This is my favorite theory of what happened:
Iraq perceived Iran, and internally Shiites and Kurds, as its real and threatening enemies. USA was perceived as being far away and weak. To keep their real enemies scared, Iraqis kept up the illusion of having a solid WMD program. Iraqis would hint at their WMDs when communicating with their neighbors.
From the point of Western intelligence, the intelligence picked up Iraqis talking about their WMDs when Iraqis didn't know being listened to, and when Western intelligence assumed that Iraqis had no reason to lie. While there was no physical evidence of the WMDs, this was perceived as a rather reliable intelligence. Why would Iraqis talk about their WMDs in secret, if they didn't even have any?
"Failing to understand the Iraqi leader’s mindset and the context of his decisions, the intelligence community assumed that Iraq’s ongoing denial and deception operations regarding his alleged WMD programs, despite periods of genuine cooperation were ipso facto confirmation that Iraq was hiding WMD caches and programs."
"It appears that the intelligence community never seriously considered the possibility that Baghdad was conducting its denial and deception operations to hide weakness."
https://www.airuniversity.af.edu/Portals/10/ASPJ/journals/Ch...