Special report: Bush faces his Watergate

Sleaze, leaks and an indictment add up to the worst presidential crisis since Nixon. And it will get worse. The White House has lost one key man but the whole chain of command may be engulfed by a scandal slowly revealing the lies that led to war.

It might not appear that way at first. Mr Bush is unlikely to have to join Richard Nixon, the only president in US history forced to resign from office. But the issues raised by "Plamegate" - the leaking of the identity of Valerie Plame, an undercover CIA agent - are far more significant than those involved in the "second-rate burglary" of the Democratic National Committee's offices in Washington's Watergate complex in the 1970s. They go to the heart of why America, and its faithful ally, Britain, went to war in Iraq.

The immediate problems are bad enough. On Friday Vice-President Dick Cheney's chief of staff, Lewis "Scooter" Libby, was indicted for obstruction of justice and making false statements to a grand jury. Patrick Fitzgerald, the special prosecutor appointed to investigate Ms Plame's outing, announced that he was not indicting Karl Rove, President Bush's closest adviser, although he remains under investigation and may have to give evidence against Mr Libby.

The administration and its friends have done their best to portray the Plamegate affair as an obscure, "inside the Beltway" scandal, of interest only to Washington obsessives and conspiracy theorists. On Thursday evening, as the whole of Washington speculated over his position, Mr Rove did his best to reinforce that view.

At his large home in the Palisades district of Washington, Mr Rove stepped from the driver's seat of his blue Jaguar XJ6 and smiled at a waiting cameraman as he headed inside. Moments later, when The Independent on Sunday rapped on his heavy wooden door, his reaction suggested a relaxed family evening rather than someone waiting to be fed to the lions. "Sorry, but we're all having dinner right now," he said.

It is also true that Washington's Democrats, who have suffered years of humiliation at the hands of a Republican Party which holds not only the White House but majorities in both houses of Congress, are rubbing their hands with glee over the scandal at a time when Mr Bush is already reeling from record low approval ratings and problems on many other fronts.

Earlier in the week, the President had already suffered one humiliating setback when he was forced to accept the withdrawal of his nomination for the Supreme Court, Harriet Miers, after a fierce campaign from right-wing members of his own party.

Larry Sabato, professor of politics at the University of Virginia, said: "It's not good news but it could have worse. That's all you can really say. I would emphasise the bad: there is no good way to spin this, though no doubt they will try."

He said that Mr Rove would be able to continue to do his behind-the-scenes work from the White House.

Yet it is possible to view this week's events in much, much starker terms if one steps back from the all but incomprehensible minutiae of the indictments and of who is alleged to have said what to whom and focuses instead on the broader narrative.

If one believes that the government of George Bush - actively assisted by that of Tony Blair - conspired to make a fraudulent case for the invasion of Iraq, then it is possible to see this week's events as nothing less the first fallout for the administration of their attempt to cover-up what they did.

More than 2,100 US and British soldiers and perhaps 100,000 civilians have died since the invasion of Iraq in 2003. If one believes that using false statements and twisted information to mislead a nation and launch that war is a greater crime than orchestrating a dirty tricks campaign against your political rivals, then it is possible to set this week's events in the context of the seminal Washington scandal from which Plamegate - and all the other "gates" - take their inspiration.

Remember, no one knew where it would all lead when, on June 17 1972, five men appeared for a preliminary hearing at a Washington court charged over a break-in at the Democratic party national headquarters at the Watergate complex.

To appreciate the broader potential of Libby's indictment one cannot avoid a little of the labyrinthine background. Mr Fitzgerald's investigation focussed on the leaking of the identity of Ms Plame, wife of former US ambassador Joe Wilson.

In the summer of 2003 Mr Wilson had publicly questioned claims made by Mr Bush that Iraq had been seeking to buy uranium from Niger to re-establish a nuclear weapons programme. The threat of a "mushroom cloud" had been presented to the American public as one of the reasons for a war against Iraq.

Mr Wilson had investigated the claims at the behest of the CIA and found them to be false. Soon after he went public, a conservative columnist, Robert Novak, claimed that Mr Wilson's wife, Valerie, worked for the CIA and that she had suggested sending her husband to Africa. The leak was widely interpreted as an attempt to undermine the former ambassador, who had, ironically, been commended by Mr Bush's father as "a true American hero" for standing up to Saddam Hussein during the 1990 hostage crisis.

It is now clear that a number of officials spoke to reporters about Ms Plame's identity and her alleged role in sending her husband to Africa. The indictments accuse Mr Libby of lying about what he told the reporters about her and where he learned she worked for the CIA. Indeed, as the indictment makes clear, one of the several sources Mr Libby spoke to about Ms Plame's employment was Mr Cheney.

