The action by the House Judiciary Committee represents a watershed in the expanding controversy over U.S. support for Iraq before the Persian Gulf War. It begins the process of determining whether the strategy violated the law.

The potential for a criminal inquiry also will focus new public scrutiny on President Bush's role in the conciliatory policy toward Iraqi President Saddam Hussein at a time when the presidential campaign is intensifying.

A three-page letter requesting an independent counsel was sent to U.S. Atty. Gen. William P. Barr after the action was approved by 20 of the committee's 21 Democrats. Only a majority of either party's members on the Judiciary Committee is needed to seek a special prosecutor and Brooks said the matter was not submitted to the Republicans.

Several areas of potential criminal conduct by unnamed current and former Administration officials were identified in the letter. It focused on altered documents and possibly misleading testimony to Congress, the handling of a case involving $5 billion in Iraqi loans by the Atlanta branch of an Italian bank and allegations that U.S. food aid was diverted to arm Iraq.

The letter listed such possible crimes as obstruction of justice, making false statements to Congress, perjury and conspiracy to defraud the United States.

A White House official said: "The White House will cooperate with any inquiry the Department of Justice may conduct into this matter as we have with all congressional inquiries on this subject. It would be inappropriate for the White House to comment further on this matter."

A Justice Department statement said the request would be handled according to procedures outlined in the post-Watergate law establishing the independent counsel.

The law gives the attorney general 30 days to determine whether the committee request merits a preliminary inquiry. If Barr determines no inquiry is warranted, he must explain his reasons in writing.

If Barr decides to proceed, he would have 60 days more to determine whether evidence supports a full investigation by an independent counsel. If so, he would then ask a special panel of three senior federal judges to appoint an outside lawyer to conduct the probe.

The final decision would come less than a month before the Nov. 3 election, if Barr takes the full 30 days to decide if a preliminary inquiry is warranted and 60 days for the second phase. However, the law allows the three judges to grant a 60-day extension on the preliminary inquiry, which could postpone the outcome until after the election.

Barr has criticized the independent counsel law in recent weeks, but committee aides said no attorney general has refused to seek a special prosecutor in response to a congressional request since the law was passed in 1978. Nine independent counsels have been appointed, including at least two in response to congressional requests, according to a congressional report.

Democrats said chances Barr might refuse were lessened with the disclosure this week that a White House lawyer telephoned a federal prosecutor in Atlanta early in her investigation of the Italian bank fraud. The call violated guidelines, but the Justice Department maintains nothing improper was discussed.

"I think enough allegations have come out now that the attorney general would have to answer a whole lot of questions if he didn't approve an independent counsel," said Rep. Charles E. Schumer (D-N.Y.), a senior Judiciary Committee member.

The lone Democrat not to sign the letter was Rep. Rick Boucher of Virginia. His office said he was unavailable for comment, but a congressional staffer suggested Boucher's conservative, rural district was a factor in his decision.

Republicans greeted the committee's action by again trying to frame the issue as a political and foreign-policy matter.

"My serious concern is that policy differences are being distorted into criminal allegations," said Rep. Henry J. Hyde (R-Ill.), a senior member of the Judiciary Committee.

The Democrats asked for an investigation into the following specific areas:

* The alteration of a Commerce Department list of U.S. exports to Iraq sought by a congressional committee two months after Iraq's invasion of Kuwait, and a series of contradictory and possibly misleading statements to Congress about the list and other aspects of U.S.-Iraq policy.

The letter also questioned the role of senior White House officials in "screening or rebuffing" congressional requests for information. The officials have been identified previously as White House counsel C. Boyden Gray, National Security Adviser Brent Scowcroft and C. Nicholas Rostow, legal adviser to the National Security Council.

* The Justice Department's investigation of the Atlanta branch of Italy's Banca Nazionale del Lavoro and its $5 billion in loans to Baghdad. Some of the loans were guaranteed by the Agriculture Department and there have been numerous allegations that BNL loans may have helped finance Baghdad's development of nuclear, chemical and biological weapons.

Classified documents have shown that the government's indictment of the bank was delayed for a year and that the case was monitored by the NSC and State Department. Questions also have been raised about whether investigators were restricted and about the government's last-minute plea bargain with the manager of the Atlanta branch.

Suspicions were heightened this week with the disclosure that Jay S. Bybee, a lawyer who works in the White House counsel's office, had telephoned the prosecutor in the fall of 1989 and expressed concerns about possible embarrassment to the White House.

* The possible diversion of U.S. food aid to buy arms and nuclear weapon technology for Iraq, and Administration approval of transfers of U.S. weapons to Iraq by third countries. There have been numerous allegations concerning such occurrences, but the Administration has maintained it has no evidence that they occurred.

Frantz is a Times staff writer and Waas is a special correspondent.

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