NEWS ANALYSIS : Saddam Hussein’s Grip on Power Is Still Tight : Iraq: Two years after he invaded Kuwait, the ‘butcher of Baghdad’ looks even stronger than a year ago.

On the second anniversary of his brazen thrust into Kuwait, Iraqi President Saddam Hussein is today taking another bold gamble in his defiance of the United Nations.

But in stark contrast to predictions about Hussein’s downfall on the first anniversary, senior Administration specialists are now reluctantly conceding that the “butcher of Baghdad” is likely to be a nemesis for the United States for the foreseeable future.

“Here’s a guy who made real miscalculations on a grand scale twice--for eight years on Iran and two years on Kuwait--and he’s not only still around, he’s demonstrating an uncanny ability to work his way off the hot seat,” a U.S. analyst said.

On political and military fronts, Hussein is much stronger than he was a year ago, according to American estimates. “The big question in our minds now is whether he’s going to be better off a year from today,” the analyst added.

In interviews last week, a cross section of U.S. officials predicted Hussein will still be around in November. Several also conceded that he may survive George Bush--a possibility that was only recently Washington’s favorite bad joke, even among Democrats.

“Whatever our hopes, we have no illusions,” the analyst said.

The turning point in Hussein’s latest comeback occurred this spring, the specialists said. The advance tactics were pure Hussein: Identify vulnerabilities, then act decisively--and, if need be, brutally--to attack them.

So, after a long winter of planning, Hussein made critical decisions about the rebel zones in the Kurdish north and Shiite-dominated south.

First, he decided he would shed the military and financial burdens of trying to control the mountainous north, the specialists said, and ordered a major withdrawal.

Baghdad no longer has to worry about feeding and defending forces in a hostile area, yet enough troops are strategically deployed in the event of another uprising, the sources said. More than 14 divisions of regular army troops and two brigades of Republican Guards--well over 100,000 troops--now form a line effectively surrounding the Kurds.

Also this spring, Hussein began a new campaign against long-rebellious Shiites. Besides the stunning revelations by the U.N. Commission on Human Rights last week about Iraq’s activities--including artillery attacks on dozens of southern villages, relocation of entire villages and elimination of three Shiite tribes--there are growing signs that Hussein has ordered the use of chemical weapons in the southern marshes, according to U.S. military sources and opposition leaders.

Baghdad has already used lethal gases against the Kurds in the north. The most famous case was the 1988 attack on the eastern border village of Halabja, in which up to 5,000 men, women and children were killed.

U.S. military officials speculate that the remote and inhospitable southern marshes may be the one place Hussein would risk such a blatant violation of U.N. resolutions.

Seven divisions of regular army troops and three brigades of elite Republican Guards are now in the south, the specialists said.

The two deployments in the north and south are the outer layer of a cordon sanitaire Hussein has built around the Sunni Muslim heartland that is his power base. “He has hermetically sealed himself off from the people who might want to get to him,” a ranking Administration official said.

Within this zone over the last year, the reconstruction of buildings and restoration of such basic facilities as electricity, transportation and even low-level industries has been impressive, the specialists said.

Hussein has given top priority to rebuilding the $3-billion arms-production facilities of the prewar period. Although weapons of mass destruction are being destroyed by U.N. inspectors, other defense capabilities are being restored, the sources said.

To rebuild and to accommodate his immediate entourage, the Iraqi leader has sold off at least $540 million in gold bullion reserves since the end of the Gulf War, Administration officials have said.

He is also widely believed to have tapped into secret accounts set up around the world--while letting ride prewar debts of more than $70 billion, owed to Western businesses and banks and Arab governments, and the $350-billion compensation Iran claims from its 1980-1988 war with Iraq.

Hussein’s tactics in dealing with the outside world have also been shrewd--and, arguably, almost as effective as his domestic strategies in helping him survive. Two cases bear out this point.

Perhaps the most spectacular evasion of U.N. provisions has been Hussein’s scheme to hold on to Scud missiles, which did mostly psychological damage during last year’s strikes on Israel, Saudi Arabia and Bahrain.

Despite more than a year of U.N. inspections throughout Iraq, U.S. specialists believe Baghdad still has more than a hundred of the long-range missiles, as well as launch vehicles, hidden mainly in the central Sunni heartland.

And, short of Iraq’s full compliance, they now concede that the U.N. weapons inspectors are unlikely to ever find and destroy all of the Scuds.

Over the past four months, however, Hussein’s most masterful stroke may have been a complex scheme--involving baiting Iran as a pretext to justify retaliation--to get his own warplanes back into the air.

After Operation Desert Storm and the Kurdish and Shiite uprisings, Iraq was not supposed to fly fixed-wing aircraft. “You fly, you die” was a popular description of the restrictions, which Baghdad never challenged--until April.

Then, on the eve of Iran’s first elections since the death of Ayatollah Ruhollah Khomeini, an Iranian opposition group based in Iraq launched a small attack on border villages. Already facing internal opposition due to splits within the ruling clergy, Tehran ordered air strikes to prevent the regime of President Hashemi Rafsanjani from being embarrassed by an external threat.

In response to Iran’s air raids, Iraq dispatched its warplanes.

The use of fixed-wing aircraft was one of the most daring examples of what U.S. specialists call Hussein’s “cheat and retreat” scheme, by which he cheats on U.N. resolutions until forced to back down. The plan worked so well that the Iraqi leader, who is big on symbolism, soon ordered the jets to fly over Baghdad just to show that Iraq was back in the air again.

Baghdad has made irregular use of warplanes ever since--unchallenged by the coalition that won the war and set the cease-fire terms. In May, Iraq began training air force pilots again.

The specialists said the outcome of this episode may have convinced Hussein that the coalition’s cohesion was eroding, and then emboldened him to test its resolve at the Agriculture Ministry, where Iraq’s refusal to grant entry to U.N. weapons inspectors led to a tense, three-week standoff last month.

A host of other tactics--from playing off strong Iraqi nationalism to bugging the rooms of U.N. inspectors--have also contributed to putting Hussein in the ranks of Libyan leader Moammar Kadafi and PLO chief Yasser Arafat as one of the region’s legendary survivors.

Yet on the Kuwait invasion’s second anniversary, the Iraqi leader is also showing the strain of both new and old vulnerabilities. U.S. specialists said, for example, that Hussein no longer deploys the regular army in the Greater Baghdad area--for fear of dissidents who might act against him.

He also has kept the vast majority of elite Republican Guards in the Sunni heartland; five divisions are around Greater Baghdad, the sources said.

Iraqi security forces, Hussein’s main prop, are also still well below half combat strength, the sources estimate. And most divisions have only 60% to 75% the strength of the prewar numbers.

“They are relegated to an internal security role,” one of the specialists said. “It’s not a force that could develop and sustain a campaign across the border. At best, it’d be capable of hit-and-run attacks.”

Despite the cordon sanitaire and Hussein’s tight personal security, the ranking Administration official added that the Draconian precautions underscored the Iraqi leader’s weakness as well as his strength. “There’s no such thing as perfect security or stability when you reign as he does,” he said. “Let there be no question, one day he will go.”