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CNN LATE EDITION WITH WOLF BLITZER

Interview With Senators Bayh, Lott; Interview With Faisal al- Istrabadi

Aired January 15, 2006 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


WOLF BLITZER, CNN ANCHOR: This is "Late Edition," the last word in Sunday talk.
(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Iran armed with a nuclear weapon poses a grave threat to the security of the world.

(END VIDEO CLIP)

BLITZER: President Bush warns Iran: Step back from building a nuclear bomb. Two U.S. senators on the Select Intelligence Committee, Republican Trent Lott and Democrat Evan Bayh, weigh in on that and more.

(BEGIN VIDEO CLIP)

BUSH: Victory will come when the terrorists and Saddamists can no longer threaten Iraq's democracy. Victory will come when the Iraqi security forces can provide for the safety of their own citizens.

(END VIDEO CLIP)

BLITZER: Aiming for victory in Iraq. But will the new government in Baghdad be able to control the rising insurgents? We'll get the Iraqi view from Faisal Al-Istrabadi, Iraq's deputy U.N. representative.

Widespread surveillance, secret prisons, tough interrogations, with all these measures, why is Osama bin Laden still at large? Three experts covering the shadowy world of intelligence weigh in on what's gone right and what's gone wrong.

And the Dow briefly breaks 11,000 for the first time in four years. Are happy days ahead? We'll ask former Republican presidential candidate Steve Forbes and former Clinton economic adviser Gene Sperling.

It's 11:00 a.m. in Washington, 8:00 a.m. in Los Angeles, 7:00 p.m. in Baghdad, and 7:30 p.m. in Tehran, Iran. Wherever you're watching from around the world, thanks very much for joining us for "Late Edition."

I'll speak with U.S. Senate Intelligence Committee members Trent Lott and Evan Bayh in just a few minutes. First, though, let's get a quick check of what's in the news right now. (NEWSBREAK)

BLITZER: Thanks very much, Fred.

In Israel doctors are planning to perform yet another operation on the Israeli prime minister, Ariel Sharon, who's been in a coma since suffering a massive stroke some 11 days ago. CNN's Paula Hancocks is in Jerusalem with details.

Paula, I was there with you only a week ago, exactly a week ago. What is the latest?

PAULA HANCOCKS, CNN CORRESPONDENT: Well, Wolf, we do know that he is still in critical but stable condition. He is still in a coma. And as you say, he is going to undergo another surgical procedure this Sunday evening.

He's going to have a tracheotomy. Now what doctors will do is make a small cut into his neck and then attach a tube to his wind pipe. They're hoping to be able to wean him off his respirator, which he has been on since he has suffered that massive stroke 11 days ago.

Now, they are saying this is quite a simple procedure. Some outside doctors who are not familiar with the actual case of Sharon itself do say that it could take as little as 10 minutes, but they will have to put him under general anesthesia in order to carry out this particular surgical procedure.

After this they'll do another brain scan, and then they are hoping to give us an update on his condition at that point.

Now, they've been trying to lower the dosage of the sedatives he's been on since last Monday. He has moved his right arm. He has moved his right leg. The same on his left-hand side of the body.

But since about three or four days there has not been much to report on Sharon's condition. Some doctors are now worried that it has been a long time since they saw any significant improvement.

Wolf?

BLITZER: Paula Hancocks, we'll check back with you when we get some more information. Paula is in Jerusalem. Thank you very much.

In Pakistan, meanwhile, there are more anti-U.S. protests across the country today after 18 people were killed in a CIA air strike that targeted Al Qaida's number 2 man, Ayman al Zawahiri.

Our senior international correspondent, Nic Robertson, is following the story. He's joining us now from the CNN Center. What do we know at this point, Nic?

NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT: Well, Wolf, these demonstrations today are not just anti-U.S. demonstrations. They're demonstrations against Pakistani President Pervez Musharraf. There's a political price that he's paying, it seems, for this particular strike and the couple of strikes that have taken place over the last few months.

It appears that Ayman al Zawahiri was not among the dead. Eighteen people killed, among them women and children.

The demonstrations, people calling "down with the United States, down with President Musharraf."

His political opponents and some of his allies ganging up against him, joining forces in these demonstrations. People saying that the government of Pervez Musharraf not doing enough to criticize the United States, not doing enough to protect the people and the country, and saying that the people in this region are now living in fear.

(BEGIN VIDEO CLIP)

QAZI HUSSAIN: There will be continuous protests and not only in the tribal territory and not only in the frontier province but throughout the country. And the people are now living in a state of fear because innocent people have been hit, and nobody is feeling safe in these circumstances.

(END VIDEO CLIP)

ROBERTSON: Now, President Musharraf has faced demonstrations like this in Pakistan before, most notably when he allied himself with the United States following the September 11th attacks.

But in the intervening years his popularity has declined in the country, and it does make his position and the way that he can support the search for bin Laden and for Zawahiri in the border region of Pakistan, it does make it harder for him to maintain that strong and robust relationship, Wolf.

BLITZER: And just to be precise, Nic, the Pakistanis at least are suggesting Ayman al Zawahiri was not in that house that was targeted, but we don't have a definitive response yet from the U.S. government, do we?

ROBERTSON: That is correct. The Pakistanis are still investigating it. They say that there were foreigners in that area at the time. Local people deny that.

But the Pakistani government and indeed Pervez Musharraf has been on television not referring directly to this incident but telling people that it is their responsibility in this border region to make sure that no foreigners and no outsiders come into their area.

But at this time Pakistan is still investigating, and we have yet to hear declaratively from the United States that Zawahiri was not among the dead, Wolf.

BLITZER: Nic Robertson reporting for us. We'll check back with you, Nic. Thank you very, very much.

Meanwhile, negotiations collapsed this week as Iran removed the international inspector seals from its nuclear processing equipment. Is this a peaceful pursuit of nuclear energy, as the Iranian regime claims, or are they dangerously close to an atomic bomb? And the United States, as we've just been reporting, targets Al Qaida's number 2 man, Ayman al Zawahiri in Pakistan.

