Duelfer explains:

In addition, the [Duelfer] report concluded that Mr. Hussein had deliberately sought to maintain ambiguity about whether it had illicit weapons, mainly as a deterrent to Iran, its rival.

For what it's worth, I'd always heard from Iraq analysts that Saddam Hussein was also trying to deter his own people. I wish someone would do an analysis of how sturdy the Baathist regime actually was, especially over the last decade. From signing a truce with Masud Barzani and the DPK, to negotiating power-sharing agreements with tribal leaders, to promoting an al hamla al-imaniyah (Resurgence of Islam) campaign in the Sunni regions, Saddam Hussein in the 1990s certainly acted like a ruler trying frantically to maintain control, preserve his legitimacy, and appease his rivals. Was he in more trouble than he cared to admit?

One of the best pro-war arguments (pro-generic war, not pro-Bush's war) was that eventually the sanctions regime would falter and Saddam Hussein would be back in charge, ready to wreak havoc. But the Duelfer report indicates that sanctions actually strengthened after September 11, and there is ample evidence that Hussein's grip on the country was steadily weaking.

Update: Juan Cole (obviously), has much, much more.