We develop a full numerical as well as an approximate analytic solution for two-step holographic recording with high intensity pulses in LiNbO3:Fe crystals. We find the unknown material parameters by fitting the numerical solution to the experimental results. The two important parameters that were unknown so far and found in this work are the bulk photovoltaic coefficient and absorption cross section for the excitation of the electrons from small polarons in LiNbO3 with infrared light. We show that the approximate analytic solution agrees very well with the numerical solution (as well as the experimental results) for most practical applications. We use the analytic solution to explain the experimental observations that were not understood before. ©2001 The American Physical Society.