"My understanding is that it has been terminated," Deputy Defense Secretary Paul Wolfowitz said when asked by members of Congress about the controversial program sponsored by the Defense Advanced Research Projects Agency (DARPA).

"It sounds like maybe they got too imaginative in this case," he said.

Called "Futures Market Applied to Prediction" or FutureMap, the program was created by the same Pentagon office that drew fire last year for proposing surveillance of electronic transactions on a massive scale to detect traces of terrorist activities.

The latest scheme sought to use market forces as a tool for predicting future political events and avoiding strategic surprises.

Plans called for setting up an Internet-based market where as many as 10,000 participants would in effect bet on the timing and probability of possible major events such as the assassination of Yasser Arafat or King Abdullah II of Jordan.

"Futures markets have proven themselves to be good at predicting such things as elections results; they are often better than expert opinions," the agency said in a statement Monday.

But US Senators Ron Wyden of Oregon and Byron Dorgan of North Dakota, both Democrats, on Monday demanded that the proposed three million dollar program stopped before it starts registering traders on August 1.

"The idea of a federal betting parlor on atrocities and terrorism is ridiculous and grotesque," Wyden, who sits on the Senate Intelligence Committee, told reporters Monday.

Wyden has been prominent among congressional critics of another DARPA program, Terrorism Information Awareness (TIA), a computer surveillance initiative that raised concerns about invasions of individuals' privacy.

He said the new "Policy Analysis Market" trading scheme is overseen by TIA chief retired admiral John Poindexter, a central figure in the Iran-Contra scandal, in which US officials illegally funded Nicaraguan rebels with proceeds from also-illegal arms sales to Iran in the mid-1980s.

Dorgan described the Internet scheme as "unbelievably stupid."

"How would you feel if you were the King of Jordan and you learned the US defense department was taking bets on your being overthrown within a year?" he added, noting that Jordan has long been a US ally.

Confronted by Democratic senators at a hearing Tuesday, Wolfowitz said he had first learned about the program that morning from newspaper accounts.

"I share your shock at this kind of program. We will find out about it. But it is being terminated," he said.

DARPA director Anthony Tether, in a statement cancelling the program, said it "faced a number of daunting technical and market challenges."

"Reconsidering those challenges in light of the recent conerns surrounding the program, it became clear that it simply did not make sense to continue our participation in this effort," he said.

In much the same way as Middle East analysts have used petroleum futures contract prices to predict events in the region, DARPA's contracts would focus on "the economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of US involvement with each," according to the agency's "Policy Analysis Market" Web site.

Traders, who would have to deposit money with the market before being able to make any trades, would buy contracts for an event they considered likely and attempt to sell contracts if they thought it unlikely.

The more buyers there were for a contract -- say, Arafat's assassination in the first quarter of 2004 -- the more likely it would be considered and the higher the price. If the event came to pass, buyers would cash in and sellers would lose out.

The Internet market site would have been run by private technology firm Net Exchange with data and analysis provided by the Economist Intelligence Unit, the business information arm of the publisher of The Economist magazine.

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