‘Undo Damage’ on Iran Deal, Shultz Aide Tells Reagan : President Challenged on Terrorism; ‘I’m Not Firing Anyone,’ He Declares

WASHINGTON — The State Department’s No. 2 official, in a stark demonstration of open revolt within the Administration, Monday called on the White House to “undo the damage” caused by its secret arms-and-hostages deal with Iran and challenged President Reagan’s contention that Tehran has backed away from supporting terrorism.

“I don’t like to have to differ with my President,” said Deputy Secretary of State John C. Whitehead in testimony to the House Foreign Affairs Committee, “but I believe there is some evidence of Iranian involvement with terrorists.” He noted what he called Iran’s “association” with the taking in recent months of three more American hostages in Lebanon.

Reagan has asserted publicly that Iran--which received U.S. arms shipments as part of an Administration effort to establish ties with moderates and to help free American hostages held by Iran-allied Lebanese terrorists--is no longer directly involved in terrorism against the United States even though it remains on the State Department’s list of countries supporting terrorism.

Pressure on Reagan

Whitehead’s comments, an almost unprecedented challenge by a senior official to the White House, came amid mounting pressure on Reagan to oust Secretary of State George P. Shultz for publicly opposing the presidential initiative.

Before Whitehead spoke Monday, the President declared at an Oval Office ceremony, “I didn’t make a mistake,” and added, “I’m not firing anyone.”

But when the President was questioned by reporters about whether he was satisfied with his staff, he merely murmured, “Um-mmm.” And when pressed about whether there would be a staff shake-up, he replied, “I’m not commenting either way.”

Whitehead’s testimony, given as Shultz’s representative, left some committee members looking stunned. “I do think it is time for the White House to come forward with a positive plan to undo the damage quickly,” Whitehead said.

Still Lacking Facts

He castigated the White House National Security Council for the way it had conducted Iranian policy, saying that the State Department still has not been told many important facts about the arms shipments.

“We in the State Department find it difficult to cope with National Security Council staff operational activities, . . . particularly when we don’t know about them,” he said. “The department was at no time operationally involved.”

At the same time, Whitehead insisted that it would be “a terrible tragedy” for the President to fire Shultz and described the secretary as “an extremely able American” who could provide the “forward movement” needed to help the Administration deal with the current crisis.

At the White House, summaries of Whitehead’s testimony were hurriedly distributed among aides who have been privately saying that Shultz should be fired for opposing the President and undermining his credibility on the Iran operation.

Said one senior aide, who declined to be identified, “I don’t know anything for sure, but my gut tells me some kind of a shake-up will happen this week.”

Reagan summoned Administration officials involved in his Iran policy to a meeting at the White House on Monday afternoon but released no information on their discussions.

Lyn Nofziger, a longtime Reagan adviser who once served as his chief political aide in the White House, Monday joined another former White House political aide, Ed Rollins, in calling for a shake-up and criticized Shultz for opposing the Iran deal. “My own feeling is, if you work for the President and can’t support his policy, you ought to resign,” Nofziger said.

One high-level Administration official, describing the crisis, said, “The President is slowly bleeding, and somebody’s got to come up with a strategy to stop it, because this thing is not going to go away by itself.”

Urgings by Confidants

Several of Reagan’s longtime California confidants are urging a major shake-up in which Shultz, White House Chief of Staff Donald T. Regan and White House national security adviser John M. Poindexter would be removed. One of the Californians said Monday that Reagan “has always understood the magnitude of the problem this (controversy) creates better than his staff does.”

And in Washington, a former White House aide with close ties to Nancy Reagan said that the First Lady is very upset “and she’s talking to a lot of people about what they ought to do.”

This source, who talks frequently with Mrs. Reagan, said, “Regan’s got to go down the chute--in fact, Poindexter and Shultz have to go to make it a clean deal.”

However, Mrs. Reagan said through her official spokeswoman that she is not seeking a staff shake-up. Elaine Crispen, speaking for the First Lady, said, “If there are decisions to be made, those would be made by the President, and she is in support of whatever decisions he makes.

“If she has been talking to any of these (California) people, it would be to their friends of many, many years about Christmas. . . . “

Crispen said Mrs. Reagan is always upset “whenever the President is being criticized and going through a troubled time. Sure, that’s a troubled concern for her, and it hurts. But outside of that, she is not making decisions. If he had something he wanted to talk to her about, she would listen, but the decision would be his.”

