We study the two-photon excitation rate and the spectrum of a three-le
vel atom in the Xi configuration interacting with a resonant cavity mo
de which is coupled to a broadband squeezed vacuum through its input-o
utput mirror. We show that the optical Bloch equations in the cavity e
nvironment are formally identical to these in free space but, in the b
ad-cavity limit, with cavity-modified parameters describing the inject
ed squeezed vacuum. It is shown that the two-photon excitation rate (w
hich is proportional to the upper-level population) has two components
, one depending linearly and the other quadratically on the squeezed p
hoton number N, in excellent agreement with experiment [Georgiades et
at, Phys. Rev. Lett. 75, 3426 (1995)]. The presence of the term quadra
tic in N is entirely due to the effectively imperfect correlation of t
he squeezed photon pairs in the bad cavity. We also find that the two-
photon excitation spectrum (as measured by the fluorescent emission fr
om the upper level to the intermediate level) exhibits an extremely na
rrow peak at Line center, under appropriate choices of the bad-cavity
parameters. All these results are independent of the squeezed phase.