With us to discuss all of this and more two, key members of the Senate Select Intelligence Committee, Republican Trent Lott of Mississippi and Democrat Evan Bayh of Indiana.

Senators, thanks very much for joining us. I'll start with you, Senator Lott. What do you know about this targeting of Ayman al Zawahiri?

SEN. TRENT LOTT (R), MISSISSIPPI: I don't know a lot about it. I believe that the intelligence has indicated that he had been in that area. And obviously, we have evidence that some of the leaders of the former Al Qaida are in Pakistan.

So I think this was a justified strike. But I think we ought to wait and get the full report on it. We ought to wait and see if nothing else who actually was there and who was killed.

But how else are we going to be able to get at the leaders of what's going on in Iraq? I mean, it is being directed, we know for sure, in some instances from Pakistan. And my information is that this strike was clearly justified by the intelligence.

BLITZER: The information I'm getting from some former U.S. intelligence officials, Senator Bayh, is that before the CIA were to launch an air strike of this nature using these predator drones, they are on pretty good -- they insist they have to have a pretty high threshold in order to justify an attack on a house like this because presumably there could be what they call "collateral damage," innocent women and children, families being killed. You're regularly briefed on these kinds of targeted assassinations, as some call them.

SEN. EVAN BAYH (D), INDIANA: And I just got back from that part of the world, Wolf. The standard of proof before an operation like that is extraordinarily high. You don't do something like that without pretty good evidence.

Now, it's a regrettable situation, but what else are we supposed to do? It's like the wild, wild west out there. The Pakistani border's a real problem.

We have solid information that the top Al Qaida leadership is being harbored in that part of Pakistan. Assassination attempts against Musharraf himself have been launched from that part of Pakistan.

So the real problem here is that the Pakistani government does not control that part of their own country, and these people, some of whom you just saw on your film there, are harboring these Al Qaida leaders. So regrettably this kind of thing is what we're left with.

BLITZER: The U.S. has a very close relationship with President Musharraf of Pakistan. You were just there, Senator Bayh. It's hard for me to believe, but maybe I'm wrong, that before the U.S. -- whether the CIA or the military were to launch this kind of operation, at least some very close intelligence officials to the Pakistani president would be clued in.

BAYH: Of course, I do think you're correct to give President Musharraf credit for the way he has shown courage and leadership, and he has worked with us. He does prohibit U.S. troops from being based there in his country. So, he's shown leadership, but he also has shown awareness that the people would be concerned about us actually having troops there.

But in answer to your question, I have every reason to believe that there was some communication at higher levels of the government. And you know, one criticism was that we have some indication the CIA had been watching the terrorists there for some several days. Maybe they should have made the strike earlier.

I'm not being critical. But this was based on good intelligence, and I feel that, you know, the government at some high level was aware that this action was going to be taken.

BLITZER: It's a very sensitive issue for the U.S.-Pakistani relationship, for President Musharraf. I want to play for our viewers in the midst of these angry demonstrations that we've seen, "death to America" and all this kind of stuff in Pakistan, a sort of measured statement coming from the Pakistani government's information minister. Listen to this.

(BEGIN VIDEO CLIP)

SHEIKH RASHID AHMAD: We deeply regret that civilian lives have been lost in an incident in Bajoradensi (ph). While this act is highly condemnable, we have been for a long time striving to rid all of our tribal areas of foreign intruders who have been responsible for all the miseries and violence in the region.

(END VIDEO CLIP)

BLITZER: When he refers to foreign intruders, he's referring to Egyptians, shall we say, like Ayman Al Zawahiri, or Saudis like Osama Bin Laden, Al Qaeda operatives, who may be in that area. As far as you know, and you were just there, is the Pakistani government fully cooperating with the U.S. government in the hunt for Al Qaeda?

BAYH: As far as I know, Wolf, they are. As a matter of fact, they're putting tens of thousands of troops into this area in an attempt to bring it under control. But Pakistani troops are being killed. Twenty of them -- well, nine were killed. Eleven were taken hostage while we were there. So they know they've got a problem. They know there are these Al Qaeda leaders there. They know that the tribes there give them sanctuary. And they're beginning to try and exert their control there. But they've got a domestic political problem. So it's a balancing act. How do they go about trying to bring that area under control, cooperate with us without causing the kind of political problems that would destabilize the government? BLITZER: And I take it neither of you would have a problem with the U.S. government targeting for assassination either Ayman Al Zawahiri or Osama Bin Laden, who presumably is still at large?

LOTT: I would have a problem if we didn't do it. There's no question that they're still causing the death of millions of -- or thousands of innocent people and directing operations in Iraq. Absolutely we should do it.

BLITZER: What about you, Senator Bayh?

BAYH: I agree wholeheartedly, Wolf. These people killed 3,000 Americans. They have to be brought to justice.

BLITZER: Why is it so hard to find Osama Bin Laden? We haven't heard from him in more than a year, since before the last U.S. presidential election.

BAYH: Well, Zawahiri issues these tapes. He's a little bit more in touch with the other Al Qaeda members. You ought to fly over this area. It is huge, it is remote, it is mountainous, and these tribes are harboring him. Once you've seen it, it's no wonder it's hard to find him. And he's hiding out somewhere. He's not really communicating the way Zawahiri is.

BLITZER: Let's talk about Iran a little bit. This past week, as you know, Senator Lott, the Iranians broke those seals from the nuclear facilities that they have, causing the Europeans -- the British, the French, and the Germans -- to say negotiations are over with, it's time now to perhaps go to the United Nations security council. The president was very firm on this as well. Listen to what President Bush said.

(BEGIN VIDEO CLIP)

BUSH: The current president of Iran has announced that the destruction of Israel is an important part of their agenda. And that's unacceptable. And the development of a nuclear weapon, it seems like to me, would make him a step closer to achieving that objective.

