Instead, hundreds of millions of dollars was allegedly siphoned abroad in corrupt procurement deals to buy shoddy, substandard equipment.
Former Defense Minister Hazim al-Sha'lan is among some 24 people being sought in arrest warrants issued by Iraqi authorities. The others include four other former ministers and former Defense Ministry officials.
If the allegations are true, this is a scandal that has serious security implications, according to James Hider, Baghdad correspondent for "The Times" of London. "People are saying if they hadn't bought all these useless weapons, the Iraqi Army could have made much greater inroads into attacking the insurgents and securing the country," Hider said.
The corruption is alleged to have taken place under the interim government headed by Iyad Allawi, which took office after the United States handed power back to the Iraqis last year. Allawi now heads a political grouping with seats in the new parliament, and he's said he wants to assemble a coalition to run in December's election in a bid to get back into the government.
Ammar al-Shahbander, an Iraqi analyst at the London-based Institute of War and Peace Reporting, said the scandal could be a serious blow to those ambitions.
"It might reduce the chances of former Prime Minister Allawi to succeed in the next elections. He didn't appoint Mr. Sha'lan. He was appointed by the Americans. But it would definitely give the impression that the seculars in the Iraqi political spectrum are more corrupt than the others, and that would have a very dangerous impact," al-Shahbander said.
Al-Sha'lan, who has denied any wrongdoing, is believed to have left the country.
The man who announced the arrest warrants said authorities will be working with Interpol to seek al-Sha'lan's arrest and to apprehend any other suspects believed to be abroad. Radhi Hamza al-Radhi, the Iraqi commissioner on public integrity, also said investigations are under way into current government ministries. His mission, he said, is to "chase corruption and bring the guilty to justice."
Radio Free Iraq's Baghdad bureau chief, Moayed al-Haidari, says many will be watching closely for results.
"The Iraqi people feel that there is a lot of corruption and not enough action from the government or the courts or the [Commission on Public Integrity]," al-Haidari said. "[This] decision today to arrest some minister is very small compared with what they feel the [size of] the problem is."