an El Al plane with explosives in her bag."

Radi arranged for his cousin to meet the Syrian intelligence officer, and Hindawi later came away with the clear impression that what he was doing was for the Arab cause. In accordance with his briefing, Hindawi told his 32-year-old girlfriend, Ann-Marie Murphy, a chambermaid at the Hilton Hotel on Park Lane, that he loved her and wanted to marry her. He was eager to introduce her, his future bride, to his old Palestinian parents who lived in an Arab village in Israel. He told her to go and visit them and receive their blessing. Then, when she arrived back in England, they would get married. Overjoyed, she agreed to go, not realizing that the address he gave her in Israel was bogus.

As far as Hindawi knew, the woman was going to be sacrificed. All he had to do was tell her that he wanted her to take a bag of gifts to his parents. But because he didn't want to risk her being stopped for having too much carry-on luggage, he would arrange for a "friend" who worked at the airport to pass her the bag when she entered the El Al departure lounge. She would pass through the regular Heathrow security checks and then be given the package containing the bomb.

Hindawi had been told that a Palestinian cleaner would pass the deadly package to Ann-Marie. In mid-April 1986, he kissed her goodbye and watched her walk through passport control to what he expected would be her death, along with that of all the other 400-plus passengers on board the El Al jumbo jet.

In the El Al departure lounge, an Israeli security man dressed in casual clothes -- the "Palestinian cleaner" -- passed the girl the parcel. She took it. But within seconds she was asked to submit to a search. The security people, who were in on Rafi Eitan's plan, could not afford any accidents. When the bag was opened, plastic explosives were found in a false bottom.

Ann-Marie was rushed off to be interrogated by British security. Sobbing, she told the story of the rat of a boyfriend. Police arrested Hindawi at the London Visitors Hotel, between Notting Hill and Earl's Court, after his brother convinced him to give himself up. He spilled the beans and told them that a Syrian intelligence officer had asked him to carry out the task. But Radi was not implicated. He was under MI-5 protection. As a result, Margaret Thatcher closed down the Syrian Embassy in London. Rafi Eitan had had his way, Hindawi was jailed for 45 years, and Ann-Marie went home to Ireland where she gave birth to a daughter.

The third and last main purpose for the slush-fund money was to finance the housing projects in the West Bank and Gaza Strip for Jewish settlers who had been taking over Palestinian land there. Since many members of the U.S. Congress saw these housing projects as a provocation that would impede peace in the Middle East, a lot of U.S. aid to Israel prohibited the use of the money for building in the West Bank. As part of the coalition, the Labor Party, keen to participate in a peace conference, was also against a government project for West Bank housing.

The answer, as far as Likud was concerned, was to draw on the slush fund. Tens of millions of dollars were used in the West Bank and the Gaza Strip to help build the foundations for new Jewish settlements and to buy the land from the Arabs. Although much land was simply confiscated and more taken through condemnation for government purposes, many Arabs, forbidden by the PLO to sell land to the Jews in the West Bank, nevertheless did so at inflated prices, even though they were putting their lives at risk should they be caught.

What they did was sell to various foreign Jewish front companies that were actually financed by the joint Committee. Many West Bank Arabs became wealthy selling their land, taking the money and emigrating to other countries. As far as Likud was concerned, it was money well spent, because it was encouraging the Arabs to emigrate, while leaving land for the Jews to move onto. Their houses would also be subsidized by the slush fund."

"Profits of War -- Inside the Secret U.S.-Israeli Arms Network," by Ari Ben-Menashe