The Reagan Administration supported the Contra rebels who were fighting the Sandinista pro-Communist regime in Nicaragua. While Congress first supported the idea of limited support for the Contras, after a CIA-assisted mining of the Nicaraguan harbors, the Congress passed the Bholen Amendment, prohibiting all assistance to the Contras. Meanwhile, in the Middle East, Iran-supported fundamentalists had seized American hostages in Lebanon.
These two separate situations were tied together when the United States clandestinely agreed to sell arms to Iran, which was then under an arms embargo but fighting a war with Iraq. The operation was led by Colonel Oliver North, who worked under National Security Advisor Admiral Poindexter. The hope was that, by selling arms to the Iranians, the men could induce the release of the Western hostages. At the same time, the money form the sale was used to help arm the Contras, in violation of the Bholen Amendment.