As the Inauguration neared, Republicans talked tough, making clear that Ronald Reagan wouldn't stand for the humiliation that the nation endured under Jimmy Carter. The Reagan-Bush team intimated that Reagan would deal harshly with Iran if it didn't surrender the hostages.
A joke making the rounds of Washington went: "What's three feet deep and glows in the dark? Teheran ten minutes after Ronald Reagan becomes President."
On Inauguration Day, Jan. 20, 1981, just as Reagan was beginning his inaugural address, word came from Iran that the hostages were freed. The American people were overjoyed.
Privately, some Reagan insiders laughed about their October Surprise success. For instance, Charles Cogan, a high-ranking CIA officer, told the House task force in 1992 that he attended a 1981 meeting at CIA headquarters between Casey and one of David Rockefeller's top aides, Joseph V. Reed, who had been appointed to be Ambassador to Morocco.
Cogan testified that Reed joked about having blocked Carter's hostage release. A task force investigator, who spoke with Cogan in a less formal setting, said Reed's wording was, "We fucked Carter's October Surprise."
In the months and the years that followed, many of the key figures in the October Surprise mystery saw their career paths veer steeply upward.
Besides Casey's appointment to head the CIA, Gregg became Vice President Bush's national security adviser. Robert McFarlane later became Reagan's NSC adviser. Though relatively young, Robert Gates vaulted up the CIA's career ladder, becoming head of the analytical division and then deputy director. (He is now Barack Obama's Secretary of Defense.)
As for Israel and Iran, the arms network flowed with weapons to Iran and millions of dollars in profits back to Israel, with some of the money going build new settlements in the West Bank. In summer 1981, this hidden Israeli-Iranian pipeline slipped briefly into public view.
On July 18, 1981, an Israeli-chartered planes was shot down after straying over the Soviet Union. In a PBS interview nearly a decade later, Nicholas Veliotes, Reagan's assistant secretary of state for the Middle East, said he looked into the incident by talking to top administration officials who insisted that the State Department issue misleading guidance to the press.
"It was clear to me after my conversations with people on high that indeed we had agreed that the Israelis could transship to Iran some American-origin military equipment," Veliotes said.
In checking out the Israeli flight, Veliotes came to believe that the Reagan camp's dealings with Iran dated back to before the 1980 election.
"It seems to have started in earnest in the period probably prior to the election of 1980, as the Israelis had identified who would become the new players in the national security area in the Reagan administration," Veliotes said. "And I understand some contacts were made at that time."
In the mid-1980s, many of the same October Surprise actors became figures in the Iran-Contra scandal, another secret arms-for-hostages scheme with Iran that was revealed in late 1986, despite White House denials.
According to official Iran-Contra investigations, the plot to sell U.S. weapons to Iran for its help in freeing American hostages then held in Lebanon involved Cyrus Hashemi, John Shaheen, Theodore Shackley, William Casey, Donald Gregg, Robert Gates, Robert McFarlane, George Cave, Ronald Reagan and George H.W. Bush.