Bob Hawke and Gough Whitlam in 1975. However, news of the ''Iraqi money affair'' had been dramatically splashed across newspapers by journalist Laurie Oakes and News Ltd proprietor Rupert Murdoch. Whitlam was under intense pressure. He initially denied involvement in the Iraqi fund-raising scheme and then shifted ground to minimise his role, claiming to have only learnt of key details after the event. But 37 years later a secret US diplomatic cable, the contents of which are revealed here, tells a very different story. Sitting in his office with the US ambassador, a dejected Whitlam made a confession he wasn't prepared to tell the Labor caucus, the media or the Australian Parliament and people.

Financier Tirath Khemlani. ''Whitlam explained in great detail his and ALP federal secretary David Combe's involvement in efforts to secure funds from Arab sources,'' Hargrove reported to Washington. ''The initial suggestion came from a left-wing leader of the Victorian ALP, Bill Hartley, and Whitlam was aware of it from the beginning.'' Whitlam specifically confirmed he was ''aware of the efforts to secure funds from Iraq''. He said ALP president Bob Hawke, whom he described as ''a pro-Israeli fanatic'', had ''hit the roof'' when he learnt of the Iraqi fund-raising plan. Whitlam expected to be forced out of the leadership within the week. ''The most likely outcome now was that the federal executive of the ALP will force Combe to resign as federal secretary; then he, Whitlam, will resign as leader of the parliamentary ALP, although he does intend to serve out his present term in the House of Representatives,'' Hargrove wrote.

''Whitlam seems resigned to this and said he very much hoped that [Bill] Hayden, the former treasurer, would replace him as the ALP's leader.'' Against his own expectations, Whitlam narrowly survived the crisis. Hawke, who was eager to enter Federal Parliament and become Labor leader, overplayed his hand. So did Rupert Murdoch and prime minister Malcolm Fraser, who were working hand in glove in an effort to destroy Whitlam politically. Whitlam's supporters in the Labor caucus rallied behind him and he remained opposition leader until another disastrous defeat at the 1977 federal election. But it could have been a very different story if Whitlam had told the public what he privately admitted to the US ambassador. Most likely, he would have been immediately forced to step down as Labor leader. Either Hayden or Hawke would have taken his place in1976 and Australian political history might well have taken a different path.

Ambassador Hargrove's report is but one of some 11,000 secret diplomatic cables sent by the US embassy in Canberra and consulates in Sydney and Melbourne between 1973 and 1976. These cables are part of a massive trove of more than 1.7 million electronic documents that were transferred by the Department of State to the US National Archives and Records Administration in 2006. The sheer size of this archive has meant that although the records were declassified six years ago, this resource has been very largely neglected because there has not been an effective search engine to enable proper investigation. But the WikiLeaks transparency group has now incorporated a copy of the entire electronic archive into a single, searchable database available to historians, journalists and other researchers. The voluminous reporting of US diplomats provides many new insights into the turbulent years of the Whitlam Labor government. The US embassy in Canberra reported in great detail as the Australian economy stagnated, inflation spiralled upward and a succession of political bungles and ministerial scandals beset the Labor government.

Although Labor won the May 1974 double dissolution election, some of Whitlam's closest confidants were quick to brief the embassy on growing paralysis and gloom within the government. As early as August 1974 Whitlam adviser Peter Wilenski observed that the Prime Minister was "in a fatalistic mood, irritated by conflicting counsel, disposed to allow events to take their course and uncertain as to how to handle complex economic problems." Senior public servants complained about chronic leaks of information to the media from ministers, ill-disciplined political staff and disgruntled bureaucrats. One particularly sensitive leak of top secret ''code word'' intelligence information caused great concern. Foreign Affairs secretary Alan Renouf blamed ministerial staff and called in the Australian Security Intelligence Organisation to investigate. However, Renouf told the US embassy that prosecution was ''virtually out of [the] question in view [of] ALP obsession with 'open government', likelihood of bad publicity and likelihood government would lose [the] suit anyway''.

By June 1975, the US embassy described the Whitlam government as ''tired, uncertain how to move in facing complex problems of inflation and unemployment, unsure of how to fit its long-promised programs for improved social services into an increasingly constrained national budget''. The embassy correctly identified the Khemlani loans scandal and the resignation of minerals and energy minister Rex Connor as the trigger for the final political and constitutional crisis that engulfed the government. However, despite much speculation, US diplomats appear to have been as surprised as most other observers when governor-general Sir John Kerr dismissed Whitlam as prime minister on November 11, 1975. The cables also provide rich detail on internal Labor politics provided by the US embassy's numerous sources within the ALP and the wider Labor movement. The embassy threw its net wide and spoke regularly to Labor MPs, ministerial staff members, party machine operatives and union officials. Most, though by no means all, were from Labor's right wing.

