It now appears that the Bush administration's decision to distance the United States from Iraqi politician Ahmed Chalabi was considered at the very top. But the controversy over the intelligence activities of Chalabi's Iraqi National Congress may have a long way to go. Senior officials tell NEWSWEEK that President Bush and Vice President Cheney were briefed several weeks ago about intelligence indicating that someone in Chalabi's Iraqi National Congress gave the Iranian government "extremely sensitive" and "highly classified" info which could jeopardize U.S. intelligence sources and even "get people killed." Intelligence sources say potential suspects for the leak include Chalabi himself and his intelligence chief, Aras Habib. The National Security Council and other D.C. agencies also knew a couple of weeks in advance that Iraqi authorities had issued arrest warrants for some INC officials and were planning some sort of police action. The White House apparently did not know that authorities in Baghdad were planning to raid Chalabi's house; some officials were skeptical of Defense Department claims that top Pentagon officials were in the dark about the impending raid, since it was Deputy Defense Secretary Paul Wolfowitz who signed off on a decision to cut off a $340,000 monthly stipend that the Defense Intelligence Agency was paying the INC for intelligence gathering.

Sources said that Pentagon intelligence agencies--including the DIA, according to some officials--sent out confidential "referrals" asking the FBI to investigate the alleged INC leak of classified information to Iran. Law-enforcement sources say the FBI is investigating who in the INC might have leaked U.S. secrets to Iran--and who in the U.S. government might have leaked secrets to the INC. Chalabi and other INC reps have denied passing on any U.S. secrets to Iran. INC backers accuse the CIA of smearing Chalabi.

Chalabi's Pentagon supporters insist that the DIA's payments to the INC were worth the money, and that the INC provided intel which saved American lives in Iraq and also helped U.S. forces to capture many top Saddam aides. Other current and former intel officials are more skeptical. One former official said Chalabi and his associates urged members of the Iraq Survey Group, the DIA-CIA team assigned to hunt for Saddam's WMDs, to peruse a huge stash of Saddam-era documents controlled by the INC for possible tips. But the INC was reluctant to turn over any significant quantity of files, preferring to "dribble out" information. Then, last fall, INC officials told the survey group there had been a fire at the building where former regime files were kept and that key records may have burned. Some U.S. officials found the timing of the alleged fire curious, speculating that the INC had used it as a cover to move sensitive material to new hiding places. INC representatives did not respond to e-mails from NEWSWEEK requesting comment.