1985. It was a year in which Americans began dealing with tough internal problems: deficits, farm aid, tax reform, and espionage. On the space front, star-wars debate raged, shuttle operations became routine.

January Progress on arms control. Secretary of State George Shultz meets with Soviet Foreign Minister Andrei Gromyko Jan. 7-8 at Geneva. In the first significant negotiations in over a year, they agree to resume talks on nuclear arms control.

Desks shifted at the White House. White House chief of staff James A. Baker and Treasury Secretary Donald T. Regan switch jobs Jan 8.

US opts out of World Court case. Reagan decides Jan. 18 the US will not join in further proceedings of Nicaragua's suit against it in the International Court of Justice.

President Reagan takes oath for his second term. Intense cold causes forces private ceremony Jan. 20 and cancellation of the Jan. 21 inaugural parade. The President and Vice-President George Bush take their public oaths in the Capitol Rotunda Jan. 21.

Time cleared in libel trial. Jan. 24, a federal jury finds that Time magazine did not publish a false, defamatory paragraph about former Israeli Defense Minister Ariel Sharon with ``serious doubts as to its truth.'' The Time story linked him with a massacre of Palestinians.

Charges brought in N.Y.C. subway shooting. Grand jury indicts Bernhard H. Goetz Jan. 25 with criminal possession of a weapon in the December 1984 shooting of four youths. FEBRUARY

Reagan gives State of the Union address. In Feb. 6 speech he calls for tax revision, economic growth, and a strategic defense system against nuclear weapons.

Cost of mailing first-class letter rises to 22 cents Feb. 17.

Gen. William C. Westmoreland drops libel suit against CBS. Action comes Feb. 18 after an 18-week trial in which he sought damages for a 1982 documentary accusing his command of a ``conspiracy'' to underestimate enemy strength in Vietnam.

Prime Minister Margaret Thatcher addresses Congress. The Feb. 20. address is the first by a British Prime Minister since Winston Churchill in 1952. Endorsing Reagan's policies, Mrs. Thatcher credits the West's military strength for bringing the Soviet Union to the bargaining table.

Reagan seeks to oust the Sandinistas. In a Feb. 21 news conference, Reagan says he wants to ``remove [the Sandinista government of Nicaragua] in the sense of its present structure in which it is a communist totalitarian state. . . .''

Sanctuary movement leader convicted. Jack Elder was found guilty Feb. 21 by a Houston federal jury of conspiracy and helping fleeing aliens to enter the US illegally.

Edwin Meese III is sworn in. His appointment as attorney general Feb. 25. comes after a year of controversy over his financial dealings.

Congress funds farm aid. The House and the Senate approve measures Feb. 27 to allot emergency loans to farmers for spring planting. MARCH

Ohio banks close. ESM Government Securities closes down March 4 in Florida, which leads to the March 15 closing of all Ohio state-chartered savings and loan associations. Forty-six institutions reopen March 23.

President vetoes farm aid. March 6. Reagan rejects emergency-credit bill passed by Congress as a ``massive new bailout'' that would add billions to the deficit.

US-Soviet arms talks open. Starting on March 12 in Geneva, positions are exchanged on nuclear and space weapons.

US won't negotiate with the PLO. Reagan rejects Egyptian President Hosni Mubarek's Mideast peace plan March 12 because it asks US to negotiate with Palestine Liberation Organization.

Secretary of Labor Raymond J. Donovan indicted. Mr. Donovan, who resigned March 15, is the first sitting Cabinet member ever to be indicted. Charged with fraud and larceny, he is replaced March 20 by US Trade Rep. William E. Brock III.

Spending limit on PACs violates First Amendment. Supreme Court rules March 18 that Congress's establishment of a $1,000 limit of spending by political-action committees violates the First Amendment.

Goetz indicted a second time. New evidence is presented to a second grand jury, which indicts Bernhard H. Goetz March 27 for attempted murder in the shooting of four youths in December 1984. APRIL

Indian government files suit in US against Union Carbide Corporation. The April 8 suit seeks compensation and punitive damages for the Dec. 3 gas leak from a Union Carbide subsidiary which killed over 2,000 people in Bhopal. MAY

US embargoes trade with Nicaragua. President Reagan declares economic sanctions against Nicaragua May 1 and bars Nicaraguan ships and planes from the US.

