The case has become an embarrassment for the Bush administration, which has been trying to reconcile the feelings of the large Cuban exile population in Florida — where the president’s brother, Jeb Bush, is the governor — with its tough post-9/11 stance against terrorism suspects.

It has also provided ammunition for America’s more vehement international critics. Thursday night, Venezuelan President Hugo Chávez denounced the U.S. approach as “two-faced.” “He is a self-confessed terrorist,” Chávez said. “The U.S. has a choice: Either send him to Venezuela or be seen by the world as protecting terrorism.”

Posada, who applied for political asylum after arriving in the United States, was detained by immigration officials after he surfaced publicly for the first time to give a news conference in a Florida warehouse. Hours earlier, Cuban President Fidel Castro had led a crowd reportedly numbering hundreds of thousands past the U.S. mission in the capital, Havana, and made a speech castigating Washington for hypocrisy over its handling of the case.

U.S. authorities say Posada has withdrawn his request for political asylum. But his lawyer, Eduardo Soto, said Thursday that his client claims he never lost permanent U.S. legal residency, which he obtained in 1962, and should be given asylum. He said Posada, who claims he would face persecution in Cuba and Venezuela, would “vigorously oppose” deportation and would seek bail.

Posada is being held at a detention facility in Texas, and Soto said he would ask for the proceedings to be moved to Miami, where his client’s wife and his 29-year-old son live. He left open the possibility that he would agree to move to a third country if an acceptable friendly state could be found. U.S. law does not allow extradition to Cuba or to countries believed to be acting on its behalf.

Posada was involved in numerous attempts to overthrow Castro after fleeing Cuba in 1961, just in time to sign up with the CIA for the abortive Bay of Pigs operation. In 1963 he joined the agency’s officer candidate school, where he is said to have learned to build bombs, gather intelligence and spread propaganda.

In 1967 he moved to Venezuela, becoming a citizen and rising to lead the government’s counterintelligence service, a job he left in 1974. When a Cubana Airlines aircraft blew up off the coast of Barbados on Oct. 6, 1976, killing all 73 people on board, suspicion immediately fell on Posada. He was arrested and acquitted twice, but was held in custody pending appeals. Dressed as a priest, he escaped in 1985, apparently after bribing guards.

A State Department intelligence brief issued after the aircraft bombing and made public on Wednesday revealed that Posada had told an informant weeks before the attack: “We are going to hit a Cuban airliner.”

Venezuela formally requested his extradition earlier this month after officials under Chávez reopened the case, seeking to try him for murder and treason. But U.S. officials initially said they were not looking for Posada because he was not wanted for a crime here.

The Venezuelan vice president said yesterday that his country was not seeking Posada’s extradition “for reasons of vengeance,” or because of Venezuela’s close ties with Cuba. “It’s about the exercise of justice on the part of the Venezuelan state,” he said, urging the U.S. government to be “coherent” on the issue of terrorism. “There cannot be a good terrorism and a bad terrorism,” he said.

Posada, who survived an assassination attempt in Honduras in 1990 that scarred his face, has also been implicated in a string of bombings in Cuba in 1997. He was pardoned last year by the Panamanian president for his role in an alleged assassination plot against Castro.

“The United States was not only aware of Iraqi oil sales which violated U.N. sanctions and provided the bulk of the illicit money Saddam Hussein obtained from circumventing U.N. sanctions,” the report says. “On occasion, the United States actually facilitated the illicit oil sales.

The report is likely to ease pressure from conservative Republicans on Kofi Annan to resign from his post as U.N. secretary-general. The new findings are also likely to be raised when Galloway appears before the Senate subcommittee on investigations Tuesday.

The Respect M.P. for Bethnal Green and Bow arrived Monday in Washington and demanded an apology from the Senate for what he called the “schoolboy dossier” passed off as an investigation against him. “It was full of holes, full of falsehoods and full of value judgments that are apparently only shared here in Washington,” he said at Washington Dulles Airport. He told Reuters: “I have no expectation of justice … I come not as the accused but as the accuser. I am [going] to show just how absurd this report is.”

Galloway has denied allegations that he profited from Iraqi oil sales and will come face to face with the subcommittee in what promises to be one of the most highly charged pieces of political theater seen in Washington for some time.

Monday’s report makes two principal allegations against the Bush administration. First, it found that the U.S. Treasury failed to take action against a Texas oil company, BayOil, that facilitated payment of “at least $37 million in illegal surcharges to the Hussein regime.” The surcharges were a violation of the U.N.’s oil-for-food program, by which Iraq was allowed to sell heavily discounted oil to raise money for food and humanitarian supplies. However, Saddam was allowed to choose which companies were given the highly lucrative oil contracts. Between September 2000 and September 2002 (when the practice was stopped) the regime demanded kickbacks of 10 to 30 cents a barrel in return for oil allocations.