(END VIDEO CLIP)

BLITZER: Earlier, just a little while ago, Senator McCain was on "Face the Nation" on CBS. He was very strong on this issue. Let me just paraphrase. He said the United States has to act, has to go for U.N. sanctions, even if it means the price of oil will go up. As you know, Senator Lott, Iran is a major exporter of oil, and they're threatening to take action if these sanctions were to be imposed.

LOTT: Well, we can't be intimidated by economic threats from their side. I'm pleased that the European allies -- the British, the French, and the Germans -- are taking the position they're now taking. I'm following it with interest, the Russian position, which also seems to be critical of what the Iranian government is doing with nuclear weapons. This is very serious stuff. There may not be the threat of imminent ability to deliver a nuclear weapon. But clearly that is, you know, indicated by what they've said and how they're acting. How more irresponsible can they be? They're denying, they're going to have a hearing on the Holocaust, like it never happened. And the comments about Israel should be wiped off the face of the earth. This is very serious. We'll have to watch the Chinese.

But we have to deal with this very seriously. Perhaps methodically. We have to do everything we can diplomatically. At the very minimum, we should go to the U.N. Security Council, and we should impose economic sanctions unless there's some dramatic change in the Iranian position.

BLITZER: He was at a news conference, spent two hours at a news conference yesterday, the president of Iran, Mahmoud Ahmadinejad. Here's what he said in part in answer to this question about Iran's nuclear intentions. Listen to this.

(BEGIN VIDEO CLIP)

PRES. MAHMOUD AHMADINEJAD, IRAN (THROUGH TRANSLATOR): We have developed nuclear energy for peaceful purposes, but they want us to stop our progress, and I think we are not allowed to have one, and we want to know why.

[CORRECTION -- Due to an error in translation, CNN incorrectly quoted Iranian president Mahmoud Ahmadinejad in his speech as saying that Iran has the right to build nuclear weapons. In fact, President Ahmadinejad said Iran has the right to nuclear energy, and that "a nation that has civilization does not need nuclear weapons," and "our nation does not need them." This transcript has been corrected. CNN takes this matter very seriously and apologizes for the error.]

(END VIDEO CLIP)

BLITZER: All right. The Iranians say, why can these other countries like India or Pakistan or Israel for that matter have nuclear weapons? They deny that they're building a nuclear weapon, but why this double standard against Iran? That's basically the thrust of their argument.

BAYH: There's no double standard, Wolf. Iran is the foremost sponsor of terrorism in the world. Every country I visited -- Israel, Pakistan, Afghanistan, Iraq -- the Iranians are a force for instability and death. And in Iraq, they're now causing the deaths of Americans.

They have called for the destruction of another member state, Israel, a clear violation of the U.S. charter. None of the other countries you mentioned have done that. The president, who you just showed on there, asked an audience of thousands of students in Tehran to imagine a world in which there was no United States of America.

Iran is a menace, Wolf. They have to be dealt with, through economic, political, and cultural steps. And I'll just say one final thing. I'm glad the president is finally speaking out about this. But for four long years they have ignored this problem. It's brought us to the position that we're in today. And it has undermined the national security interests of the United States.

BLITZER: We have to take a quick break but very briefly, is there a military option, realistically speaking, given the U.S. involvement in Iraq, the fact that U.S. troops may be stretched about as much as possible right now? Realistically, against Iran is there a credible U.S. military option?

BAYH: Yes, but we don't want to go there. There are sensitive nodes in their program that could be struck that would dramatically delay its development. But that should not be an option at this point.

We ought to use everything else possible to keep from getting to that juncture, Wolf, because denying this problem for four years has brought us to a dilemma. On the one hand, we don't want to use military force. On the other hand, a nuclear-armed Iran is not acceptable.

BLITZER: Senator Lott?

LOTT: Regardless of what's going on in Iraq, you know, we have the capability. We could take action. But it would be difficult, and we have to see if there are other options that would have the desired effect before we would consider there going there.

BLITZER: Stand by, senators. We're going to take a quick break. Lots more to talk about here on "Late Edition," including the nomination of the U.S. Supreme Court nominee Samuel Alito, now almost certainly headed to the Senate floor for confirmation. I'll ask both senators whether they will vote to confirm.

And in Iraq, more bloodshed this week. Is there a political solution in sight? We'll talk with one of Iraq's senior diplomats.

Also, four years after 9/11, where is Osama bin Laden? We'll hear from a panel of terrorism and surveillance experts. "Late Edition" continues right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "Late Edition." We're continuing our conversation with Democratic Senator Evan Bayh of Indiana, Republican Senator Trent Lott of Mississippi, both members of the Senate Intelligence Committee.

Here's what President Mahmoud Ahmadinejad said in December, December 14th, on this issue of the Holocaust: "They have invented a myth that Jews were massacred... The West has given more significance to the myth of the genocide of the Jews, even more significant than God, religion, and the prophets. If you have burned the Jews, why don't you give a piece of Europe, the United States, Canada or Alaska to Israel?"

And now, the Iranian Foreign Ministry announced they're going to have a conference, a scientific conference, to discuss the Holocaust after what their president said. What do you make of this?

BAYH: Well, if anyone had any doubt about the radical, almost delusional nature of the Iranian regime, Wolf, this is it. I would simply tell the president -- I think Holocaust denial is actually against the law in Germany.

And, you know, to deny history like this, this virulent anti- Semitism, their sponsoring of terrorism, their search for a nuclear weapon ought to be a wake-up call to every American.

Appeasement won't work. You know, nice words won't work. We need to use diplomacy, economic sanctions, other means so we won't have to resort to military action.

But the time to act, Wolf, is now. We've been in denial for four long years.

BLITZER; Senator Lott?

LOTT: I can't add a whole lot to that. I mean, obviously, there is a serious problem here. How would they would explain what our U.S. troops found when they got to the site where Jews had been slaughtered?

