You're not going to lower Iraq's ambition level any time soon, unless you stage a coup or assassinate the leader [Saddam], both of which are highly unlikely.
Steps to preventing the Kuwait invasion:
-As soon as you begin the game, bring military and intelligence aid in Iraq to 0, and restrict trade completely. It won't hurt America, but it will really damage Iraq. Iraq's ambition may go up, but this helps more in the long run.
-Send military and intelligence aid to Kuwait.
-In the beginning of July, remove 60,000-70,000 troops from Germany and station most of them in Kuwait and the rest in Saudi Arabia (you need to access the War Room for the country you're changing troop levels in). This will form a massive buildup that may scare Iraq into changing its mind. Consider how well your troops are trained (in excess of $100k per soldier) to Iraq's (barely $15k).
-Increase intelligence spending in Iraq by at least $100 units.
-Condemn Iraq often.
If you hold off the war until mid-August, Iraq will focus itself on Egypt. They will try to assassinate the leader or plan a coup. If you don't, have your soldiers fight a defensive war, but don't invade Iraq. You can, however, perform surgical strikes on Iraq to cut its effectiveness in the war. If Iraq does declare war, use all of the options to oppose it (UN, coalition, etc).
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