A cache of seized weapons is displayed Tuesday, Jan 25, 2011 in Phoenix. (AP Photo/Matt York) AP photo

The investigation into a federal operation that allowed Mexican drug cartels to acquire U.S. weapons escalated Thursday with new revelations that an Arizona gun dealer repeatedly expressed fears that his guns were falling into the "hands of the bad guys" but was encouraged by federal agents to continue the sales.

A series of emails released by congressional investigators showed that the Bureau of Alcohol, Tobacco, Firearms and Explosives encouraged the gun dealer against his better judgment to sell high-powered weapons to buyers he believed were agents for the drug cartels.

Employees of the dealer videotaped gun buyers - suspected "straw purchasers" who could legally buy the guns, though cartel members could not - exchanging money with other individuals on the dealer's premises.

The aim of the ATF program, called Project Gunrunner, was to gather intelligence on suspicious weapons sales and arrest senior members of international tracking chains.

In an eerie case of premonition, the gun dealer expressed fears that the guns he was selling could be used against U.S. border agents.

"I wanted to make sure that none of the firearms that were sold per our conversation with you and various ATF agents could or would ever end up south of the border or in the hands of the bad guys," the dealer, who has not been named, wrote in June 2010 to the lead ATF case agent in Phoenix, David Voth.

"I want to help ATF with its investigation but not at the risk of agents' safety, because I have some very close friends that are U.S. Border Patrol agents in southern AZ."

Three guns sold to suspects as part of Project Gunrunner have since turned up at the scene of the deaths of two U.S. agents, one in the Mexico state of San Luis Potosi, one near the Mexican border in Arizona.

"Not only were the ATF agents who later blew the whistle (on the investigation) predicting that this operation would end in tragedy, so were the gun dealers - even as ATF urged them to make the sales," Sen. Charles Grassley, R-Iowa, ranking member of the Senate Judiciary Committee, said in a letter with the new emails to Attorney General Eric Holder.

The Justice Department, in its only official response to the congressional inquiry, denied that the ATF "sanctioned" or "otherwise knowingly allowed" the sale of assault weapons to straw purchasers, who then transported them to Mexico.

The new emails suggest that the Arizona gun dealer was seeking assurances from the ATF and the U.S. Attorney's Office that the company would not be held responsible if someone got hurt with guns that ended up in the hands of gunrunners.

Voth, the ATF agent, wrote to the dealer: "I understand that the frequency with which some individuals under investigation by our office have been purchasing firearms from your business has caused concerns for you. … However, if it helps put you at ease we (ATF) are continually monitoring these suspects using a variety of investigative techniques which I cannot go into (in) detail."

When news accounts last June reported that guns purchased in the U.S. were being found at Mexican crime scenes, the dealer again expressed concerns.

"I shared my concerns with you guys that I wanted to make sure that none of the firearms that were sold per our conversation with you and various ATF agents could or would ever end up south of the border or in the hands of the bad guys," the dealer wrote, adding that the news reports are "disturbing."

On "one or two" occasions, when the dealer's employees videotaped a possible straw purchaser exchanging money with another person, ATF urged that the sale go forward, but the employees refused, Grassley reported in his letter.

"In light of this new evidence, the Justice Department's claim that the ATF never knowingly sanctioned or allowed the sale of assault weapons to straw purchasers is simply not credible," Grassley wrote.

Thousands of guns were sold to straw purchasers under Project Gunrunner. ATF has admitted that at least 195 U.S. firearms sold to suspected straw purchasers have been recovered in Mexico, but agents have said thousands slipped outside ATF oversight.