And it is symptomatic of what's going on there and symbolic of it. We have a real problem. We haven't been ignoring it. We have been working with our European allies. We've tried to get them to act reasonably.

On occasion, they act like, well, maybe we're not going to move toward this nuclear capability. And then they revert right back to it. It is a serious problem, probably, right, now the most serious in the world.

BLITZER: You were just in Iraq, just came back. What's your bottom line assessment, Senator Bayh?

BAYH: Oh, Wolf, very difficult, very complicated. The good things are our forces are performing heroically. Secondly, the election went well. There was a large turnout. And that's good. The political process is starting.

But the difficulty is that the people of Iraq voted almost exclusively along religious and ethnic lines. They are a deeply divided society. And the insurgency continues to be very difficult.

So, the bottom line question, Wolf, is, do they want to live together in the same country or not? Are they willing to settle their differences through politics or will they insist on violence?

We can help them if they choose the former courses, but if they choose the latter, this is going to be very difficult for a long period of time.

And the final thing I'd say is, continue to build up their capacity to provide for their own security, so we can begin to hand this off. The next six to nine months -- that's really going to tell us a lot about the future course of events.

BLITZER: There are some polls -- I want to put some numbers up on the screen, Senator Lott, CNN/USA Today/Gallup polls that came out recently: "How are things going for the U.S. in Iraq?" Forty-six percent of the American public said "well." Fifty-three percent said "badly."

Another poll: "Was it worth going to war in Iraq?" Back in November only 38 percent said "yes." Now, 46 percent say yes; 52 percent, a majority, continue to say no, it was not worth going to war in Iraq.

And this number: "Within the next 12 months, will there be a democratic Iraqi government that can maintain order without U.S. troops?" Only 19 percent of the American public said "yes." Seventy- five percent said "no."

The American public remains very worried about what's going on in Iraq.

LOTT: Well, we have to be worried because we're still making a huge commitment there and a sacrifice. But we tend too much, I think, to focus on the negative.

I do think we need to look at a lot of the positive milestones that have been met. Of course, Saddam Hussein is going to trial. They have had three elections in the last year and the people voted in increasing numbers.

Did they vote along regional and ethnic lines? Yes. You know, welcome to democracy. I'm not totally surprised by that. But the people have shown an increasing interest in that.

And I do believe that those that say democracy and freedom have a tremendous lure, even in a place like Iraq, are right. Do they still have problems? Yes, they're trying to form a government.

It's hard for the Kurds and the Shiites to bring in the Sunnis and make sure that they are part of that government. But they've got to move in that direction.

And we've got to continue to work to improve their police and military capability. Overall, though, progress is being made and we should acknowledge that.

BLITZER: Senator Bayh, you voted against the confirmation of John Roberts, who's now the Supreme Court Chief Justice.

How will you vote on Samuel Alito's nomination?

BAYH: I don't know yet, Wolf. But I think both of these sets of hearings and this whole judicial nominating process is a clear example of how Washington is broken. It's become a process where the nominees come before the committees and say as little as possible or are, in too many instances, evasive, don't want to say anything controversial. On the other hand, too often the people who are asking the questions are playing a game of "gotcha." And so, it puts people like me in a position, a real dilemma.

I want to know what the man really thinks, whether he has an ideological agenda or not. And because of this kabuki theater that takes place, in too many instances, we just don't know.

BLITZER: So, you don't know right now?

BAYH: I just don't know because the question I want to ask myself is: Is this man going to go for a lifetime appointment on our nation's highest court from which there is no appeal with an ideological agenda of some kind or not?

I think he bears the burden of proof of showing us that he does not. But, if the process does not shed much light onto that, what do you do?

BLITZER: How are you going to vote?

LOTT: I'm going to vote for him. But I didn't just jump to that conclusion. I think I proved, with an earlier recommendation for the Supreme Court, that I won't just follow, sort of, the party line or go for anybody. I expressed reservations about the qualifications of Ms. Miers when she was nominated. I've looked at this nominee; I've looked at his record; I met with him; I listened to a good portion of the hearings. I thought they were, frankly, an embarrassment, almost comical in some respects, and I think that's a tragedy.

I think we're making it more and more difficult for good men and women to be willing to go through the meat grinder that you have to go through in Washington in the confirmation process.

He is a conservative. You know -- surprise. But he has a moderate style of life. He is extremely well qualified and experienced. I think he's an excellent nominee. And I predict he will be confirmed by a wide margin.

BLITZER: We're almost out of time, but a couple questions to both of you. There's word out there that you may be leaving, retiring from the U.S. Senate, making an announcement even in the next few days. Is that true?

LOTT: I spent the Christmas holidays in my state visiting with the people that I love the most, my relatives, my neighbors, people on the Mississippi Gulf Coast that were devastated by Katrina.

It's been a complicated decision because of all that we've been through in the last year. But my heart is with the people there and I'm going to do everything I can to be helpful to them as long as it's necessary. And I have that capability.

But, any announcement on that, I plan to begin with announcements in my hometown of Pascagoula, Mississippi on the Mississippi Gulf coast Tuesday and then in Jackson later on in the day. BLITZER: So, you'll make an announcement one way or another whether you're going to seek re-election or retire?

LOTT; That's right.

BLITZER: So, we'll have to wait till Tuesday?

LOTT: Yes, I'm afraid so.

BLITZER: When are we going to hear whether or not, Senator Bayh, you're going to run for the Democratic presidential nomination?

BAYH: I suspect you'll hear from Trent before you hear from me, Wolf.

BLITZER: You're not going to announce that before Tuesday?

BAYH: And not in Pascagoula, with all due respect.

LOTT: We'd be glad to have you, though.

BAYH: Well, thank you, Trent. I appreciate that.

I wish Trent and Tricia well with whatever they decide.

And look, Wolf, I'm increasingly concerned about the tone here in Washington, that it's just disconnected from the rest of the country. And we really do need leaders who will change the tone, who will make progress, not focus on ideology and partisanship.

And I'm giving serious thought as to what role I might play in all that but won't make a decision until after the midterm elections.