MOVE headquarters bombed. In a May 13 effort to oust members of MOVE, a radical black group, from a house in Philadelphia, police drop a bomb on their roof. Eleven members of MOVE die in a fire that burns 61 rowhouses. Over 200 people are left homeless. Philadelphia promises to rebuild area.

Interest rates cut. The Federal Reserve lowers basic lending rate May 17 from 8 percent to 7.5 percent, the lowest since August 1978, in an effort to stimulate sluggish economy.

Walker arrested. John A. Walker Jr., a retired US Navy warrant officer accused of operating a spy ring for the Soviets, is arrested May 20. His son, Navy Seaman Michael Walker, is charged May 22 with aiding him.

Child poverty rises. The Congressional Research Service and the Congressional Budget Office report May 22 that the rate of child poverty in the US in 1983 was at ``the highest level since the mid-'60s.''

More arrests made on spy charges. Retired US Navy Lt. Comdr. Arthur Walker, brother of John Walker, is arrested May 29 on espionage charges. Retired US Navy Chief Petty Officer Jerry A. Whitworth is arrested June 5 for his involvement with the Walkers. JUNE

No moment-of-silence permitted in public schools. The Supreme Court rules June 4 that ``government must pursue a course of complete neutrality toward religion'' and declares unconstitutional an Alabama law permitting one minute of silence in public schools for meditation or prayer.

Nomination of William Bradford Reynolds rejected. Senate Judiciary Committee votes June 27 to block nomination of Mr. Reynolds as associate attorney general. Members questioned his testimony before the committee and his commitment to civil rights. JULY

Attorney General criticizes high court. In an address to the American Bar Association July 6, Edwin Meese says the Supreme Court's rulings are based more on ``policy decisions'' than ``constitutional prinicples.''

David Stockman resigns. He departs job as director of the Office of Management and Budget July 9. Federal Trade Commission chairman James C. Miller III named July 20 to succeed him.

President Reagan has surgery. Operation for intestinal cancer takes place July 13.

Major steel company is struck. Wheeling-Pittsburgh Steel Corporation is shut down by work stoppages July 21 when the company cancels its labor contract with United Steelworkers Union. The strike lasts 98 days.

NOW elects Eleanor Smeal. As the new president of the National Organization for Women, Ms. Smeal sets a more activist tone following.

Divers discover galleon. On July 20, after 16 years of searching, Mel Fisher and his team uncover the wreckage and sunken treasure of the Atocha, a 17th-century Spanish ship.

Teamsters chief let off the hook. Justice and Labor Departments announce July 25 that, after a four-year investigation of a union embezzlement case, they won't prosecute Teamster chief Jackie Presser. AUGUST

Airliner crashes in Dallas. Delta jet crashes Aug. 2 in severe thunderstorm at international airport, killing 133 people. The crash is thought to be caused by wind shear. cho Montgomery Ward's catalog folding. On Aug. 3, company cites financial losses and announces end of operation which began in 1872.

Alaska won't impeach governor. After an investigation of his role in the award of a $9 million state contract, state Senate votes Aug. 5 not to impeach Gov. William Sheffield.

Walker convicted. Arthur J. Walker found guilty Aug. 9 of participating in a Soviet spy ring US officials have called the most damaging in decades. SEPTEMBER

Titanic found. A joint US-French search team reports Sept. 2 they found the hulk of the Titanic in waters 500 miles south of Newfoundland.

Hurricane Elena hits US. Florida and Alabama are battered Sept. 2, with five deaths and $1 billion damage blamed on storm.

Reagan orders sanctions against South Africa. On Sept. 9, the President issues limited trade and financial sanctions to protest apartheid in South Africa.

Education Department rescinds ruling. As of Sept. 9, colleges are no longer required to verify that male students getting federal aid have registered for the draft.

ASAT tested. A US satellite is destroyed over the Pacific Ocean Sept. 13 by an Air Force missile in the first trial of an antisatellite weapon against an object space.

