It is the closest thing to a smoking gun congressional investigators have in their probe of Project Gunrunner -- a program that was intended to stop the flow of guns to criminals in Mexico but instead allowed those guns to be smuggled to Mexico instead.

An internal memo from the Bureau of Alcohol, Tobacco, Firearms and Explosives shows that U.S. officials allowed criminals to buy 1,318 guns worth nearly $1 million, even after they suspected the buyers were working for Mexican drug cartels, and that the agency's effort to stop the guns had "yielded little or no results."

That memo came to light Wednesday at a Senate Judiciary Hearing and provided by Sen. Chuck Grassley, R-Iowa. The ATF memo shows a list of 15 suspects, all later indicted, who bought guns on behalf of Mexican cartels.

Click here to see memo (see page 1)

Those suspects are known in the trade as straw buyers, or people who legally purchase guns and illegally resell them, in many cases to Mexican cartel members across the border.

After buying 407 guns, they became suspects in Operation Fast & Furious, an offshoot of Project Gunrunner run specifically out of the Phoenix ATF office.

In a companion memo dated June 15, 2010, field agents say they recovered “179 crime guns in Mexico…and 130” in the U.S., but roughly 1,300 were unaccounted for and "due to the proximity to the border, bank subpoenas and financial investigations have yielded little or no results."

Click here to see memo (see page 2)

In a second, equally explosive disclosure, a law enforcement source tells Fox News, that ATF undercover agents were acting as the straw buyers and purchasing guns using government-issued false identifications and then providing those guns to cartel traffickers to gain credibility in their undercover roles. In that capacity, the ATF "provided 2, 50 cal. machine guns to traffickers that are loose in Mexico and unaccounted for," the source said.

Yet, the ATF and the Department of Justice did not shut down the operation.

According to Rep,. Darrell Issa, R-Calif., additional documents show:

-- U.S. Attorney for the District of Arizona Dennis Burke was in full agreement with the investigative strategy of allowing the transfer of firearms from gun stores to straw buyers.

-- Assistant Attorney General Lanny Breuer knew about and even approved a wiretap application for suspects targeted in Operation Fast and Furious over a year ago. Issa on Wednesday released documents from Assistant Attorney General Breuer, head of the Criminal Division and a former White House counsel to President Bill Clinton that show he approved Operation Fast and Furious wiretaps.

A second document shows that Burke supported the strategy “to allow the transfer of firearms to continue to take place … in order to further the investigation and allow for the identification of additional co-conspirators who would continue to operate and illegally traffic firearms to Mexican [Drug Trafficking Organizations].”

"I am extremely disappointed in the Justice Department’s response to my inquiry," Grassley said Wednesday. "The ATF also clearly knew that these guns were being exported south of the border to Mexico."

Grassley has been dogged in his pursuit of Project Gunrunner since a single ATF whistleblower brought it to his attention in February following the death of Agent Brian Terry.

Grassley feels that U.S. Attorney General Eric Holder and the Department of Justice are stonewalling his investigation. He thinks that "in light of the growing evidence that the department’s claims (that it does not allow guns to be smuggled to Mexico) are patently false."

He took the unusual step Tuesday of personally writing to Holder, saying "you should check to see if you are getting accurate information from your staff. ... You might be ill-served."

Click here to read the letter.

Holder's appearance before the Senate Wednesday was tame compared to the grilling he got the day before from Issa.

In one exchange Issa's exchange with Holder got particularly tense.

Issa: Mr. Attorney General, we’re looking at you. We’re looking at your key people who knew or should have known about this and whether or not your judgment was consistent with good practices and whether or not, instead, the Justice Department is basically guilty of allowing weapons to kill Americans and Mexicans. So will you agree to cooperate with that investigation, both on the House and Senate side?

Holder: We’ll certainly cooperate with all the investigations, but I’m going to take great exception to what you just said. The notion that somehow or other, this Justice Department is responsible for those deaths that you mentioned, that assertion is offensive. I want to tell you that.

Issa: But what if it is accurate, Mr. Attorney General?

Issa has threatened to hold the DOJ in contempt, but sources say that is a long process.

More likely, investigators will continue to pour over documents they obtained last week in Arizona and will continue to drill down until they determine who ultimately approved of the operation and how high up does the awareness go.

President Obama and Holder maintain they know nothing about Operation Fast and Furious until it was disclosed in the press.