BLITZER: But you're leaving that option open?

BAYH: Yes.

BLITZER: Senators, good luck to both of you, Senator Bayh. Senator Lott, we'll be covering your announcement on Tuesday, whatever it is. Appreciate it very much.

Coming up, the stock markets hit new highs here in the United States this week. So did the federal deficit. We'll take a hard look at the U.S. economy, what it means for the world, with former Republican presidential candidate Steve Forbes and former Clinton White House Economic Adviser Gene Sperling.

But up next, we'll have a quick check of what's in the news right now, including the latest on the Israeli Prime Minister Ariel Sharon's condition. He's about to undergo yet another operation.

Stay with "Late Edition."

(COMMERCIAL BREAK)

(NEWBREAK) (COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: In 2005, the American economy turned in a performance that is the envy of the industrialized world.

(END VIDEO CLIP)

BLITZER: President Bush touting the prosperity of the United States economy. But is that prosperity only coming to a lucky few? Joining us now to take a closer look at the state of the American economy and what it means for people around the world, two guests. In new York the CEO of Forbes Incorporated, the former Republican presidential candidate, Steve Forbes.

And here in Washington, Gene Sperling, a former economic adviser in the Clinton administration. He's also the author of a new book. It's entitled "The Pro-Growth Progressive: An economic strategy for shared prosperity."

Gene Sperling, Steve Forbes, good friends of "Late Edition." Both of you, thanks very much for joining us.

Steve Forbes, let me start with you. The fact that the Dow Jones has now gone over, at least for a day or two, above 11,000, does that mean happy days are here again?

STEVE FORBES, CEO, FORBES, INC.: Well, the American economy is going to do very well this year, probably growing around 3 1/2 percent, 4 percent. Couple of million new jobs will be created as well. And so the fundamentals are very strong, especially since the Bush tax cuts of May 2003.

But there is a cloud on the horizon, Wolf, and that is the federal reserve is printing too much money. So interest rates, despite signals to the contrary, short-term interest rates I think are going to be headed higher during the course of the year.

BLITZER: How much higher?

FORBES: I think probably 1 1/2 percentage, 2 percentage points, unless the Fed under its new chairman, Ben Bernanke, gets its act together.

You look at commodity prices, they all signal inflation's in the offing. The Fed, I think, has made a hash of the job.

BLITZER: Gene Sperling, listen to what the vice president, Dick Cheney, said this week on the importance of the tax cuts that the Bush administration pushed through Congress. Listen to this. (BEGIN VIDEO CLIP)

RICHARD B. CHENEY, VICE PRESIDENT OF THE UNITED STATES: With over 4.6 million new jobs created since may of 2003, in less than three years we've added more than 4.6 million new jobs, and jobless claims have hit a five-year low. An unemployment rate today down to 4.9 percent. It's getting pretty hard for the critics to make the case that somehow these tax cuts weren't good for the economy.

(END VIDEO CLIP)

BLITZER: You're one of those critics. Were these tax cuts, looking back with hindsight, good for the economy as you assess the current state of the U.S. economy?

GENE SPERLING, FORMER CLINTON ECONOMIC ADVISER: There is no question that they have not been good for the economy. Wolf, we did need some sharp tax cuts in 2001 and 2002 to pump us out of recession.

But let's look at the real record on these long-term tax cuts, particularly do they meet John Kennedy's test of a rising tide lifting all boats?

Since the 2003 tax cuts he's referring to, wages have gone down for weekly terms and hourly terms. So, for the typical American worker, in the last four years, or even in the last two years, wages have gone down.

The job growth that he mentions is actually the worst for this period of recovery since the 1930s. Poverty is up 5 million people, and family income has gone down every year since President Bush took office. So they can tout these numbers, but if you put them in any form of perspective, if you ask how is this recovery, and how have these tax cuts worked for the typical family, they have not done well, and I know we'll talk about this later...

BLITZER: All right.

SPERLING: ... they've also left a much shakier foundation on our fiscal situation for the future.

BLITZER: Well, on that specific point, Steve Forbes, I'll put up on the screen a comment that Nancy Pelosi, the Democratic leader in the House of Representatives, made on January 6. She said, "Middle class Americans' paychecks are flat or dropping, while health care costs continue to rise and home heating costs are skyrocketing. And yet the Bush administration is cheerleading policies that help the wealthy while doing nothing to address these fundamental problems." You want to respond to Nancy Pelosi and Gene Sperling?

FORBES: Well, the fact of the matter is, incomes are rising in America, which is why for several years retail sales have beaten expectations across the board. And the fact of the matter is, the economy has created millions of new jobs and the tax cuts are the prime reason for it. Before the tax cuts of May 2003, this economy was stalled after the bubble burst in 2000-2001. The tax cuts got the economy moving, just as they always do when you have rate cuts across the board, which makes it passing strange that the Democrats would hesitate about extending the tax cuts. They worked. BLITZER: Well, and I want to press Gene Sperling on that.

SPERLING: Yeah. Please press me. BLITZER: Four million new jobs in the last few years. That's better than zero new jobs, right?

SPERLING: That's exactly right. If you want to look at this economy as a football team that was 0-16 and say have they gone to 4- 12, yes. But, Wolf, if you put stuff in any form of historical perspective, I'm sorry, the president's cheerleaders can't respond. Here are the facts.

When you look, Labor Department statistics, average hourly wages and weekly wages are down in the last four years, down in the last two years. If you look at the census, poverty has gone up each year, even in an economic recovery. And the job growth, let's take that, for example. That is what they're bragging about, 4.6 million over the last 2 1/2 years.

What was the average under Bill Clinton over a 2 1/2-year period? About 6 1/2 million. So they're bragging about their tax cuts having job growth, 2 million less over a period than we had in the Clinton era, wages down, poverty up. If that's what they want to say the tax cuts caused, I'll give them all the credit.