Sen. Paul Laxalt (R-Nev.), one of Reagan’s closest friends and general chairman of the Republican Party, has been discussing the crisis with Mrs. Reagan and some of Reagan’s California confidants. Laxalt, declining to be interviewed, told The Times through an aide, “This thing is just too darn sensitive.”

Meanwhile, House Intelligence Committee Chairman Lee H. Hamilton (D-Ind.) disclosed that CIA Director William J. Casey still has not been told the full story of the highly secret Iran arms deal, even though the CIA had a role in it. Hamilton also indicated that he might go to the Supreme Court to challenge Reagan’s failure to notify Congress in advance of the arms shipments.

Not Briefed in Detail

Whitehead, in his congressional testimony, said that Shultz was informed only “very spasmodically and intermittently” about the Iran operation. Although Whitehead said Shultz attended meetings at the White House on the arms shipments in December and January and “was consulted in the decision-making process,” the secretary was never briefed in detail on the shipments after they began.

Whitehead’s testimony left Foreign Affairs Committee Democrats and many Republicans outraged. Rep. Robert G. Torricelli (D-N.J) said it proves that “the emperor has no clothes,” and Rep. Dan Mica (D-Fla.) remarked that the State Department has been reduced to being “nothing but a crying towel” for allies who felt betrayed by the secret shift in Washington’s terrorism policy.

Whitehead disputed Reagan’s view that pressure from Iran in the wake of the arms shipments had succeeded in winning the freedom of three American hostages. “They might have been released anyhow,” he said.

Richard W. Murphy, assistant secretary of state for Middle East affairs, who appeared with Whitehead, added that the Iranians appear to have influence over the Revolutionary Justice Organization, the Lebanese terrorist faction that is believed to be holding the three Americans captured most recently.

Murphy said Iranian pressure was “decisive” in the release of French hostages in Lebanon recently but only “played a role” in the release of Americans.

Nor did Whitehead seem to share the assumption made by the President and his top advisers that U.S. arms shipments could bolster the moderate faction in Iran.

Asked specifically by Rep. Jim Leach (R-Iowa) if the United States “can make friends by selling TOW missiles,” he replied: “No.” He later added: “I don’t think we know about who are the moderates in Iran. . . . Even if we can find the moderates, they’re not always willing to deal with us.”

Murphy declined to answer whether U.S. officials know if any moderates have suffered retribution since their dealings with the United States have become public.

Whitehead particularly stunned many committee members when he called on Congress to rein in the National Security Council staff, which he said had carried out the arms shipments with no help from the State Department. In the past, the role of the NSC staff has usually been to coordinate policy, not to carry it out.

He added: “We (at the State Department) do not have specific knowledge about the nature and extent of those shipments. This operation was one which the President decided should be very closely held.”

While disagreeing with the President, Whitehead emphasized several times that it was not his intention to criticize Reagan. He also told reporters afterward that he had come before the committee intending to narrow the breach in the Administration, not to widen it.

Whitehead called on members of Congress to support the President in his moment of crisis. Referring to Torricelli’s remark about the emperor with no clothes, he said, “If they leave him without clothes, he will lose the opportunity to lead the Free World for the next two years.”

Committee members expressed surprise that, more than two weeks after the Iran deal became public, State Department officials still do not have a complete list of the weapons shipped to Tehran. The State Department is charged by law with keeping track of arms shipments to countries that have been proclaimed by the United States as supporters of terrorism.

Not a Complete List

Hamilton, who last week interrogated Casey in a closed-door meeting of the House Intelligence Committee, said that he was able to get only a “partial list” of the shipments from the CIA director and other officials.

“There is a lot maybe that Mr. Casey doesn’t know,” he said. “I continue to be impressed that very high Administration officials don’t know the details.” Speaking for the Intelligence Committee, Hamilton added, “We’ve got 100 questions that are unanswered at this point.”

Hamilton said he was convinced that the President had violated the National Security Act’s requirement that congressional leaders be informed of all such covert activities in a “timely” manner. He added that Administration officials have told him that the statute was “irrelevant” in this instance.

He said the Supreme Court may be called upon to settle the matter. “As I understand it,” he added, “it’s never been resolved in the courts.”

Times staff writer Eleanor Clift also contributed to this story.