Under the Reagan administration, Iran was under an Arms embargo but needed arms. A plan was then struck between some members of the US Government, Israel and Iran in which Israel would ship arms to Iran and the US would then resupply the arms that Israel had shipped and then be paid by Israel.
Officially, this was done to encourage Iran to negotiate with their allies Hezbollah which was paramilitary group in Lebanon, to release a group of American hostages. However, some of the proceeds from the arms trade to Iran were then used to fund the Anti-communist Contra rebels in Nicaragua who could no longer be funded officially by the US Government due to an amendment by Congress that limited the amount of aid that could be given to the rebels.
