Baroness Thatcher, the former prime minister, who signed the deal in 1985, received detailed reports every three months about this and other British arms deals, the Scott Inquiry was told yesterday.
The first warning from the Defence Intelligence Service came in November 1984, a month after Michael Heseltine, then Secretary of State for Defence, visited Amman for talks with King Hussein, the Jordanian leader, to clinch the deal. In December 1984, Britain adopted stricter guidelines restricting export of defence equipment to Iraq and Iran.
Despite continued intelligence warnings that Baghdad was bypassing the guidelines, a Ministry of Defence committee set up to vet defence equipment exports refused to extend its scrutiny of arms sales to Jordan and Egypt, Lt-Col Richard Glazebrook, a retired senior Army officer and committee member, told the inquiry.
He said defence intelligence warned that Jordan was passing nuclear, biological and chemical (NBC) protective equipment to Iraq, as well as other military equipment. 'Unsubstantiated but very detailed' press reports and a number of 'unlikely' orders placed with British firms by the Jordanians reinforced his concern.
Lord Justice Scott's inquiry is investigating claims of ministerial and civil service collusion in defence exports which breached official guidelines and export control legislation.
Lt-Col Glazebrook said that despite the deepening and continuing concern of intelligence officers, Britain agreed an enhanced package of military sales to Jordan in 1987. It represented a 15 per cent increase on the earlier pounds 270m deal and included NBC equipment, thermal-imaging devices and electronic warfare equipment, which military experts attempted to prevent Baghdad from obtaining.
He was not told of the improved package for which Jordan received a loan from Britain. 'I had the uncomfortable feeling that things were going on behind my back of which I was not aware,' Lt-Col Glazebrook said. He only learnt the contents of the new deal after getting a copy of a quarterly report sent to Lady Thatcher and detailing British arms sales.
In 1987, fears that UK guidelines were being breached by Iraq through Jordan extended to Egypt, he said.
The MoD's arms working party, which vetted military exports, considered an application for the sale of British-supplied parts for ground-to- ground rockets to Egypt. Backed by military intelligence, he opposed it on the grounds that the parts could be diverted to Baghdad and adapted to carry chemical warheads, but he was overruled. After the Gulf war, rockets of the same type with warheads full of nerve gas were discovered by UN inspectors sent to destroy Iraq's chemical weapons stockpile. Lt-Col Glazebrook added that when there was a wide discussion about extending the weapons embargo to Egypt and Jordan it was overruled by the chairman of the arms working party.
The inquiry continues today.
Missing equipment, page 7