SUPREME COURT The government's terror-fighting tools are under scrutiny in the federal courts. Last week, the 9th U.S. Circuit Court of Appeals invalidated part of a 1996 anti-terrorism statute that outlaws financial assistance or "material support" to organizations branded terrorist under State Department guidelines. That same appellate court blocked U.S. law-enforcement officials from covertly arresting suspects in other countries, a decision the U.S. Supreme Court last week agreed to review. (Story, page 21.)

The justices also heard oral arguments in the marquee religious-liberty case of the 2003-04 term: Locke vs. Davey. The case follows by a year a high court ruling that gave a green light to publicly funded school-voucher programs. But Davey would take the court much further. Davey asks not whether parents can use educational tax money at schools of their choice-including religious schools-but whether when state educational scholarships are generally available, states may place religious education off-limits. Many state constitutions contain so-called Blaine Amendments that prohibit the use of public funds in religiously affiliated schools. A decision in Davey could reverse Blaine Amendments everywhere. (Story, page 18.)

IRAQ WAR U.S. forces last week mulled creation of a specialized Iraqi paramilitary battalion to help fight Saddam loyalist insurgents, even as U.S. officials publicly called on NATO countries to take a larger military role in postwar Iraq. On Dec. 4, guerrillas launched a two-rocket attack on a central Iraq police station as officers arrived to collect their monthly pay. No one was killed, but six suffered injuries. Meanwhile, in Brussels, Secretary of State Colin Powell echoed comments by Secretary of Defense Donald Rumsfeld a day earlier seeking NATO help in shouldering the military load: "We urge the alliance to examine how it might do more to support peace and stability in Iraq," Mr. Powell said at a NATO foreign ministers meeting.

WORLD international editor Mindy Belz, traveling inside Iraq, reports that despite the hardships, Iraqis remain grateful for their liberation: "We have passed through many terrible things," said a Baghdad minister who spent three months in a windowless 6' x 3' cell with up to a dozen other men before the war freed him. "But we do have a big vision and we are doing very well. And we know God is helping us." (Story, page 22.)

IRAN WEAPONS? Still trying to court what they hope are reformist elements of the ruling Iranian regime, U.S. officials backed off pressing Iran harder on its suspected nuclear-weapons program. The U.S. government agreed to a compromise resolution that represented a retreat from a position that the International Atomic Energy Agency refer Tehran to the UN Security Council for breaching nuclear agreements. But some Iranians living in the shadow of the Islamic theocracy say the U.S. position is foolish: Iran's rulers are "making fun" of the soft U.S. position, said an Iranian caller to an anti-government talk show carried on shortwave radio by Iranian dissidents. A U.S. think tank hosted the live call-in show in Washington and invited journalists to come and hear Iranian citizens' views. (Story, page 25.)

ECONOMY Government figures released last week showed the primary reason for the robust third-quarter economic growth figure, which revised to more than 8 percent last month: Worker productivity hit a 20-year high. According to the Labor Department, productivity-the amount of work an average employee produces per hour-hit a rate of 9.4 percent between July and September. That's the best showing since 1983. (Story, page 27.)

CONGRESS The Republican-led Congress is looking to recess for the year-and none too soon, according to some conservative critics. For all their talk about fiscal responsibility, Republicans in Congress approved massive amounts of special projects. The number of so-called pork-barrel spending projects this year: 10,000, compared to just 2,000 when Bill Clinton was president. (Story, page 28.)

EDUCATION A lawsuit in New York City challenges tax funding for a gay-only public school on the same grounds civil-rights attorneys used to desegregate white-only schools. State Sen. Ruben Diaz, the Democrat who is pushing the lawsuit, shrugs off criticism of him as a homophobe: "That is the way the leftists fight back." WORLD's Lynn Vincent has a look at the short history of Harvey Milk High. (Story, page 30.)

Business Sagging Ford Motor Company is in danger of falling a notch to Toyota, possibly dropping from the No. 2 automaker to No. 3.... Real estate continues its boom: Government figures show the median home price jumped more than 10 percent from last year to $177,000.... And the "Cola wars"-which have for years revolved around glamor, glitz, and which brand is coolest-have taken an unusual turn: touting the product. "We're making cola the hero," says a spokesman for Pepsi, which is shedding the Britney Spears and Beyonce endorsements. (Story, page 40.)