  A model is developed for the hadronic and electromagnetic interaction in the
two-nucleon system above pion threshold in the framework of meson, nucleon and
$\Delta$ degrees of freedom. It is based on time-ordered perturbation theory
and includes full meson retardation in potentials and exchange currents as well
as loop contributions to the nucleonic one-body current. Results for $NN$
scattering and deuteron photodisintegration are presented.
