The Times said the covert program was carried out at a time when the Reagan administration was publicly condemning Iraq for using poison gas.
Senior military officers who did not want to be named told the newspaper the U.S. decided it was important that Iran be defeated so it wouldn't overrun important oil producing nations in the Persian Gulf.
Secretary of State Colin Powell, who was President Reagan's national security adviser at the time, denied the report. Through a spokesman, Powell said the officers' description of the program was "dead wrong."
The highly classified program involved more than 60 officers of the U.S. Defense Intelligence Agency who provided detailed information on Iranian military deployments, tactical planning for battles, plans for air strikes and bomb-damage assessments for Iraq, the Times said.
Iraq and neighboring Iran waged a vicious and costly war from September 1980 to August 1988, with estimates of 1 million people killed and millions more left as refugees.
U.S. intelligence officers never encouraged or condoned the use of chemical weapons by Iraqi President Saddam Hussein's forces, but also never opposed such action because they considered Iraq to be struggling for its survival and feared that Iran would overrun the crucial oil-producing Gulf states, the Times reported.
It has been known for some time that the United States provided intelligence assistance to Iraq during the war in the form of satellite photography to help the Iraqis understand how Iranian forces were deployed. But the complete scope of the program had not been known until now, the Times said.
The Times noted that Iraq's deployment of chemical weapons during its war with Iran has been invoked by President Bush and his national security adviser, Condoleezza Rice, as justification for seeking "regime change" in Iraq.
"Having gone through the 440 days of the hostage crisis in Iran, the period when we were the Great Satan, if Iraq had gone down it would have had a catastrophic effect on Kuwait and Saudi Arabia, and the whole region might have gone down. That was the backdrop of the policy," the Times quoted an unidentified former Defense Intelligence Agency official as saying.
While senior officials of the Reagan administration publicly condemned Iraq's use of mustard gas, sarin, VX and other chemical weapons, Reagan, Vice President George Bush – the father of the current U.S. president – and senior national security aides never withdrew their support for the covert program, the Times quoted military officers as saying.
Powell was among the Reagan administration officials who publicly condemned Iraq for its use of poison gas, especially one incident in March 1988.
The Times said that in early 1988, after the Iraqis, with U.S. planning assistance, retook a key peninsula in an attack that restored Iraqi access to the Gulf, defense intelligence officer Lt. Col. Rick Francona was dispatched to tour the battlefield with Iraqi officers.
Francona found that Iraq had used chemical weapons to secure its victory, observing zones marked off for chemical contamination and seeing unmistakable evidence that Iraqi soldiers had taken injections to guard against the effects of poison gas used against the Iranians, the Times said.
Powell, through a spokesman, called the Times account of the program "dead wrong," but declined to discuss it, the newspaper said. Both the Defense Intelligence Agency and retired Lt. Gen. Leonard Perroots, who supervised the program as the head of the agency, refused to comment, the Times said.
The Times report comes as the Bush administration is seeking to rally support for a possible attack on Iraq mean to oust Saddam from power.
On Sunday, a senior White House aide said that if the president orders military action against Iraq, he will clearly explain to his decision to the American people.
"President Bush also understands if we go forward, if he decides that we need to take action to minimize the threat that he now poses, that he will do so in a way that will clearly be articulated to the American people, clearly articulated our friends and allies," said Dan Bartlett, the president's communications director.
"And you'll find, because of the abysmal record of Saddam Hussein and the threat that he causes in the region, and to us as well, that we will have support."
The Bush administration accuses Iraq of supporting terrorism and of rebuilding its banned weapons of mass destruction program. Many U.S. allies are resisting the push to oust the Iraqi president, arguing that an invasion cannot be justified without firm proof that that Iraq is developing nuclear, chemical and biological weapons.
Mr. Bush has said he has no timetable for deciding on a military strike and a decision may not come this year. He has pledged to consult with Congress and U.S. allies.
Congressional hearings this month examined various ways to achieve the U.S. government's stated policy of seeking a regime change in Baghdad, and a steady stream of news reports has suggested the administration is actively reviewing various war plans.
Some fellow Republicans have in recent days strongly counseled Mr. Bush against attacking Saddam.
Brent Scowcroft, national security adviser under Mr. Bush's father and President Ford, told CBS News, "Yes, we can take him out. Now what would the world, or what would the region look like if we did that right now? I think we could have an explosion in the Middle East."
Lawrence Eagleburger, secretary of state under the first President Bush, said he did not think regime change in Iraq is "legitimate policy at this stage, unless the president can demonstrate to all of us that Saddam has his finger on a nuclear, biological or chemical trigger and he's about to use it."
In Congress, there is also growing unease about the wisdom of taking pre-emptive military action against Iraq without just cause.
Sen. Richard Lugar, R-Ind., said support from American allies was crucial. "We need to have our NATO allies. This is going to require heavy lifting," Lugar, a senior member of the Senate Foreign Relations Committee, said in a television interview.
"Unless we plan this carefully, we're likely to destabilize other countries in the Middle East," Lugar said.