The influence of the mechanical milling and subsequent thermal relaxation on magnetic and superconducting behaviour of YBa2(Cu1_ y F e x ) 3 O y system has been studied. Two methods of heat treatment were used: Set I -slow cooling from 980°C in flowing O2 and Set H -reducing at 770°C in flowing Are followed by reoxidation in flowing O2 below 400°C. The transition to superconductivity, diamagnetic response, critical current density and the effective magnetic moment in the normal state have been estimated. Our measurements indicate that the reducing atmosphere preparation is less detrimental on superconducting properties. The results are discussed in terms of occupancy Cu sites by Fe and redistribution of oxygen atoms.PACS numbers: 74.10.+v, 74.70.-b, 74.90.+n A substitution of Fe for Cu in YBa 2(Cu1_xFex)3Oy has attracted a large interest because of the iron influence on superconductivity, microstructure and magnetic properties. The microstructure of doped samples is twinned for x < 0.015, twinned and tweed for 0.015 < x < 0.03, and tweed for x > 0.03, where tweed is a fine scale orthogonal microstructure [1]. It is known that there are two different Cu crystallographic sites in the structure Cu(1) chains and Cu(2) plane and it is conceivable that the site occupancies may vary as a function of concentration or a specific sample preparation method. A synthesis of YBa2(C1l_x F e x ) 3 0 y under relatively reducing conditions (inert atmosphere) and subsequent careful low-temperature annealing in O2 produce material with a lower ratio of Fe in the Cu(1) and Cu(2) site compared with a conventionally prepared material [2]. On the other hand, the accumulation of crystal strain during milling is changing the lattice parameter, sinterability, transport and magnetic properties [3,4].In this paper we are reporting superconducting and magnetic properties of milled and thermal relaxed YBa2(Cui1_xFex)3Oy (x = 0.0 and 0.04) powder after different thermal treatments in superconducting and normal state.Powders of nominal composition YBa2(Cu1_xFex)3Oy were prepared in crushed, milled and milled & relaxed states [5]. The sintered powders were treated by two methods. The conventional method (denoted as Set I) involved annealing (355)