Retroviral integrase catalyzes integration of double-stranded viral DNA into the host chromosome by a process that has become an attractive target for drug design. In the 3' processing reaction, two nucleotides are specifically cleaved from both 3' ends of viral DNA yielding a 5' phosphorylated dimer (pGT). The resulting recessed 3' hydroxy groups of adenosine provide the attachment sites to the host DNA in the strand transfer reaction. Here, we studied the effect of modified double-stranded oligonucleotides mimicking both the unprocessed (21-mer oligonucleotides) and 3' processed (19-mer oligonucleotides) U5 termini of proviral DNA on activities of HIV-1 integrase in vitro. The inhibitions of 3' processing and strand transfer reactions were studied using 21-mer oligonucleotides containing isopolar, nonisosteric, both conformationally flexible and restricted phosphonate internucleotide linkages between the conservative AG of the sequence CAGT, and using a 21-mer oligonucleotide containing 2'-fluoroarabinofuranosyladenine. All modified 21-mer oligonucleotides competitively inhibited both reactions mediated by HIV-1 integrase with nanomolar IC50 values. Our studies with 19-mer oligonucleotides showed that modifications of the 3' hydroxyl significantly reduced the strand transfer reaction. The inhibition of integrase with 19-mer oligonucleotides terminated by (S)-9-(3-hydroxy-2-phosphonomethoxypropyl)adenine, 9-(2-phosphonomethoxyethyl)adenine, and adenosine showed that proper orientation of the 3' OH group and the presence of the furanose ring of adenosine significantly influence the strand transfer reaction.