Inside Report (2)

Egypt has turned down a lavish, indirect Iranian offer to buy $1.2 billion worth of war material.

The offer - for US-made arms, military equipment, and aircraft spare parts - was made through Swiss intermediaries. It came shortly before Iran launched an offensive last month and broke through Iraqi forces that had held large pieces of Iran.

The indirect contacts concerning the arms deal were the first since suspension of all Egyptian dealings with the Iranian regime of Ayatollah Khomeini. Egypt severed relations with Iran immediately after the Shah was expelled in January 1979.

Egyptian officials believe Iran - in desperate need to replace equipment lost in the fighting - is finding it difficult to buy arms. Egypt already has supplied Iraq with more than $2.5 billion worth of arms and ammunition.