On Friday, the news of Mr Libby's indictment on five felony counts - two of lying to FBI investigators, two of lying to a grand jury and one count of obstructing justice - rapidly reverberated around this incestuous and self-regarding city. Less than half-an-hour after the charges were filed, the 22-page indictment was posted on to the prosecutor's official website for everyone to tear into.

Shortly afterwards, at a press conference, Mr Fitzgerald finally broke his silence and said he believed that Mr Libby, 55, chief of staff to probably the most powerful US vice-president in history, had repeatedly lied and mislead investigators looking into the leaking of a covert CIA operative's name. That was why he had been charged with offences that carried up to 30 years in jail.

"We brought these cases because we realised that the truth is the engine of our judicial system," said Mr Fitzgerald. "We didn't get the straight story and we had to - had to - act. When citizens testify before grand juries they are required to tell the truth. Without truth, our criminal justice cannot serve our nation or its citizens. The requirement to tell the truth applies equally to all citizens, including persons who hold high positions in government."

In the immediate term, Mr Bush and his White House team will busy themselves by focusing on their agenda and perhaps organising some sort of shake-up of administration officials, not least finding a replacement for Mr Libby who immediately stood down.

Shortly after the indictments were released, Mr Bush praised Mr Libby for "working tirelessly on behalf of the American people". He added that while he and his administration were saddened by developments they intended to "remain wholly focused on the many issues and opportunities facing this country".

In the short term this may be possible. Stephen Hess, a former speechwriter for President John F Kennedy, said that most Americans would have no idea who Mr Libby was or what he had done. Of much greater concern to them, he said, was the state of the economy, the war in Iraq and petrol prices. He said that other scandals such as that involving Monica Lewinsky and President Bill Clinton had much greater traction with the public.

"Next week he will be nominating a new justice of the Supreme Court, which is something of infinitely more importance than the [doings] of Scooter Libby. We have a 5-4 balance and this [nominee] will be swing vote," he said. "Everybody will be chasing this story."

But such an assessment might ignore what may develop from Mr Libby's trial and what news may emerge in the remaining 39 months of Mr Bush's presidency. Democrats would like a much broader inquiry, using a Libby trial to examine not just whether or why he lied but the wider effort by the White House to make the case for war against Iraq and to then discredit critics.

And there remains the very real possibility that Mr Rove could yet be charged over the affair, a much more damaging matter for Mr Bush. It is known that Mr Rove spoke to several reporters about Ms Plame. The indictment also reveals that prosecutors know that an unidentified White House official - "official A" - spoke to Mr Novak. It has now emerged that official A is Mr Rove.

Mr Fitzgerald declined to say if Mr Rove will be charged, but given what is already known, this is very possible.

There is also the chance that in Mr Libby's trial prosecutors could seek to call Mr Cheney as a witness, especially since it is known he spoke to him about Ms Plame. He could be asked how he learned of Ms Plame's identity and whether he knew or even suggested that his chief of staff speak to reporters about her. Mr Wilson has always maintained that Mr Cheney must, at the very least, have been aware of what was happening.

That trial could also examine the activities of the so-called White House Iraq group, a small group of senior officials established in August 2002 and chaired by Mr Rove to coordinate the government's activities and "sell" the war in Iraq to the American public. Mr Libby was a member of this group.

And as preparations for Mr Libby's trial are being made, investigators are separately looking into the source of the original forged documents that found their way into the hands of Italian intelligence and which claimed Iraq was seeking to buy uranium yellowcake from Niger. It was those forged documents that resulted in Mr Wilson being dispatched to Africa. To this day it remains unproven who forged these documents.

If, on Thursday night, Mr Rove needed a reminder of the potential perils ahead for him and his boss, he would have needed to do nothing more than look out of the White House windows before he left for home. On the pavement outside were demonstrators holding a vigil and calling for US troops in Iraq to be called home. Among the demonstrators was Cindy Sheehan, the mother whose soldier son was killed in Iraq and who this summer became a focus for the anti-war movement when she demonstrated outside of Mr Bush's Texas ranch.

Mrs Sheehan told the IoS that she would welcome any indictments and that she hoped the American public would see that the war was based in lies. After Mr Libby's five indictments were announced she issued a new statement directed at the man who sits in the Oval Office. She said: "The responsibility for lying to the American people and targeting critics and dissidents needs to go all the way up the chain of command. Scooter Libby was clearly one of the administration's attack dogs unleashed on opponents of this fraudulent war, but he serves higher masters."