THE IRAN-CONTRA REPORT : Reagan, Officials Denounce Report as ‘Fantasy’ : Counterattack: Their 1,149-page rebuttal accuses Iran-Contra independent counsel of engaging in ‘prosecutorial abuse.’

In a scathing counterattack, former President Ronald Reagan and key officials of his Administration denounced the final report of the Iran-Contra independent counsel Tuesday as “fantasy . . . fiction . . . prosecutorial abuse” and the product of a Soviet-style inquisition.

Former President George Bush, vice president at the time of the Iran-Contra controversy, accused independent counsel Lawrence E. Walsh of trying to make a crime out of normal political friction between Congress and the White House.

In an extraordinary 1,149-page volume, lawyers for Reagan, Bush, then-Atty. Gen. Edwin Meese III and 43 other people named in Walsh’s report delivered a near line-by-line rebuttal of the independent counsel’s conclusions.

“At the heart of this investigation was a political dispute between the executive and legislative branches over foreign policy,” Bush said in a statement issued Tuesday by his Houston office. “We must be careful not to criminalize a constitutional dispute of this kind.”

Although Walsh said there was no evidence that either Reagan or Bush violated any criminal statute, he said both men made misleading public statements about the controversy. Reagan, he said, “set the stage for the illegal activities of others.”

Reagan’s lawyers, in a separate 122-page analysis, said Walsh’s conclusion “is demonstrably incorrect.” The former President’s attorneys said Walsh’s theory of an Administration-wide conspiracy to cover up the scandal “is nothing more than the independent counsel’s fantasy.”

Bush’s lawyers said he “has always acknowledged that he was aware that arms were sold to Iran. The report offers nothing new on this issue.” However, Bush argued throughout his tenure as vice president and President that he was essentially “out of the loop” concerning details of the arms sales. Walsh maintains that Bush was well-versed about the operation.

Meese, accused by Walsh of conducting an investigation in November, 1986, that “was more of a damage control exercise than an effort to find the facts,” called the report “fraudulent and dishonest.”

In a telephone interview, the former attorney general said: “Any idea that there was any kind of cover-up by the Reagan Administration or any wrongdoing by the President or the Cabinet is totally false.

“The facts that (Walsh) relies on don’t support his erroneous conclusions. At the time and since, independent people have commended the Administration and the team that I led for getting at the facts and getting them out so quickly.”

Meese’s lawyers added, “Walsh’s report is patterned after the old Soviet model of justice: You’re guilty because I say you’re guilty, and damn the truth.”

Perhaps the bitterest reaction came from former Defense Secretary Caspar W. Weinberger, who was pardoned by Bush just two weeks before he was scheduled to go on trial on charges of withholding evidence and misleading Congress.

Weinberger, who opposed arms sales to Iran from the start, complained that he was a victim of Walsh’s excessive prosecutorial zeal.

Weinberger’s lawyer, Robert Bennett, said in a telephone interview that Walsh’s report was “essentially a work of fiction.”

“The only cover-up is what is in his report,” Bennett said. “He covers up the terrible abuses of civil rights of loyal Americans like Mr. Weinberger. And he covers up the very poor investigation he conducted. . . . I am pleased that he finally says that President Reagan did not have any criminal intent. When Weinberger was under his microscope, he urged us to cooperate with him against President Reagan (in exchange for leniency) and Weinberger would not do it.”

In their submission to the volume of rebuttals, Weinberger’s lawyers argued: “A prosecutor, of course, should not use his position and resources as a forum to present his side of a case that never goes to trial.”

During a Washington press conference, Walsh agreed that reporting evidence that was not presented in court “is a very disturbing position for a prosecutor to be in.” But he said the independent counsel law, enacted in 1978, requires comprehensive reports, in part to prevent the staff from telling all later in books, as some Watergate prosecutors did.

Moreover, Walsh said, people named in his report were given four months to file responses, which were published as an annex to the report.

The annex contains the responses of virtually all of the Iran-Contra personalities, bit players as well as stars.

For instance, Gen. Colin L. Powell, recently retired chairman of the Joint Chiefs of Staff, complained that Walsh “has seen fit to impugn my character.”

Powell, who was Weinberger’s military adviser at the time of the arms sales to Iran, was said by Walsh to have had knowledge of the operation, although he broke no law.

In his rebuttal, Powell said that he knew of a proposal to ship arms to Iran in 1985, but Walsh “confuses knowledge of the proposal with knowledge of the shipments themselves.”

“Through innuendo and unfounded accusations, the independent counsel attacks my reputation . . . calls me a liar--all while conceding I committed no offense,” Powell said.

Most of the rebuttals were couched in legal jargon. But Duane (Dewey) Clarridge, a former CIA operative pardoned by Bush after being indicted on seven counts of perjury and false statements, responded with a veiled threat.

In a two-page handwritten memo, Clarridge said, “I will deal with Walsh’s allegations in the fullness of time on my own terms. At that time, may he recall from the here and now or from the grave that what goes around, comes around.”