BLITZER: The minority whip, Steve Forbes, in the U.S. Senate, Dick Durbin, the number two Democrat in the U.S. Senate, made some similar points, threw out these numbers. Listen to what he said.

(BEGIN VIDEO CLIP)

U.S. SENATOR RICHARD DURBIN (D-IL): Since President Bush took office, prices at the gasoline pump have increased 55 percent, health care premiums 57 percent, winter heating costs 79 percent. Tuition and fees are up 32 percent at four-year private colleges, 57 percent at public colleges.

(END VIDEO CLIP)

BLITZER; And what the Democrats argue, Steve Forbes, is that those are hidden taxes on the American people.

FORBES: Well, in terms of the poverty rate, that just takes wage income. It does not take in-kind benefits, especially Medicaid, which is a huge benefit for low-income Americans. If you put those in-kind benefits in, this picture takes a much different turn.

In terms of rising prices, especially at the fuel pump, that is a factor of the Federal Reserve printing too much money. When they did that in the 1970s and early 1980s, guess what happens. Prices start to rise up. That is a monetary problem, not a tax problem. The situation would be much worse if we didn't have those tax cuts and have the kind of growth rates that you have in Europe like Germany and France, where the unemployment rate is double than what it is here, three times what it is among younger people. So you have zero growth or the kind of growth we have? We're moving in the right direction. We're the fastest-growing large economy in the world today.

BLITZER: Gentlemen, stay right where you are, because we have to take a short break. When we return, take a closer look at some of the troubling clouds on the economic horizon: the ever-increasing federal deficit and the growing cost of the war in Iraq. All that coming up. First, though, this.

(BEGIN VIDEOTAPE)

BLITZER: James Frey. What's his story? The 36-year-old author is defending his book after being accused of fabricating his life story. A former alcohol and drug addict, Frey spent two months in a drug treatment center, which became the subject of "A Million Little Pieces."

Frey admits embellishing the memoir, but argues the essential truth of the book is accurate. It became a quick best-seller, and Frey rocketed to stardom after television host Oprah Winfrey chose it for her book club. On "Larry King Live," Winfrey expressed her support for Frey and placed blame on the publishers for not categorizing the work accurately.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

BLITZER: Welcome back to "Late Edition." We're discussing the U.S. economy and your money with Gene Sperling, the former national economic adviser to President Clinton, and Steve Forbes, the editor in chief of Forbes magazine.

Steve Forbes, listen to what the president said on Wednesday in blaming the Congress for some of the economic problems he and the American public are enduring right now. Listen to this.

(BEGIN VIDEO CLIP)

BUSH: One of the real drains and real threats to our economy is the inability of Congress to be able to confront the Medicare and Social Security issue, the unwillingness to take on the tough political job.

(END VIDEO CLIP)

BLITZER: The last time I checked, Steve Forbes, it was the Republican Party that was in charge of both the Senate and the House of Representatives. And he's going after the U.S. Congress. Is that fair? FORBES: Well, I think he would have made his case stronger if he'd vetoed some of these spending bills, particularly the highway bill with 6,000 earmarks. Reagan vetoed a similar bill 20 years before that had 100 earmarks, which he thought was outrageous. So the White House shares the blame for this spending spree. I'm glad they're recognizing they need to do something about it. But his point about Social Security is valid. If anything, the president can be criticized for not putting a specific coherent proposal on the table so people would know what it involved.

But the fact of the matter is, Congress has not been willing to step up to the plate and do real positive reforms on Social Security, and I think it can be done in a very positive way. It's not slashing benefits. It's making sure there's a system there for people in their 20s and 30s.

BLITZER: So give me one example of what needs to be done, Steve Forbes, right away.

FORBES: Right away? People in their 20s and 30s should be permitted, if they so choose, to have a portion of their payroll tax, Social Security tax, go into personal accounts, just like the federal thrift plan, which has worked very well for millions of federal employees, a handful of well-diversified funds, give excellent returns long-term. Let younger people have a similar choice.

BLITZER: What about that, Gene Sperling?

SPERLING: Look, Wolf, the president can blame everybody he wants. He can blame his pets. He can blame the Congress. The leadership starts at the top.

This is a Republican White House, a Republican Congress. We used to have a system in Washington -- you know the phrase, "pay as you go." it meant that if you had tax cuts for the middle class, which I supported, or Medicare prescription drugs, you paid for them.

BLITZER: By reducing spending in other areas?

SPERLING: By reducing spending or raising taxes in other places. Instead of having this "pay as you go," we now have "pay to play," which is Republican Congress having lobbyists pay to get access for pork projects that are running up the deficit.

And we also have the type of tax cuts that will -- over $1 trillion in the next decade will go to people making over 400,000. That's bad for our fiscal future, Wolf.

It's also bad for our growth and our competitiveness and our values. We're cutting NIH spending. We're cutting Headstart funding. We're cutting the types of things we need to do to make ourselves competitive in the global economy. And, instead, we have all the time in the world for the K Street lobbyist.

BLITZER: Steve Forbes, in terms of budget deficits, the numbers seem to be going in the wrong direction. I'll put some numbers up on the screen. In 2004, $412 billion budget deficit. 2005 improved to $319 billion deficit. But now, according to the OMB, the Office of Management and Budget, the estimate is it will be more than $400 billion this year.

I assume a lot of that is because of the huge expenditures for the war in Iraq.

FORBES: That's part of it. But, everywhere else, the budget has been spinning out of control. And the fact of the matter is, in the last fiscal year, Wolf, that ended September 30th, Washington revenues, in real terms, had a record increase. It's not a revenue problem. They're coming in. The tax cuts work. They're ginning up more revenue. The problem is Washington's inability to say no. It is on a spending spree. That is the problem, spending, not revenues.

BLITZER: What do you think?

SPERLING: That's just not true. In fact, if you look at the turnaround in the deficit, nearly 75 percent of the expected deterioration is coming from a loss of revenues.

But, the truth is, we've had the lack of fiscal discipline on both sides.

