The Mood in Baghdad: Gloom, Resignation, a Sense of National Isolation : Iraq: Euphoria over U.N. accord fades quickly. Food prices soar and the dinar falls as sanctions continue.

Muffed Omary nudged his battered Toyota down his driveway in the 120-degree heat, apologizing to two unexpected guests who turned up to discuss the most recent crises that claimed the lives of his relatives and deepened his nation’s despair.

“I am sorry,” he said. “We are going to the swimming pool. It is for the children. Because, you see, they saw everything. They cry all the time. They cannot sleep. So, I am trying to change the subject for them.”

The middle-aged Iraqi computer analyst then backed into Harthiya Street and drove off, glancing stoically at the crater across the street that was, until three weeks ago, a two-story house. His nephew lived in that house, but he was killed along with an 18-month-old son when a U.S. Tomahawk missile meant for Iraq’s intelligence headquarters veered off course.

Such was the mood throughout Baghdad on Thursday. There had been an initial euphoria over the compromise reached with the United Nations earlier this week under which Iraq would accept installation of TV cameras at two missile test sites south of Baghdad.

But the excitement over the interim solution to Iraq’s latest standoff with the U.S. and U.N. weapons inspectors now melted into a renewed sense of national isolation, gloom and resignation.

It was a mood reflected starkly in the city’s markets, where news of the U.N. Security Council decision the previous day to extend for another 60 days the three-year-old trade embargo against Iraq sent food prices soaring. And the value of the local currency plummeted once again.

The Iraqi dinar fluctuates wildly with prospects of an easing in the embargo that bans Iraq from exporting its vast oil reserves. It lost nearly all 20% of the value it had gained against the dollar early in the week. That was when the chairman of the U.N. Special Commission charged with destroying Iraq’s ability to produce weapons of mass destruction announced satisfaction with the interim proposal, signed after tense negotiations in Baghdad.

The Security Council on Thursday endorsed the proposal, which was reached under the threat of another U.S.-led air strike on Iraq.

Commission Chairman Rolf Ekeus had presented the nine-point document to the Security Council along with the Iraqi position paper accepting, for the first time, long-term monitoring of its conventional weapons programs. Iraq will allow the monitoring cameras in exchange for Ekeus’ agreement not to activate them until more extensive negotiations are held in New York in late August.

The Iraqi paper was viewed by most officials and diplomats in Baghdad as a progressive, conciliatory step by President Saddam Hussein. In briefing the diplomatic corps Tuesday, the Iraqi Foreign Ministry had described the proposal as “turning over a new leaf” in its attitude toward the United Nations.

As Ekeus presented the Iraqi proposal to the Security Council in New York, where several members said they were disturbed by key points, the government in Baghdad released the full, nine-page text. It included a provision that U.N. inspectors use Iraqi aircraft “whenever it is necessary for the Special Commission to carry out aerial tasks of monitoring and verification.”

The United Nations has insisted--despite Iraqi objections--on using its own aircraft as well as American U-2 reconnaissance airplanes. An Iraqi announcement last January that U.N. aircraft were prohibited helped spark an air strike on an Iraqi components factory during the final days of the Bush Administration.

Still, the Iraqi proposal stressed Baghdad’s “earnest readiness” to resolve all outstanding issues with the world body and insisted that full compliance result in a lifting of the embargo.

“Iraq can consider this a diplomatic victory,” said one senior diplomat in Baghdad, stressing that for months Iraq has been seeking a broad dialogue with the United Nations that would spell out precisely what it must do to comply sufficiently with the resolutions it signed to end the 1991 Persian Gulf War. “And they won this with very little real risk to themselves,” the diplomat said.

Indeed, behind the scenes of the latest standoff between Iraq and the West, the Iraqi leadership took several steps to protect its military assets and strengthen its hand at home.

Unseen before and during the marathon negotiations between Ekeus and Iraqi officials, Baghdad had launched a major operation to hide virtually every piece of sensitive military hardware held in its factories, test sites and bases, according to diplomatic sources and Iraqi military officers.

Diplomats and Iraqi officials indicated that the equipment, much of it subject to long-term U.N. weapons monitoring, would be returned to the original sites once the Security Council accepted Ekeus’ compromise proposal.

But at the grass roots of Iraqi society, there were no celebrations after the flurry of diplomatic activity reduced the immediate fear of an attack.

And in the authoritarian nation of Iraq, there are fears far more constant, concrete and closer to home.

Iraq’s growing, sanctions-driven economic despair--which has all but destroyed the country’s middle class--has spawned a new culture of violent crime. Entire families have been massacred during burglaries once unthinkable under Iraq’s iron-fisted dictatorship. Impoverishment has also caused widespread prostitution.

The regime’s solution to these problems, launched at the height of the crisis two weeks ago, was almost as chilling as the crime wave itself.

New roving police squads, criticized in recent months for being increasingly corrupt and lax, began shooting thieves and prostitutes on the spot. They left the bodies in the street for two days at a time as symbols of the regime’s new resolve.

“Basically, the Iraqi people are just fed up,” said one intellectual who asked not to be identified by name. “They don’t blame the U.S. or the U.N. or the West. Mostly, they just don’t think about it.”