Hostage Benjamin Weir released. The President announces that Mr. Weir, a hostage in Lebanon for the last 16 months, was released Sept. 14 and has returned to the US. Six other Americans are still held.

The `big five' talk money. Finance ministers and central bankers from the five biggest industrialized democracies met in New York Sept. 22. They agreed on a plan to reduce the dollar's value. By the end of October, the dollar is 5.5 percent lower than its level at the end of July and 22 percent below its highs of late February 1985.

Soviet official defects. Reagan administration officials announce Sept. 26 that Vitaly Yurchenko, a senior member of the KGB, has defected and is giving information to the US about Soviet espionage in the US and Europe.

Hurricane Gloria sweeps the East Coast. Hitting land Sept. 27, the storm causes 16 deaths and $1 billion in damages.

Highest fine in aviation history levied. American Airlines pays $1.5 million Sept. 27 for maintenance-related safety violations. OCTOBER

Heckler changes jobs. Reagan announces Oct. 1 that Secretary of Health and Human Services Margaret Heckler will resign to become ambassador to Ireland.

Atlantis off on maiden flight. On Oct. 3, Atlantis, the fourth and final shuttle in the US fleet of winged spacecraft, starts secret mission for the Defense Department.

US limits its recognition of the World Court. Reagan decides Oct. 7 the US will not submit to the jurisdiction of the World Court except in ``nonpolitical'' cases.

San Diego mayor convicted. Roger Hedgecock is found guilty of conspicacy and perjury on Oct. 9. He resigns after receiving one year sentence Dec. 10.

Medvid goes home. Soviet seaman Miroslav Medvid, who jumped ship twice, tells US officials Oct. 29 that he now wishes to go home; he returns to his grain freighter, which leaves US waters Nov. 9. NOVEMBER

Defector bolts. Vitaly Yurchenko flees US custody Nov. 2 for Soviet Embassy.

Stock market tops 1,400. On Nov. 6 the Dow Jones industrial average broke the 1,400 mark for the first time.

Jury deadlocked in spy case. A jury in Los Angeles Nov. 6 says it is deadlocked in the trial of Richard W. Miller, the first FBI agent to be tried for espionage.

Pollard arrested. Jonathan J. Pollard, a civilian employee of the Naval Investigative Service, is arrested Nov. 21. He admits selling military secrets to Israel. His wife is also arrested. DECEMBER

Official charged in Sgt. York cost-overrun. NASA administrator James Beggs and three other former executives of General Dynamics are indicted Dec. 2 on charges of covering up cost-overruns on Sergeant York gun contract. (Defense Secretary Caspar Weinburger stopped the weapons program earlier in the year, saying ``it wasn't worth the cost.''

Robert McFarlane resigns. He is replaced as national-security adviser by Vice-Adm. John M. Poindexter on Dec. 4.

Stock market goes over 1,500. On Dec. 11, the Dow Jones industrial average closed over 1,500 for the first time in history.

Budget-balancing bill passed. Congress on Dec. 11 passes the controversial Gramm-Rudman-Hollings deficit reduction bill which aims at a balanced budget by 1991.

Charter flight crashes. Airliner crash at Gander, Newfoundland, on Dec. 12 kills 256, contributing to the worst year in civil aviation history, creating demands for a closer look at maintenance factors involved in accidents.

Mafia leader murdered. The street killing of alleged La Cosa Nostra boss Paul Castellano on Dec. 16 indicates strain within the mob as the Justice Department winds up a successful year of indictments and prosecutions against leaders of organized crime.

Tax reform bill advances. The House passes a massive tax-reform bill on Dec. 17, the result of an unusual joint effort by congressional Democrats and the White House, with little enthusiasm from GOP representatives.

Farm bill completed. On Dec. 19, during the final Christmas rush, Congress passes a farm package that sustains support for farmers for the near term.

Edward Kennedy drops out. In a Dec. 19 speech, he says he will not seek the Democratic candidacy for president in 1987.

Alleged spy caught. The FBI arrests yet another spy suspect on Dec. 20., Randy M. Jeffries, an employee of a firm which transcribes classified congressional records, is caught in an FBI sting operation. -- Compiled by Carol desLauriers Cieri