  We imaged the X-ray error box of GRB 980703, beginning 22.5 hours after the
gamma--ray event, in both the optical R and near-infrared H bands. A fading
optical/IR object was detected within the X-ray error box, coincident with the
variable radio source reported by Frail et al. (1998a), who also detected the
optical transient independently of us. Further imagery revealed the GRB host
galaxy, with R = 22.49 +/- 0.04 and H = 20.5 +/- 0.25, the brightest so far
detected. When excluding its contribution to the total flux, both the R and
H-band light curves are well-fit by a power-law decay with index alpha~1.4. Our
data suggest an intrinsic column density in the host galaxy of ~ 3.5 x 10^21
cm^-2 which indicates the existence of a dense and rich-gas medium in which the
GRB occurred, thus supporting the hypernova model scenarios.
