The agreement, recently signed by U.S. and Iraqi officials, represents a significant step forward for Iraq and could bring an end to years of legal battles by Americans who claim to have been tortured or traumatized under Saddam's regime.
But the deal is likely to anger Iraqis who consider themselves the victims' of both Saddam and the 2003 U.S. invasion, and wonder why they should pay money for wrongs committed by the ousted dictator.
The American Embassy spokesman in Iraq, David Ranz, said the agreement "to settle claims of American victims of the Saddam Hussein regime," was signed Sept. 2. He gave no details of the agreement, including who the specific claimants are or the dollar amount involved.
A senior Iraqi government official confirmed the deal has been signed, and said Iraq agreed to pay about $400 million. He said the money would be given to Americans who were affected by the Iraqi invasion of neighboring Kuwait in 1990.
Saddam's government held hundreds of Americans hostage during the run-up to the Gulf War, using them as human shields in hopes of staving off an attack by the U.S. and its allies.
Many of the Americans pursued lawsuits for years against Saddam's government. The Americans kept up their legal fight after Saddam was overthrown in 2003 and a new government came to power. CBS News correspondent Bob Simon, who was held for more than a month during the Gulf War, was one of the people suing Iraq.
The Iraqi official did not say specifically who would receive money from the settlement, but said the deal was connected to the Gulf War.
"This agreement is related to the invasion of Kuwait during the former regime time. Saddam detained U.S. citizens as human shields, and he did torture," said the official, who did not want to be named due to the sensitivity of the issue.
The settlement, which was first reported by the Christian Science Monitor, could help Iraq shake off U.N. sanctions imposed following Saddam's invasion of Kuwait. Baghdad would need the help of the United States to remove the sanctions, and the settlement may remove what has been a stumbling block between the two sides.
Ranz said Iraq still has to go through several steps for the agreement to be finalized. He did not say what those steps are.
Generally such agreements have to be approved by the Cabinet, but this settlement would likely be extremely unpopular among Iraqis who survived years under Saddam only to suffer vicious sectarian fighting after the American invasion.
Approving such a settlement would likely be politically toxic for any Iraqi government, and the matter is further complicated by the fact that Iraq is in month six without a new government after the March 7 elections.
Associated Press writers Qassim Abdul-Zahra in Baghdad and Matthew Lee in Washington contributed to this report.