Bid to Squelch Iran-Contra Report Denied : Scandal: Appeals panel’s ruling is expected to be taken to Supreme Court by public figures named in document.

A federal appeals court on Friday denied requests to suppress all or part of a massive investigative report on the Iran-Contra scandal, setting the stage for release of the long-awaited document in as few as 10 days.

However, key figures in the case are expected to appeal the decision to the Supreme Court, a step that could further delay the report’s release.

In its decision, a specially appointed panel of the U.S. Circuit Court of Appeals said that the massive report--hundreds of pages long and the result of seven years of investigation--should be released “substantially in its entirety,” with only certain classified material omitted.

“It is in the public interest that this matter of extended national controversy be afforded as full a conclusion as possible,” the court said.

The ruling came in response to motions by defense lawyers representing unnamed public figures in the case. They had argued that the report--the work of independent counsel Lawrence E. Walsh--was unfair to prominent officials who had never been charged with criminal acts, let alone been tried and convicted. They also claimed that Walsh had breached the secrecy rules of the federal grand jury that he used to investigate the case.

The court said, however, that secrecy issues are now moot because over the years the case has received so much publicity.

Sources familiar with the final report have told The Times that it blames former President Ronald Reagan with creating an atmosphere that allowed the arms-for-hostages scandal to flourish. It also concludes that former President George Bush was not, as he has claimed, uninformed about the affair when he was Reagan’s vice president, the sources have said.

Walsh, whose long inquiry cost more than $35 million and resulted in the convictions of 11 people, also blames Reagan’s top aides for engineering a successful coverup of the 1986 scandal, according to the sources. Walsh reportedly charges that Edwin Meese III, then attorney general, helped compose a false account of events that shielded high-ranking officials from accountability.

The appellate judges said they would delay their release order for 10 days to allow any Iran-Contra figures, or their attorneys, to appeal to the Supreme Court. Legal experts said it is likely that at least some lawyers would do so, thus possibly delaying the report’s publication indefinitely.

Theodore B. Olson, Reagan’s Washington-based counsel, declined comment on his course of action. Mark Levin, a lawyer for Meese, said that going to the Supreme Court “is a logical option” and some other attorneys privately expressed the same view.

The appellate panel with jurisdiction in the case, headed by David B. Sentelle, is the same panel that named Walsh special counsel in December, 1986. Last month, the judges ruled that his report--completed last August--would be made public “in a short period of time,” along with comments from defense lawyers who had been allowed to read parts of it in confidence.

But the judges subsequently took under advisement a raft of sealed motions filed by these lawyers arguing that the privacy rights and reputations of key figures--presumably Reagan, Bush and Meese--were being trampled upon in the final report.

In its ruling Friday, the court said it found “considerable merit” in some of these arguments because the report “is rife with accusations of guilt of criminal conduct against persons never indicted or convicted.”

But the judges insisted that they have no real power over Walsh, that the report is his alone to make and that matters of grand jury secrecy in the scandal no longer exist. In addition, the public benefit from a full exposition of Walsh’s work outweighs most other considerations, the panel ruled.

The Reagan-era scandal involved the sale of arms to Iran in exchange for the release of American hostages held in the Middle East and the later diversion of some arms-sale profits to help anti-Communist rebels in Nicaragua. Congress at the time had prohibited U.S. military aid to the rebels, known as Contras.

The court opinion, written by Sentelle and concurred in by Judges Joseph T. Sneed and John D. Butzner, made clear that it did not approve of Walsh’s rough treatment of many public figures.

It pointed out that in normal circumstances “consistent with the power and responsibility of their office, prosecutors do not issue reports and they do not pronounce persons guilty of crimes who have not been indicted, tried and convicted.”

But “unfortunately for movants (who filed the motion), and perhaps for the tradition of fairness, the statute does require that the independent counsel file a report,” the court observed.

The judges declined to identify any public figures or give the names of lawyers who had filed objections to the report. Nonetheless, they said, “we think the rights of all persons named (in the report) are better protected by a full release with a contemporaneous right of comment than by withholding.”