Look, before Katrina, before anything, Goldman Sachs was estimating that the deficit would average $500 billion over the next decade. You look at -- by the year 2011, Wolf, simply the cost of the tax cuts and the Medicare prescription drugs, because they were not paid for or offset, will be about $400 billion. That dwarfs the yearly cost on Iraq or Katrina.

BLITZER: All right, very quickly, Steve Forbes, because we're out of time.

FORBES: Gene, the fact of the matter is, in the last 12 months, Washington's been taking in record revenues, 15 percent increase, unprecedented in peace time. Again, revenues are coming in. Spending is the problem.

SPERLING: Not true.

BLITZER: We'll continue this discussion. Thanks to both of you. Gene Sperling, Steve Forbes, always a good discussion when both of you join us on "Late edition."

And don't forget, our Web question of the week is this: "What's the best way to handle Iran's nuclear program -- diplomacy, sanctions, or military action?" You can cast your vote. Go to CNN.com/lateedition. The results, coming up in the next hour.

We'll take a quick break. We'll be right back.

BLITZER: This is "Late Edition," the last word in Sunday talk. (BEGIN VIDEO CLIP)

CONDOLEEZZA RICE, SECRETARY OF STATE: We understand that Iraq and Iran are neighbors and that they should have good relations.

(END VIDEO CLIP)

BLITZER: As Iraq battles an insurgency and the potential for civil war, how influential will a defiant nuclear Iran be? We'll talk with Iraq's deputy U.N. representative, Faisal Al-Istrabadi.

(BEGIN VIDEO CLIP)

BUSH: I understand people's concerns about government eavesdropping.

(END VIDEO CLIP)

BLITZER: President Bush defends his domestic spying program. Is it an effective weapon in the war on terror? And are Osama bin Laden and Al Qaida planning more attacks? Insight from the authors of three books about the world of terrorism and surveillance: New York Times reporter, James Risen; the New Yorker Magazine's Steve Coll; and CNN terrorism analyst, Peter Bergen.

Welcome back, we'll speak with one of Iraq's top diplomats in the United States in just a few minutes.

First though, let's get a quick check of what's in the new right now.

(NEWBREAK)

BLITZER: Thanks very much, Fred.

In Iraq, a key change may be taking place in the trial of Saddam Hussein. The trial's presiding judge today submitted his resignation. CNN's Michael Holmes is in Baghdad. He's joining us now live with details. Michael?

MICHAEL HOLMES, CNN CORRESPONDENT: Hi to you, Wolf. That's right. Judge Rizgar Mohammed Amin, familiar face to people who have been following this trial, submitted his letter of resignation. Officials telling us that the Iraqi high tribunal is now studying that letter, is yet, however, to decide whether to accept it.

Now, under Iraqi law, the resignation can be rejected, and in that case, the chief judge would probably continue in his role. Talks are currently under way to try to convince him to change his mind and continue with the trial. The case would obviously be thrown into some disarray if he did quit.

There are four other judges on the panel, however. We're told by officials at the IHT that the reasons are personal reasons, but we were told by someone close to the judge that he does feel he is under a form of political pressure to change the way he's dealing with the trial, particularly the behavior of the defendants.

We have seen, of course, Saddam Hussein and others of the accused virtually taking over the trial at certain points making statements and allegations at will. Wolf?

BLITZER; All right, we'll watch the story together with you. CNN's Michael Holmes on the scene for us in Baghdad. Thank you very much.

And today marks exactly one month since Iraq held its national elections. The country is still trying to sort out the official results.

Joining us now from New York is Iraq's deputy representative to the United Nations, Ambassador Faisal Al-Istrabadi.

Mr. Ambassador, welcome back to "Late Edition."

FAISAL AL-ISTRABADI, IRAQ'S DEPUTY PERMANENT REPRESENTATIVE TO THE UNITED NATIONS: My pleasure, thank you.

BLITZER: You were much involved in helping the Iraqis get ready for the tribunal, the trials of Saddam Hussein and the others who were accused of crimes. What do you make of this decision by the presiding judge to step down?

AL-ISTRABADI: Well, I've -- I was, in fact, on the phone this morning on my way here with Baghdad to see if I could figure out what was going on.

As I understand it, and this may be incorrect, but as I understand it, he has not resigned from the court. He has resigned as presiding -- or tendered his resignation as presiding judge over the trial but not from the panel of judges.

Again, I can't confirm that, but that's what I have been told. And so it may be more of a matter, first of all, it remains to be seen whether his resignation is accepted and, second of all, it may be more of an administrative difference than a really substantive difference if that's correct.

BLITZER: Is it, though, something that results from security concerns because as you know, the insurgents, the Saddamists, the loyalists, they're targeting these judges and those involved in the prosecution of this case against Saddam Hussein and others. AL- ISTRABADI: No, I don't know this judge personally, but I know of him. He is not the kind of man who would resign for those kinds of reasons.

He along with his colleagues and brother judges would have been very aware of the risks at the time that they accepted their assignments, and I can assure you that those considerations would not be -- would not be on his mind.

Again, it's one thing to tender a resignation. It's another thing entirely to have the resignation accepted, so I would wait and see exactly what's going on. BLITZER: As far as you know, the trial is supposed to resume next week, not this week but the week that follows, is that right?

AL-ISTRABADI: That's right.

BLITZER: And if he steps down, though, the presiding judge, that could presumably cause a delay.

AL-ISTRABADI: I don't think so. As I said he would not -- not necessarily, let me say it that way.

He would be stepping down, as I understand, as presiding judge, not as a judge of the court, and not even as a judge in this case. That's another reason. If that information is correct, and this is what I'm led to believe, if that information is correct, that's another reason to say that it cannot possibly have anything to do with his concerns about his own personal safety because he's not stepping off the court as I understand it.

BLITZER: Now, you're a lawyer, you were very helpful to the Iraqi tribunal and setting the stage for this trial.

We've been watching it on television over the past several months in spurts when is it takes place.

