Joan Smith: A terrorist sponger? No, a beneficiary of British fair play

In 1980, a few days after the SAS stormed the Iranian embassy in Knightsbridge, I stepped inside the damaged building. There were cracks in the walls and ceilings, and crystal tear drops from a chandelier lay among debris on the floor. I stood in the hall where a hostage had been murdered during the six-day siege and tried to picture the moments after the SAS burst in, leaving alive only one of the hostage-takers: an Iranian called Fowzi Nejad. Last week, Nejad learned that he is finally about to be freed from prison. He has also been assured that he will not then be deported back to Iran.

Cue outrage from the right-wing press at the prospect of a convicted terrorist living on state benefits. They ignore the fact that, unlike most prisoners, Nejad has served his full sentence; they don't care that he faces execution if he returns to Iran. But the Home Office's decision is clearly correct on any criteria based on fairness and respect for human rights, and it isn't Nejad's fault that the Government won't allow him to get a job when he is released. It's just a pity that the British authorities didn't learn a vital lesson about the nature of international terrorism from those dramatic events almost 30 years ago.

Western governments were wrong when they accused Saddam Hussein of supporting the Islamic extremists who planned the 9/11 attacks. Saddam hated the Islamists, but, like Muammar Gaddafi, he was happy to finance, train and arm groups whose aims he approved of. One of these was the Democratic Revolutionary Movement for the Liberation of Arabistan, a Marxist-Leninist organisation that wanted autonomy for the oil-rich Iranian province of Khuzestan. A year before the embassy siege, Revolutionary Guards opened fire on Arabs demonstrating against the Ayatollah in al-Muhammara, a city in Khuzestan. Saddam saw his chance and invited the DRMLA leadership to relocate to Iraq from Libya. They trained in camps near Baghdad and Basra, launching attacks on oil installations across the border in Iran.

In the spring of 1980, when Saddam was already preparing for full-scale war with Iran, his agents encouraged the DRMLA to spread its campaign to the UK. Six gunmen seized the Iranian embassy, issuing demands for the "freedom, autonomy and recognition of the Arabistan people". When the police traced their movements, they found the leaders had had meetings in a flat two doors from the office of the Iraqi military attaché. If ever there was an instance of Saddam sponsoring terrorism, this was it, and it exposed him as a brutal opportunist who would do anything to destabilise his mortal enemy, Iran.

What Saddam hadn't reckoned on was the Government's uncompromising reaction. Margaret Thatcher had been elected a year earlier, and when a hostage was murdered, she ordered the SAS to go in, the first in a series of ruthless actions that culminated in a controversial SAS mission in Gibraltar eight years later. I interviewed former embassy hostages who believed some of their captors were shot after surrendering; and Fowzi Nejad narrowly escaped death when a soldier was spotted trying to take him back inside the embassy.

Nejad is now a beneficiary of British justice's humane treatment, which goes some way towards restoring the UK's tarnished reputation as an upholder of universal human rights. Saddam is dead, overthrown by an Anglo-American alliance linking him to terrorist atrocities he wasn't responsible for. As for Gaddafi, he's our new best friend. No one could blame Nejad if he finds the world outside prison just a little confusing.