with US backing - for handing out pamphlets criticizing the government, said Sergeant David Sadtler, who helped oversee Manning's work as an intelligence analyst in Baghdad.
Manning "was concerned that this was happening," said Sadtler, who was called as a witness for the defense.
"He was upset at the situation."
Manning's lawyers focused on the episode as they began to present the case for the defense, painting a picture of a conscientious young man bothered by injustice and eager to shed light on US foreign policy.
In an earlier statement to the court, Manning said the Iraqis who were arrested had no ties to militants and their pamphlets were only a "scholarly critique" of government corruption.
Sadtler said Manning was up on international events and that other troops in his unit would come to him "if they needed to know what was going on in the world."
Manning, 25, has admitted to giving WikiLeaks more than 700,000 secret military intelligence files and diplomatic cables in the worst leak of classified information in American history.
He has pleaded guilty to lesser offenses that could carry a 20-year prison sentence.
But he is contesting 21 other charges, including the most serious count that he knew he was "aiding the enemy" by funneling the files to the website. That charge carries a maximum penalty of life in prison.
Manning's lawyers earlier filed motions asking the military judge to dismiss several counts against their client, including the most serious charge that he "aided" Al-Qaeda by spilling secrets.
The defense lawyers argued prosecutors lack evidence to back allegations he broke rules for using military computers, stole government "property," disclosed email addresses and assisted the enemy when he gave classified files to the anti-secrecy website.
The defense opened the proceedings by playing a 39-minute video of a 2007 US helicopter attack in Baghdad that went viral in 2010 after Manning passed the footage to WikiLeaks, which released the clip under the title "Collateral Murder."
The disturbing video, from a cockpit gunsight, shows two Apache helicopters firing at a group of Iraqi men whom the crew mistakenly believed were carrying weapons.
Two of those killed in the assault were Iraqis working for the Reuters news agency.
Manning has told the court the video troubled him, particularly jokes made by the air crew that showed what he called "seemingly delightful blood lust."
The prosecution rested its case last week but suffered an embarrassing setback after acknowledging the military had lost the contract Manning signed laying out the terms of his access to classified information.
As the trial entered its sixth week at Fort Meade in Maryland, north of Washington, the first defense witness told the court Manning had been one of the most talented members of an intelligence analysis unit, excelling at "data mining."
"He was our best analyst by far when it came to developing products," said Chief Warrant Officer Joshua Ehresman, who oversaw intelligence work produced by Manning and other enlisted soldiers.
Unlike other troops who often needed assignments to be spelled out in detail, Manning was the "go-to guy" and "would come up with exactly what you were looking for," he said.
Ehresman and two other witnesses said there were no rules in Manning's unit barring soldiers from running an executable file or program off of a CD.
The testimony was meant to bolster the defense's argument that Manning did not exceed his authorized access to government databases or violate computer regulations.
The defense also called a former chief prosecutor of terror suspects at the US prison at its naval base in Guantanamo Bay, Cuba, Morris Davis, to try to cast doubt on the importance of documents leaked by Manning about detainees at the jail.
The "detainee assessment briefs" on Guantanamo inmates, which were leaked by Manning, were superficial biographical information that "were so wildly inaccurate as not to be useful" to prosecutors, Davis told the court.
The case has taken on added weight in the aftermath of another round of leaks from a former contractor for the National Security Agency.
Edward Snowden fled to Hong Kong and later to Moscow after handing over documents to the media revealing far-reaching US electronic surveillance of phone records and Internet traffic.