In 1982 the Reagan administration removed Iraq from the U.S. State Department's list of countries sponsoring terrorism. This opened the gate to U.S. trade and support of Iraq during the war with Iran. In 1983 the Reagan administration secretly administered the channeling of U.S. aid to Iraq, after special envoy Donald Rumsfeld helped formally reestablish relations cut off in the Six-Day War of 1967.
The Washington Post reported that in 1984 the CIA secretly started feeding intelligence to the Iraqi army. This included assistance in targeting chemical weapons strikes. The same year it was confirmed beyond doubt by European doctors and U.N. expert missions that Iraq was employing chemical weapons against the Iranians.
Despite this the Reagan administration re-established full diplomatic ties with Iraq on 26 November the same year and continued supplying Iraq with intelligence and equipment.
With more than 100,000 Iranian soldiers as victims of Saddam Hussein's Chemical and Biological weapons during the eight-year war with Iraq, Iran today is the world's top afflicted country by Weapons of Mass Destruction, only after Japan.
The official estimate does not include the civilian population contaminated in bordering towns or the children and relatives of veterans, many of whom have developed blood, lung and skin complications, according to the Organization for Veterans.
Nerve gas agents killed about 20,000 Iranian soldiers immediately, according to official reports. Of the 90,000 survivors, some 5,000 seek medical treatment regularly and about 1,000 are still hospitalized with severe, chronic conditions. Many others were hit by Mustard gas.
Despite the removal of Saddam and his regime by American forces, there is deep resentment and anger in Iran that it was Western companies (West Germany, France, US) that helped Iraq develop its chemical weapons arsenal in the first place and that the world did nothing to punish Iraq for its use of chemical weapons throughout the war.
http://en.wikipedia.org/wiki/WMD_in_Iraq#Use_of_chemical_weapons_during_the_war_with_Iran