He is over-riding opposition from senior cabinet ministers, and ignoring protests from governments overseas, to insist that the Department of Trade and Industry provide pounds 200m in backing to a consortium of construction companies to ensure that the dam, in south-east Turkey, is built.
The Prime Minister's action is bound to increase concern that he is tailoring policy to pander to big business, and threatens to shatter what remains of Foreign Secretary Robin Cook's "ethical foreign policy".
Mr Cook is understood to believe that the project, which has been shunned by the World Bank because it violates its ethical and environmental codes, could prove as much of a millstone around the Government's neck as the Pergau Dam proved to be for its Tory predecessor.
The Foreign Secretary is fighting a vigorous rearguard action against the plan, which would give an export credit guarantee to a consortium headed by the British construction giant Balfour Beatty, which was at the heart of the Pergau Dam affair, to build the Ililsu Dam on the River Tigris, near Turkey's borders with Syria and Iraq.
Stephen Byers, Secretary of State for Trade and Industry, and John Prescott, Deputy Prime Minister, also have grave reservations. Mr Byers, who is formally responsible for the decision, regards it as "the most difficult" he has faced in his year in the post.
But as a result of the pressure from Downing Street, Mr Byers is to announce next week that he is "minded" to approve the granting of the guarantee. At the same time he will publish two reports on the effects of the project on the people and environment of the region, to provide grounds for debate before the final decision is taken.
The project is one of the most controversial of a series of 22 dams Turkey plans to build on the Tigris and Euphrates rivers in the Kurdish part of the country to provide electricity and water for agriculture.
The reservoir would flood some 52 villages and 15 towns including Hasankayf, one of the oldest in the world. More than 20,000 people, many of them Kurds, would lose their homes.
Even more alarming, the dam, some 40 miles from the Turkish border, could be used to deny the waters of the Tigris to Syria and Iraq. Both countries, along with Jordan and the League of Arab States, have protested at British involvement.
Defence experts say that if Syria or Iraq were provoked into attacking Turkey to defend their water supplies, Britain, as a fellow member of Nato, would be bound, if asked, to intervene on Turkey's behalf.
Sources at the Department of Trade and Industry say that the final decision is still some way away and that if a guarantee is granted it will be accompanied with "strict conditions". But Downing Street insists that any conditions should not stand in the way of the dam being built.
t In Helsinki, the summit of European leaders agreed that Turkey should be accepted as a candidate for membership of the European Union, but insisted that it must improve its record on human rights and good neighbourly relations.
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