AHMED CHALABI used to be the darling of the Pentagon. He was the Iraqi exile who provided Washington’s hawks with the “intelligence” they craved to justify Saddam Hussein’s removal. He was their postwar favourite to lead a new democratic Iraq.

As recently as January he was seated right behind Laura Bush at her husband’s State of the Union speech, and basked in the applause of Congress. But this week his old friends publicly humiliated him, first by cutting off his funding and then by raiding his Baghdad headquarters.

The fall from grace of this suave former banker mirrors the fate of Washington’s vision for Iraq. The coalition failed to find the weapons of mass destruction he promised. Iraqis rejected the leadership of US-backed exiles like himself. Since this week’s very public breach of his relationship with Washington, Chalabi has now joined the calls for US troops to leave Iraq, but the story may not end there.

The fear now is that this ultimate chameleon will adopt his most destructive role yet: playing the sectarian card in volatile Iraq to become the standard-bearer of Shia hardliners.

It would certainly be a mistake to write Chalabi off. His political obituary has been written many times before. Indeed his career appeared definitively over when he was convicted (in absentia) on 31 counts of fraud and embezzlement by a Jordanian court in 1992, having earlier fled Jordan in the boot of a friend’s car.

But shortly after he emerged as the chosen leader of the CIA-sponsored Iraqi National Congress (INC). To anyone who inquired about his Jordanian conviction, he pleaded total innocence, dismissing the entire case as merely a political manoeuvre orchestrated by Saddam and executed by Saddam’s lackey, King Hussein.

In 1995 he infuriated his US paymasters with a unilateral attempt to draw the US into war with Saddam, launching an incursion from the Kurdish north designed to draw the Americans into the fray. A year later Saddam himself chased Chalabi and his motley forces out of their base in northern Iraq, massacring many in the process.

Again, Chalabi was able to convince enough people in the media and right-wing US political circles that he bore no responsibility for these disasters to enable him to maintain his position as a recognised Iraqi opposition leader.

Inside the exiled opposition, however, many colleagues were driven away by his inability to accept anyone as an equal partner, rather than an employee. “Ahmed”, a fellow opposition activist, once said to him at a meeting in London: “In your heart there is a little Saddam.” The CIA finally cut off all funding shortly after the 1996 debacle, and yet within two years his conservative allies persuaded the US Congress to vote the INC $97 million (£54 million) in support and subsidies. A subsequent State Department investigation found much that was fishy in Chalabi’s accounting for the money he received, which further added to the disdain with which he was treated both at the State Department and the CIA.

Yet, true to form, Chalabi rose like a phoenix once more, this time on a wave of war fever emanating from the neoconservative hawks thronging Donald Rumsfeld’s Pentagon and the office of Vice-President Dick Cheney.

The intelligence he supplied on Saddam’s weapons and links to terror did much to lubricate the slide to war, but it turned out to be wholly false, as did Chalabi’s claims of widespread popular support in Iraq. Even so, he remained on the Pentagon payroll and was promoted by Paul Bremer, the coalition chief, to membership of the Governing Council. Sitting in the VIP’s gallery at President Bush’s State of the Union speech five months ago, The Washington Post noted that he looked “vastly pleased with himself”.

Chalabi’s prolonged tenure as an American protégé seems all the more remarkable given his long, close and barely concealed association with the reigning ayatollahs in Iran. This was hardly a secret. He has claimed to friends to possess a Koran affectionately autographed by Ayatollah Khomeini himself in gratitude for services rendered. CIA agents stationed at his headquarters in northern Iraq in the mid- 1990s found themselves living cheek by jowl with resident Iranian intelligence agents enjoying Chalabi’s hospitality (he made the CIA pay rent).

Later, he boasted to UN weapons inspectors of his close links to Iranian intelligence. There is even evidence to suggest that some of the fraudulent intelligence passed to the inspectors with Chalabi’s help was made in Iran. In 1995, International Atomic Energy Agency inspectors found that a document supplied by a Chalabi-sponsored defector that purported to show a secret and illegal Iraqi bomb programme in full swing could only have been forged with Iranian assistance.

Times Recommends

• Michael Jackson: Not the final chapter
• Indian Army spends10m rupees on golf buggies
• Brüno toned down for 15 rating