Thanks everyone for the comments. Here is more information:

With constant pressure the pedal sinks close to the floor then feels firm. At that point the car stops but with braking power much less than normal. The car does stop straight with hands off the steering wheel.

The brake booster is working OK: with engine off and light pressure the pedal sinks a couple of inches. Starting the engine causes the pedal to sink close to the floor.

I dont think there was much rust on the rotors and there isnt any now. The previous owner was meticulous about maintenance and the brake fluid in the master cylinder looks fresh.

The master cylinder has 2 hydraulic circuits but I dont know if it is arranged as front-rear or dual diagonal. Could an internal master cylinder leak cause the symptoms ? It feels like one master cylinder hydraulic circuit is leaking. The pedal travels until it compresses the internal spring between the primary and secondary pistons. Then the other circuit creates enough hydraulic pressure to stop the car.

I have pumped the pedal dozens of times with no change in master cylinder fluid level. If there is a fluid leak it must be internal, not at a caliper.

Mike

I think the key symptom is that the brake pedal sinks farther than normal. Either there is a leak in a line or a caliper, there is air in the system, or the master is leaking internally. Inspection and a fluid change should eliminate the first two. When the master goes bad usually the pedal sinks with constant pressure, i.e. sitting at a stoplight, but there are other ways they fail too.

Greg

Flushing the brake fluid with DOT4+ would be my first reaction. But you have other problems. First, the 'rubber' fuel lines are only rubber coated, there is stainless steel under the rubber to keep the lines from 'expanding' under pressure. The master cylinder is probably OK, so long as there is fluid covering the seals.

Are your rotors full of rust from sitting outside? Yes, the rust does rub off when you use the brakes, but some of it collects between the pad and the rotor. The best way to get rid of the rust is to use your left foot on the brake and get the rotor hot to burn off the rust and anything else on the pads/rotor.

Because the ABS activated on loose gravel, and I am assuming that both front wheels tried to lock up, the system is in good shape.

Check for a stuck caliper piston by gently applying the brakes and loosely holding the steering wheel - the car should go straight at all times. If it tries to turn, the caliper in question would be the one opposite the direction of the turn.

You could remove the pads, clean them off with brake cleaner and both sides of the rotor also. But 'burning' in the pads by braking should also 'clean' them.
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My back feels better when I sit in a Volvo seat

When cars sit for a while, things stick. First, push on brake pedal (car running), does the pedal go down, then stop moving or continue to head to the floor. If it stops, the MC may be OK, heading to the floor suggests a failing/failed MC. These units are generally very reliable, but that is with an occasional fluid flush, 15 years of black brake fluid may be too much.

I would see if the brake pads are stuck. Start with the front since it does most of stopping, lift car onto stands and simply take pads out, clean up edges so that they can move in the calipers when you depress the brake pedal, reinstall, pump pedal a few times to set pads, and see what happens (on a safe street). This will happen to my 940 if it sits a while.