In its second main finding, the report said the U.S. military and the State Department gave a tacit green light for shipments of nearly 8 million barrels of oil bought by Jordan, a vital American ally, entirely outside the U.N.-monitored oil-for-food program. Jordan was permitted to buy some oil directly under strict conditions, but these purchases appeared to be under the counter.

The report details a series of efforts by U.N. monitors to obtain information about BayOil’s oil shipments in 2001 and 2002, and the lack of help provided by the U.S. Treasury. After repeated requests over eight months from the U.N. and the U.S. State Department, the Treasury’s Office of Foreign Assets Control wrote to BayOil in May 2002, requesting a report on its transactions, but did not “request specific information by U.N. or direct Bayoil to answer the U.N.’s questions.”

BayOil’s owner, David Chalmers, has been charged over the company’s activities. His lawyer, Catherine Recker, told the Washington Post: “BayOil and David Chalmers [said] they have done nothing illegal and will vigorously defend these reckless accusations.”

The Jordanian oil purchases were shipped in the weeks before the war, out of the Iraqi port of Khor al-Amaya, which was operating without U.N. approval or surveillance. Investigators found correspondence showing that Odin Marine Inc., the U.S. company chartering the seven huge tankers that picked up the oil at Khor al-Amaya, repeatedly sought and received agreement from U.S. military and civilian officials that the ships would not be confiscated by U.S. Navy vessels in the Maritime Interdiction Force (MIF) enforcing the embargo. Odin was reassured by a State Department official that the U.S. “was aware of the shipments and has determined not to take action.”

The company’s vice president, David Young, told investigators that a U.S. naval officer at MIF told him that he “had no objections” to the shipments. “He said that he was sorry he could not say anything more. I told him I completely understood and did not expect him to say anything more,” Young said.

An executive at Odin Maritime confirmed the Senate account of the oil shipments as “correct” but declined to comment further.

It was not clear Monday night whether the Democratic report would be accepted by Republicans on the Senate investigations subcommittee.

The Pentagon declined to comment. The U.S. representative’s office at the U.N. referred inquiries to the State Department, which failed to return calls.

The quote is one of the few directly attributed to the former dictator, who was captured in December 2003 in a hole in the ground underneath the outbuilding of a farmhouse south of Tikrit.

“These discussions were conducted and controlled by one debriefer and spanned several months,” the report said. “Some vital insights emerged during these discussions, which elicited views and information that might be considered revelatory. There was no incentive and or motivation for Saddam to co-operate with the debriefer, except to shape his legacy,” the report states.

“Saddam is concerned with his place in history and how history will view him. Therefore, Saddam had no choice but to engage his debriefer in both formal and informal discussions on events that occurred during his reign.”

The report gives several tantalizing glimpses of Saddam’s rationale for his WMD policy. The report says that he thought WMD had saved the regime many times. He believed that during the Iran-Iraq war chemical weapons had halted Iranian ground offensives and that ballistic missile attacks on Tehran had broken its political will. Similarly, during Desert Storm Saddam believed WMD had deterred coalition forces from pressing their attack beyond the goal of freeing Kuwait. When asked, during a custodial interview, whether he would have reinstituted a WMD program after sanctions were lifted, his answer implied that Iraq would have done what was necessary.

The report also states that Saddam kept up the pretense that Iraq still had WMD capability to frighten Iran, rather than the U.S. or Britain. “He explained that he purposefully gave an ambiguous impression about possession as a deterrent to Iran,” the report’s authors wrote.

The report also reveals how far Saddam had deluded himself into thinking Iraq was immune from U.S. attack. According to the Iraq Survey Group, Saddam apparently calculated that Iraq’s natural resources, secular society and dominance in the region would inevitably force the U.S. to deal with Iraq.

The report also gives insight into Saddam’s view of Iraq and himself. Saddam saw Iraq as the natural leader of the Arab world, and himself as the latest in a long line of great Iraqi leaders, stretching back to Nebuchadnezzar and Saladin.

One of his favorite books was “The Old Man and the Sea,” Ernest Hemingway’s Nobel prize-winning story of one man and his struggles to master the challenges posed by nature. “Saddam tended to characterize, in a very Hemingwayesque way, his life as a relentless struggle against overwhelming odds, but carried out with courage, perseverance and dignity,” the report notes.

