Saddam Hussein has been acquiring the technology to build a long-range "supergun" capable of firing nuclear, biological and chemical weapons, German prosecutors allege.
The claim follows the charging of two Germans who allegedly bought cannon drilling equipment and shipped it to Iraq via Jordan four years ago.
The investigation into the Mannheim-based firm Alriwo began last year. Hubert Jobski, from the prosecutor's office, said yesterday other arrests were expected, and the two men under arrest could each be sentenced to 15 years if found guilty.
"We are convinced that from Mannheim the equipment went to Iraq," said Mr Jobski. "Others will be accused in the case, and we hope to wrap it up very soon."
The prosecution says that one of the accused men, Alriwo employee Bernd Schompeter, bought equipment worth about £220,000 from another company called Burgsmueller in north Germany.
Meanwhile, George Tenet, director of the CIA, contradicted President George Bush in Washington by stating that President Saddam was unlikely to attack the United States with either conventional or weapons of mass destruction in the near future. But he warned that the Iraqi leader might do so if an invasion by America became inevitable.
In a letter to the Senate Intelligence Committee, Mr Tenet released previously classified testimony in which a senior CIA official said the risk of an unprovoked attack by President Saddam was "low".
If cornered, he "probably would become less constrained", either by using the weapons himself or giving it to a terrorist group to carry out an attack on the US "as his last chance of taking a large number of victims with him".
The CIA and the White House sought to deny there had been a split, insisting that the Tenet letter was "consistent" with President Bush's views.
In any case, the letter is unlikely to damage Mr Bush's chances of securing a massive endorsement by Congress of a resolution authorising him to use force against Iraq. A core of Democrats, led by Robert Byrd of West Virginia, are vowing to use every possible procedural tactic to stall the debate. This could mean final Senate ratification will not be until next week.
Washington said that the gun attack in Kuwait on American marines on Tuesday was the work of al-Qa'ida.