WASHINGTON -- The Pentagon has agreed to stop a new program of the Defense Advanced Research Projects Agency (DARPA) to predict terrorist events through the online selling of "futures" in terrorist attacks.

Sen. John Warner (R.-Va.), chairman of the Senate Armed Forces Committee, said during a Tuesday morning hearing he had contacted the program's director and the Pentagon had agreed to scuttle the program that had ignited a firestorm of criticism.

U.S. Senators Ron Wyden (D-Ore.) and Byron Dorgan (D-N.D.) first brought attention to the program in a late Monday press conference.

The Policy Analysis Market (PAM), the first phase of the project, is already online with funding from a federal grant and was scheduled to begin a beta testing on Friday. The Defense Department had also requested $8 million for its "Futures Markets Applied to Prediction" (FutureMAP) initiative, which would expand on the Policy Analysis Market's terror-wagering scheme.

"Analysts often use prices from various markets as indicators of potential events. The use of petroleum futures contract prices by analysts of the Middle East is a classic example," the site's concept overview states. "PAM refines this approach by trading futures contracts that deal with underlying fundamentals of relevance to the Middle East."

According to site, PAM will initially focus on the "economic, civil, and military futures of Egypt, Jordan, Iran, Iraq, Israel, Saudi Arabia, Syria, and Turkey and the impact of U.S. involvement with each."

"Spending taxpayer dollars to create terrorism betting parlors is as wasteful as it is repugnant. The American people want the Federal government to use its resources enhancing our security, not gambling on it," the senators wrote in a letter to Dr. John Poindexter, who heads DARPA.

PAM is a joint venture between DARPA; the Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist; and Net Exchange, which is responsible for design, development and operation of the PAM trading system.

PAM and the FutureMAP program would work much like other financial markets, with investors buying "futures" in events they think are likely to happen, and selling off futures as they believe events become less likely to happen. Some of the possibilities the PAM website offers for sale are the overthrow of the King of Jordan, the assassination of Yasser Arafat, and a missile attack by North Korea.

Bidders would profit if the events for which they hold futures -- including government coups, assassinations and missile attacks -- occur.

"This is an appalling waste of taxpayers' money," Dorgan said at a Monday afternoon press conference. "We need to focus our resources on responsible intelligence gathering, on real terrorist threats. Spending millions of dollars on some kind of fantasy league terror game is absurd and, frankly, ought to make every American angry. What on Earth were they thinking?"

PAM is scheduled to begin registration for potential investors onFriday, and its website offers examples of policy experts making trades in the system. However, the website states an intention to eventually include thousands of traders who only have to pick a username and password to participate.

Additionally, the Policy Analysis Market website assures potential investors that DARPA will not have access to their identities or funds. According to Wyden, a member of the Senate Intelligence Committee, and Dorgan, a member of the Defense Appropriations Subcommittee, this promise creates the possibility that terrorists themselves could drive up the market for an event they are planning and profit from an attack, or even make false bets to mislead intelligence authorities.

"Just last week the 9/11 report proved that the basics of communication and follow-through ought to be our primary weapons against the terrorist threat," said Wyden. "Make-believe markets trading in possibilities that turn the stomach hardly seem like a sensible next step to take with taxpayer money in the war on terror."

Wyden has also led the criticism of another DARPA project, the Total Information Awareness (TIA) program, which has since been renamed as Terrorist Information Awareness. It is a project of the Information Awareness Office (IAO), which is under DARPA.

The data mining project's stated mission is to "imagine, develop, apply, integrate, demonstrate and transition information technologies, components and prototype, closed-loop, information systems that will counter asymmetric threats by achieving total information awareness useful for preemption; national security warning; and national security decision making."

Washington think thank Cato Institute interprets that as "a colossal effort to assemble and 'mine' massive databases of our credit card purchases, car rentals, airline tickets, official records and the like. The aim is to monitor the public's whereabouts, movements and transactions to glean suspicious patterns that indicate terrorist planning and other shenanigans."

In February, Wyden sponsored an amendment to a spending bill to stop all funding for the proposed surveillance program until the Pentagon can prove to Congress the program does not violate privacy rights. The amendment also called for a report on the TIA within 90 days, which DARPA completed on May 20.