But his rule was driven first by security concerns — survival came first. Saddam told interrogators he had only used a telephone twice since 1990 for fear of being located for a U.S. attack.

He went on a palace- and mosque-building extravaganza in the late 1990s, employing 7,000 construction workers, when much of Iraq’s economy was at the point of collapse. “His rationale for this was concern for his personal security. He stated that by building palaces the U.S. would be unable to ascertain his whereabouts and thus target him.”

When officers arrived at his home in the upmarket Constantia suburb of Cape Town at 7 a.m. on Wednesday, they found the Thatchers’ suitcases packed and in the hall. The house had been placed on the market for 22 million rand.

“That’s why we moved to arrest him,” Sipho Ngwema, spokesman for the Scorpions, told the Guardian. “We did not want him to leave the country while we were investigating him.”

Further details of the charges against Sir Mark emerged yesterday. According to police, they have evidence that he invested $271,000 to fund the logistics of the coup attempt. Ngwema said the Scorpions were confident they had evidence against Sir Mark that will stand up in court. “We have evidence that Thatcher has been financing the plot against Equatorial Guinea. We found information when we searched his residence that is going to assist us in the case.”

Sir Mark, 51, who denies involvement, is under effective house arrest for allegedly helping to fund the coup attempt.

Lawyers in Malabo, the capital of Equatorial Guinea, said extradition proceedings had started against Sir Mark. “There has been an initial expression of interest from the government of Equatorial Guinea to South Africa,” Lucie Bourthoumieux, a lawyer representing the central African country, told Reuters.

State prosecutors in Equatorial Guinea, where 14 suspected foreign mercenaries are on trial for plotting a coup, have demanded the death penalty for one of the men, South African Nick du Toit. Sir Mark could in theory also face the death penalty if extradited and found guilty.

However, Makhosini Nkosi, a spokes-man for South Africa’s National Prosecuting Authority, said he did not expect Sir Mark to be extradited. “South Africa is opposed to the death penalty and we wouldn’t extradite someone to a country where he would face the danger of the death penalty,” he said.

The alleged leader of the plot, Simon Mann, an Old Etonian and former SAS officer, has been in jail in Zimbabwe since March, along with 69 other men. They were arrested on the tarmac at Harare airport in Zimbabwe after landing to pick up a small arsenal allegedly to be used to overthrow President Teodoro Obiang Nguema.

By Thursday night three different explanations had emerged from the Thatcher camp for Sir Mark’s decision to leave South Africa. Friends in London said he had decided to move back to America months ago, hinting that it was a move designed to save his marriage to Texas millionaire Diane Burgdorf.

Meanwhile, one of his lawyers in South Africa said the family was “downsizing” to a smaller home in Cape Town because the children were going to boarding school in America, where the Thatchers would be spending more time.

But Thursday night his supporters offered a more sinister explanation. Channel 4 News reported claims, first made last month, that Sir Mark had received anonymous threats over his alleged links to the coup plotters.

Sir Mark was first interviewed about the allegations more than two weeks ago, after agreeing to a meeting with the Scorpions in Pretoria. “It was just a normal interrogation,” his friend said.

Meanwhile the number of businessmen and establishment figures involved in the coup plot was widening. Lord Archer, who was dragged into the controversy after $134,000 was deposited into Mann’s bank account in the name of J.H. Archer four days before the coup attempt, was at the Olympics in Athens. He referred inquiries to his lawyers in London. They said he had never met, spoken to or communicated in any way with Mann, but the statement stopped short of denying he had paid the money into Mann’s company account.

New allegations also emerged about the role of Greg Wales, a British businessman and friend of Mann. He was named in a writ issued in the high court in London by the government of Equatorial Guinea. He was also identified as a conspirator by Du Toit. Ashley Jacobs, a South African security consultant, told the Guardian that Wales employed him to conduct an intelligence survey in Equatorial Guinea.

“I now know, of course, it was for a coup,” he said. “I am very glad I didn’t go to Equatorial Guinea because I would be locked up too. Mr. Wales asked me to conduct a security and intelligence survey of the harbors in Equatorial Guinea. He also wanted intelligence on the politics of President Obiang’s regime.”

Wales told the Guardian that the allegations against him were “very good fun but unadjacent to the truth.”

Thursday night, Channel 4 News reported claims by Christine Gordon, a journalist friend of Wales, that he had attended more than 20 meetings with Sir Mark, Mann and others. Wales later released a statement admitting he had meetings with Mann and Sir Mark about various business deals involving Equatorial Guinea, but probably not as many as 20.

