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Terahertz optical gain due to intersubband transitions in optically pumped semiconductor quantum wells (QWs) is calculated nonperturbatively. We solve the pump-field-induced nonequilibrium distribution function for each subband of the QW system from a set of rate equations that include both intrasubband and intersubband relaxation processes. The gain arising from population inversion and stimulated Raman processes is calculated in a unified manner. We show that the coherent pump and signal wave interactions contribute significantly to the tetrahertz gain. Because of the optical Stark effect and pump-induced population redistribution, optical gain saturation at larger pump intensities is predicted. © 1999 American Institute of Physics.