Extracts leaked to the Independent show that in July 1989 Lady Thatcher, then prime minister, was told of the secret relaxation of the guidelines forbidding exports of arms to Iraq. Yet in a letter to a member of the public the next month she was maintaining that nothing had changed. The covert change in policy was consistently denied by her ministers, most notably Mr Waldegrave.
The latest revelations follow the leaking to the BBC of a draft section of Lord Justice Scott's report on Monday. It accused Mr Waldegrave, now Minister of Agriculture but then a Foreign Office minister, of having given information to MPs which was "untrue" and "apt to mislead".
News of Sir Richard Scott's criticism of Lady Thatcher will fuel Opposition demands for speedy publication of his report. Lady Thatcher has joined the potential targets in the inquiry.
The Government launched an offensive yesterday to try to limit the damage caused by the leak to the BBC.
As Mr Waldegrave took urgent steps to protect himself against the threat posed by the accusation in the draft, the Prime Minister attacked Labour for exploiting the leak and refused to commit himself to dismissing any minister found in Sir Richard's final report to have misled the Commons.
In angry Commons exchanges, Mr Major accused the Opposition of trying to "smear" ministers on the basis of "a partial extract of an incomplete report" and insisted that Mr Waldegrave was confident he would convince the Scott inquiry he had done nothing wrong.
In the fourth chapter of Sir Richard's draft report, headed "Government Statements on Defence Sales Policy", the judge accuses Lady Thatcher of making "inaccurate" statements about the Government's policy towards Saddam Hussein. On 21 August 1989, she replied to a man who had written to her asking for clarification about defence sales to Iraq. A Mr Angel from Aircraft Equipment International had read of the proposed sale of Hawk aircraft to Iraq. Lady Thatcher's letter, says the judge, was one of several sent out by ministers about the Hawk deal.
"Each letter was a response to a query about government policy on the proposed sale of Hawk aircraft to Iraq. Each letter followed a draft prepared by the Foreign Office. Each letter said that 'since October 1985 government policy has prohibited the sale of any lethal equipment or defence-related equipment which could significantly enhance the capability of either side to prolong or exacerbate the conflict [between Iraq and Iran]', or words to that effect." In the case of Mrs Thatcher's letter, the text continued: "That policy still applies. These statements were not accurate."
Lady Thatcher had received and read, says the judge, a Ministry of Defence paper dated 20 July 1989 on the Hawk project, "in which reference was made to the 'more flexible interpretation of the guidelines for Iraq (but not Iran)' and so [she] can be said to have been placed on notice that a more liberal approach to defence sales to Iraq was being adopted than had previously been the case."
Last night Lady Thatcher's office said she could not be reached for comment.
Mr Waldegrave made it clear yesterday that he would not resign and told Tory MPs in an aide memoire that what commentators had said about the BBC leak and "its exploitation by the Labour Party" had put him in "a grossly unfair position".
It was said on Mr Waldegrave's behalf yesterday that Sir Richard's critical remarks were based at least partly on new documents which had come to light since the minister had himself given evidence.
Friends of Mr Waldegrave said the guidelines on arms sales were operated "flexibly" well before 1988, the year when he joined the Foreign Office as minister of state and when the guidelines were allegedly relaxed secretly in favour of Iraq. They insisted he worked under the "supervision" of the then foreign secretary, Lord Howe, and on the advice of officials.
Mr Waldegrave's note for Tory MPs said there was "no conceivable reason why I should wish to have taken the absurd risk of consciously misleading Parliament".