Another pivotal figure in the alleged coup plot is James Kershaw, a South African accountant who has been alleged to be the coup’s “paymaster.” He is named by Mann in a note smuggled out of prison appealing to his friends and family for help. Bank records for Mann’s company Logo Ltd. identify Kershaw as managing the company’s finances. He was unavailable for comment Thursday.

Mann also named other alleged potential investors in the smuggled note. As well as Sir Mark — referred to as “Scratcher” — they include an Italian businessman and socialite, Gianfranco Cicogna, who Mann claimed had promised $200,000. Cicogna was unavailable for comment.

Another businessman linked to the allegations is Gary Hersham, the founder of an exclusive estate agents in Mayfair and St. John’s Wood, London. In his prison statement in March, Mann said that before the coup plans got underway, he had gone on a business trip to Gabon with Hersham, who later introduced him to Ely Calil, the British businessman who is alleged to be one of the financiers behind the deal — an allegation he strenuously denies. Hersham was on holiday in Europe yesterday and did not return calls. But he has said he had no knowledge of the coup plot.

The Guardian ran a correction to this story on Aug. 28, 2004. You can read it here.

His appearance at a nearby magistrates court was then delayed, apparently because Sir Mark was robbed in his holding cell by other prisoners who, according to a court official, stole his mobile phone, shoes and jacket. All belongings were later returned.

Last night, he was confined to his home in the upmarket Cape Town suburb of Constantia after being released on strict bail conditions which require him to remain under virtual house arrest until he has posted bail of 2m rand (#165,000). He was also ordered to surrender his passport and stay in the Cape Town area until another court appearance on November 25.

In a statement after his release, he denied any involvement in the coup plot.

“I am innocent of all charges made against me. I have been, and am, cooperating fully with the authorities in order to resolve this matter. I have no involvement in any alleged coup in Equatorial Guinea and I reject all suggestions to the contrary.”

The drama began when the Scorpions arrived at the gates of Sir Mark’s large Cape Dutch-style house. They were met by his armed security guard and then Sir Mark himself.

He was allowed to shower and dress as the officers began to search his home and computer, seeking evidence linking him to an alleged plot to topple the president of Equatorial Guinea, Teodoro Obiang.

The coup attempt was foiled on March 8 when 70 men were arrested after flying into Harare from South Africa and attempting to collect weapons. They are accused of having planned to fly them to Malabo, the capital of the west African country.

All are now facing trial in Zimbabwe, including the al- leged coup leader, Simon Mann, a former SAS officer and close friend of Sir Mark. They deny being mercenaries and say they were buying weapons to protect mines in Congo.

The Guardian has seen a copy of a letter written by Mr Mann from his Zimbabwe prison cell to his wife, demanding that his financial backers use their influence to get him released. In the letter, he appears to suggest that he was expecting $200,000 from Sir Mark  using his nickname Scratcher  for an unspecified “project”.

A friend of Sir Mark, who inherited the baronetcy of his late father Sir Denis last year, described the charges as a “contrived plot”.

“He has been dealing with the authorities for the last two weeks, in fact he went back to South Africa specifically to do that,” the friend said. “They have acted precipitously in arresting him; he was giving them everything they wanted.”

He said Lady Thatcher, on holiday in America, was aware of the charges against her son. They had not discussed the situation by yesterday evening but were expected to speak soon.

Sir Mark’s lawyer, Peter Hodes, said the businessman was arrested on suspicion of providing financing for a helicopter linked to the coup plot. “He will plead not guilty,” Mr Hodes said.

The alleged plotters were said to be hoping to exploit Equatorial Guinea’s massive oil reserves by installing their own leader, Severo Moto, who is in exile in Spain.

A police spokesman, Sipho Ngwema, said: “We have evidence, credible evidence, and information that he was involved in the attempted coup. We refuse that South Africa be a springboard for coups.”

A further 19 men alleged to have been involved in the plot are currently on trial in Equatorial Guinea. Another defendant died in custody in suspicious circumstances.

Nick du Toit, a South African arms dealer who was leader of the Malabo contingent, testified in court yesterday that Sir Mark met Mr Mann in July 2003. He said Sir Mark had showed interest in buying military helicopters for a mining enterprise in Sudan, but the meeting was a “normal business deal” unrelated to any coup plot.

Equatorial Guinea’s justice minister, Ruben Mangue, played down suggestions they might seek Sir Mark’s extradition. He told BBC Radio 4′s The World at One programme: “Let’s first give an opportunity to the South African authorities and the South African legal system to handle the situation.”