Many spoke freely about the failings of the Labor government and especially Whitlam. However, none was probably more valued than the ALP and ACTU president Bob Hawke, who conferred regularly with the US consulate in Melbourne. Hawke was not shy of public criticism of Whitlam, sometimes calling the prime minister ''politically crazy''. However, nearly four decades later, Hawke's private observations still make fascinating reading. A strong and emotional supporter of Israel, Hawke was especially concerned by Whitlam's pursuit of an ''even-handed'' Middle East policy designed to engage oil-rich Arab countries. As early as November 1973, Hawke told US diplomats that he found Whitlam's approach to Israel and Middle East issues ''beyond belief''. Whitlam was, Hawke said, ''difficult and very egocentric ('even for me')'' and ''resents anybody who get[s] publicity which tends to move the spotlight away from himself''. The US consulate (somewhat prudishly ) added that ''direct quotations in this report will be difficult as Hawke used short words of emphasis not suitable for [a] family newspaper.''

In subsequent discussions, Hawke repeatedly criticised what he called Whitlam's ''immoral, unethical and ungrateful'' attitude towards Israel. He later told the US consulate he felt unable to approach the Jewish community for campaign funds because of ''Whitlam's 'unprintable' even-handed 'unprintable' Arab policy''. Hawke was equally critical of the Labor government's economic mismanagement. In November 1974, he described Whitlam's actions as ''silly'' and said he ''bitterly resent[ed]'' having to deal with the prime minister's ''political inadequacy''. In August 1975, as the government's prospects spiralled downward, Hawke told US diplomats that Whitlam simply did ''not understand [the] scope of [the] 'parliamentary disaster' which Labor 'surely faces at [the] next election' ''. Hawke correctly anticipated that Labor would be forced to an early poll and defeated in December 1975. Hawke was thinking about ''rebuilding [the] party for [the] period beyond [the] next election''.

He also spoke of Labor's parlous financial position, reiterating that ''Whitlam stupidity'' had eroded donations ''especially [from] Jewish backers, badly bruised by Whitlam['s] Mid-East policy''. Hawke did reverse his political assessment after the governor-general's dramatic dismissal of Whitlam, telling the US consulate he ''now thought [a] 'big win' for Labor was [a] good probability''. But he acknowledged that Labor was ''hard pressed to expand relatively modest plans for [a] half-Senate election into a full-scale fight for the whole Parliament''. In passing, he referred to newly appointed prime minister Fraser as a ''fascist'' and the governor-general as the ''Von-Hindenberg'' of Australia. In the immediate aftermath of Labor's December 1975 election defeat, Hawke talked candidly to US diplomats about his own plans to succeed Whitlam as Labor leader.

The US consulate in Melbourne reported ''Hawke spent Sunday [the day after the election] with Whitlam, and found him very quiet. Almost at once [the] ex-prime minister asked Hawke if he was 'ready to move over'. Hawke said yes … Thereafter [they] did [a] whip-around of federal and state leaders and assured themselves they 'have [the] numbers' to get Hawke into [a] safe seat and into leadership. Exact timing is uncertain, but Hawke 'can go' as soon as he has ACTU succession secure. Whitlam will step aside any time thereafter, but definitely this year.'' But as another regular US embassy contact, NSW Labor president John Ducker later explained to the US consulate in Sydney, it proved ''a bad mistake'' for Whitlam and Hawke to tip their hand prematurely on Hawke succeeding Whitlam as Labor leader. Hawke's opponents and Whitlam's supporters reacted against what they saw as a ''conspiracy for Whitlam to keep the seat warm and hand it over to Hawke'' and Whitlam was persuaded to stay on as leader. Two months later, revelations about the Iraqi money scandal reignited Hawke's leadership hopes, but the embattled Whitlam still managed to survive by concealing the full extent of his involvement in the scandal from the Labor caucus and the public. Hawke would not enter Parliament for another three years and would not become Labor leader until 1983. Perhaps the most striking thing in the US embassy's reports is the propensity for Labor politicians, party operatives and union leaders to speak to US diplomats in great detail and with much candour about internal Labor politics.

This is an enduring practice. US embassy cables leaked to WikiLeaks in 2010 revealed that senior NSW Labor Right faction leader, former senator Mark Arbib, was a ''protected'' US embassy source providing inside information and commentary on Labor politics. Several other Labor MPS and party operatives were also identified as US embassy confidants. In the past three years the Gillard Labor government has been racked by persistent leadership tensions and infighting. It would be interesting to read what the US embassy's confidential Labor sources have been saying about all that. Philip Dorling is a senior writer. Follow the National Times on Twitter Correction: The original version of this story incorrectly spelled David Combe as Coombe.