Ms Monica Lewinsky, in a dramatic move, has suddenly agreed to give testimony which may put her at odds with President Clinton over whether they had a sexual relationship. This would be part of an immunity deal with the independent counsel, Mr Kenneth Starr.
Unidentified legal sources are widely cited in US media as saying that she will now testify she had a sexual relationship with President Clinton, although both denied this under oath six months ago as part of the Paula Jones civil action. The sources also say, however, that Ms Lewinsky will deny the President asked her to commit perjury.
The announcement of an immunity deal helped to drive the Dow Jones industrials index on Wall Street down by 200 points. Investors already worried by economic gloom in Asia were further depressed at the threat of political instability in Washington.
In a day of startling contrasts in Washington, Ms Lewinsky's lawyer, Mr Plato Cecheris, made a brief announcement outside his office that she had agreed to testify in return for "transactional immunity" from Mr Starr. This means that she can go back on her sworn testimony without being charged with perjury.
Shortly after this news, a solemn Mr Clinton attended the impressive ceremony at the US Capitol to honour the two police officers who were killed there last Friday by a gunman. White House correspondents at the daily briefing clamoured for his reaction to the news of Ms Lewinsky's deal with Mr Starr, who has also served a subpoena on Mr Clinton for his testimony. The White House press secretary, Mr Mike McCurry, said that "the President is pleased that things are working out for her".
Mr McCurry dismissed assertions by reporters that Ms Lewinsky would be testifying about having a sexual affair with Mr Clinton. He said he still believed the President was telling the truth when he denied this in sworn testimony last January and twice on TV to the American people.
But in further bad news for Mr Clinton, an appeals court has ruled that his close aide, Mr Bruce Lindsey, is not protected by attorney-client privilege from testifying about their discussions about how to handle the Lewinsky investigation. This ruling may yet be appealed to the Supreme Court.
The President's lawyers are trying to persuade Mr Starr to postpone his testimony until after he returns from Russia and Ireland early in September. Mr Clinton is also unwilling to give testimony to the grand jury in a Washington courthouse but may agree to give videotaped evidence.
Mr Starr is now moving swiftly to wrap up his investigation into whether the President committed perjury or asked others to do so as part of a cover-up. If Mr Starr believes he has "credible" grounds that this happened, he will have to send a report to Congress which could then start impeachment proceedings. But first he will have to hear the testimony of Ms Lewinsky and presumably the President himself.
Yesterday Ms Linda Tripp appeared before the jury for the seventh time. Last January she gave Mr Starr 20 hours of taped conversations with Ms Lewinsky in which she allegedly talks about having oral sex with Mr Clinton off the Oval Office.