Reagan began by naming his Chief of Staff James Baker to the position of Secretary of the Treasury, a job-swap with then Secretary Donald T. Regan, who became chief of staff.
In 1985, Reagan visited a German military cemetery in Bitburg to lay a wreath with West German Chancellor Helmut Kohl. The cemetery held the graves of forty-nine members of the Waffen-SS. Reagan issued a statement that called the Nazi soldiers buried in that cemetery as themselves "victims," which ignited a controversy. Reagan was urged to cancel the visit, but he felt that it would be wrong to back down on a promise he had made to Chancellor Kohl. He attended the ceremony where two military generals laid a wreath.
On January 28, 1986 the Space Shuttle Challenger exploded following liftoff. All seven astronauts aboard were killed. On the night of the disaster, Reagan delivered a speech written by Peggy Noonan in which he said:
"The future doesn't belong to the fainthearted; it belongs to the brave... We will never forget them, nor the last time we saw them, this morning, as they prepared for their journey and waved goodbye and 'slipped the surly bonds of Earth' to 'touch the face of God.'"
One of Reagan's second term initiatives was his "War on Drugs".In 1986, he signed a drug enforcement bill that budgeted $1.7 billion to fund the War on Drugs and specified a mandatory minimum penalty for drug offenses. The bill was criticized for promoting significant racial disparities in the prison population while doing little to reduce the availability of drugs on the street, while resulting in a great financial burden for America. First Lady Nancy Reagan made the War on Drugs a priority by founding the "Just Say No" drug awareness campaign, which aimed to discourage children and teenagers from engaging in recreational drug use by offering various ways of saying "no".
In early April 1986, when a bomb exploded in a Berlin nightclub, resulting in the injuries of 63 American military personnel and death of one serviceman, it was determined that the government of Libya had authorized the bombing Reagan authorized the use of force against Libya and of April 15, 1986, the U.S. launched a series of air strikes on ground targets in Libya.Reagn addressed the nation after the attacks had commenced, stating, "When our citizens are attacked or abused anywhere in the world on the direct orders of hostile regimes, we will respond so long as I'm in this office."
In 1986, a scandal affected Reagan's administration concerning from the use of proceeds from covert arms sales to Iran to fund the Contras in Nicaragua. This was specifically outlawed by an act of Congress. The Iran-Contra affair became the largest political scandal in the United States during the 1980s. Reagan professed ignorance of the scheme. The Tower Commission was a congressional committee appointed to investigate the scandal. The commission could not find direct evidence that Reagan had prior knowledge of the program, but criticized him heavily for his poor management of his staff. Reagan's popularity dropped from 67 percent to 46 percent in less than a week. The scandal resulted in fourteen indictments within Reagan's staff, and eleven convictions. Many Central Americans criticized Reagan for his support of the Contras, calling him an anti-communist zealot, blinded to human rights abuses. In 1986 the United States was found guilty by the International Court of Justice (World Court) of war crimes against Nicaragua.
During Reagan's second term, the Soviet economy was encountering problems due to its enormous military expenses, and inefficiencies in agriculture and manufacturing. A drop of oil prices in 1985 to one-third of the previous level also hurt the Soviets, as oil was the main source of Soviet export revenues.Reagan recognized the change in the direction of the Soviet leadership with Mikhail Gorbachev, and shifted to diplomacy, with a view to encourage the Soviet leader to pursue substantial arms agreements.Reagan was able to start discussions on nuclear disarmament with Gorbachev. The two leaders held four summit conferences between 1985 and 1988: the first in Geneva, Switzerland, the second in Reykjavík, Iceland, the third in Washington, D.C., and the fourth in Moscow.Reagan believed that if he could persuade the Soviets to allow for more democracy and free speech, this would lead to reform and the end of Communism. Speaking at the Berlin Wall on June 12, 1987, Reagan challenged Gorbachev to go further, saying: "General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization, come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall!" Gorbachv and Reagan signed the Intermediate-Range Nuclear Forces (INF) Treaty at the White House in 1987. This treaty eliminated an entire class of nuclear weapons. The two leaders laid the framework for the Strategic Arms Reduction Treaty, or START I. When Reagan visited Moscow for the fourth summit in 1988, a journalist asked him if he still considered the Soviet Union the evil empire. "No," he replied, "I was talking about another time, another era." The Berlin Wall was torn down beginning in 1989 and two years later the Soviet Union collapsed.
During his 1980 campaign, Reagan pledged that, if given the opportunity, he would appoint the first female Supreme Court Justice.That opportunity came in his first year in office when he nominated Sandra Day O'Connor to fill the vacancy created by the retirement of Justice Potter Stewart. In his second term, Reagan elevated William Rehnquist to succeed Warren Burger as Chief Justice, and named Antonin Scalia to fill the vacant seat. Reagan nominated conservative jurist Robert Bork to the court in 1987, but Bork's nomination was rejected 58–42. Reagan then nominated Douglas Ginsburg, but Ginsburg withdrew his name from consideration after coming under fire for his marijuana use. Anthony Kennedy was eventually confirmed in his place. Along with his three Supreme Court appointments, Reagan appointed 83 judges to the United States Courts of Appeals, and 290 judges to the United States district courts. His total of 376 appointments is the most by any president.