I want you to listen to Ghazi al-Yawar, the former Iraqi -- or the current Iraqi vice president, was quoted in The New York Times as saying, listen to this, "This has become a platform for Saddam to show himself as a caged lion, when really he was a mouse in a hole. I don't know who is the genius who is producing this farce. It's a political process, it's a comedy. I don't know what this is."

Very strong words from a respected Iraqi leader. What do you make of this?

AL-ISTRABADI: Well, I think it's very important for Iraq's political climate -- let me say this, I understand how difficult it is to do this, but I think it's very important for the Iraqi political elite not to be seen to be interfering with the progress of the court.

We have first rate judges on this court. These are distinguished men with long careers, and they know how to conduct a trial. There are certain rights which these defendants have in this tribunal, rights which they have not, which no Iraqi has enjoyed under Baathist Iraq since 1968.

This is difficult for people who are nonlawyers, and Sheikh Ghazi Al-Yawar is not a lawyer, he was a businessman. These are perhaps rights that are difficult for nonlawyers to understand, but people, I think, ought to understand that these are rights enjoyed by these defendants, and it is important for the politicians not to -- not to interfere in the progress of the court and not to be seen to be interfering with the progress of the court.

BLITZER: One of those on trial is Tariq Aziz, the former Iraqi foreign minister, the deputy prime minister to our viewers in the United States and around the world, a well-known figure, someone who is a close spokesman of the former president, Saddam Hussein. There are now reports circulating that he is gravely ill. What, if anything, do you know about this?

AL-ISTRABADI: I've heard those same, I guess it's rumors. I'm not sure whether it's true or not. Again, that's something I think left to the court to delve into and to take action, whatever action is appropriate.

BLITZER: What about the Iraqi -- the new Iraqi government. It's been exactly a month now since the elections. How much longer do you think it will take, a) to certify the election results and b) to form a government?

AL-ISTRABADI: Well, I think it's going to take a few more days to come to some conclusion as to the results.

We, of course, have an international team, which is also in Iraq now. I understand that there will be some delay until I think Thursday perhaps before their recommendations are published.

So there are sort of two things that are going on. One is we want to make sure that we get the election results right, and I think that that is -- this is the first election we've had under the permanent constitution, and so I think it's important that we don't have a dispute as to the result and that if there are disputes, as in fact there have been some protests in regards to certain areas and so on, that those issues be resolved and that's what's happening now.

The second is, I think, a real drive to put together a government of national unity, and I think that Iraq's political class very much wants to do that.

Look, in the United States you have your elections in November, and you have a two-month interregnum before the new administration takes office. Granted, you know the results relatively right away, but even in advanced sophisticated democracies, such as the United States in 2000, such as in Germany in 2005, it sometimes takes time to form a government.

I think the determination in Baghdad is to get it right, not necessarily to get it done quickly.

BLITZER: The Sunnis -- that's the key question -- will they participate? The Shiite-led government, clearly, in the works. The Kurds are certainly very much on board.

The question: will Iraqi Sunnis participate?

One of the Shiite leaders, Adel Aziz Al-Hakim, the leader of the Supreme Council for the Islamic Revolution in Iraq -- he said this this week: "We do not accept any change in the essence of the constitution. There are forces working to change the constitution; we will stop anyone who tries to change the constitution. It is our responsibility to form Baghdad provinces and southern Iraq provinces... Many of the people who voted for us were promised federalism in the south."

The Sunnis, very much opposed to that notion. Is Iraq, right now, on course for a civil war?

AL-ISTRABADI: I don't think so. I think what you're seeing in Iraq, rather, is a political discourse. It's a debate.

Let's take the comments you've quoted from, say, Hakim, that he takes the position there should be no changes in the constitution, to the essence of the constitution.

If, by that, he means federalism, well, there's large agreement that Iraq should be a federated state. But even that's a minor point.

The larger point is that these issues are being debated and discussed in Iraq for the first time in our history, in over 50 years. You have an open exchange going on between Iraq's political class.

Now, it may be that one party or a coalition of parties retains a majority of the electorate and therefore has the right to govern. That's the essence of democracy, so long as minority rights are also protected.

I see this as a very positive development. These things are being discussed and debated openly in Iraq in the press, in parliament, et cetera.

This is the essence of democracy. To me this is a great, hopeful sign forward. There is not unanimity on every issue in Iraq. You don't expect that in a democracy.

If everyone was marching in locked step, that's the time to start putting some question marks up about what's really happening in Iraq. That there's a debate and discourse is a very healthy, positive sign.

BLITZER: There's a poll that ABC News commissioned of Iraqis in Iraq. It asked whether they support or oppose the U.S. military presence in Iraq. Thirty-two percent said they support it; 65 percent said they oppose it.

How unpopular are U.S. military forces in Iraq right now?

AL-ISTRABADI: I continue to believe that these numbers reflect a very simple reality of which I think American planners are very well aware, that no Iraqi wants a long-term American force in Iraq.

I don't believe that the American presence, as such, is unpopular. We're all very well aware that, but for the intervention by the United States, we would still be ruled by a brutal tyrant who was butchering us by the tens and hundreds of thousands.

What this reflects is a determination that foreign forces, at some point, when Iraqis are able to provide for their own security, that these foreign forces must withdraw. And I think that that is probably a very high degree of unanimity amongst Iraqis on that issue. BLITZER: We're going to have to leave it right there, Mr. Ambassador. As always, thank you very much for joining us on "Late Edition."

AL-ISTRABADI: Thank you very much.

BLITZER: And, just ahead, the CIA secrets and spies. A panel of experts offer some insight into what the agency is doing right now, what it's doing right and what it's doing wrong in the war on terror.

And later, in case you missed it, our highlights from the other Sunday morning talk shows. "Late Edition" continues right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to "Late edition."

We turn now to the war on terror and three guests who have covered and written extensively about various aspects of the overall fight.

James Risen is a New York Times reporter. He's the author of a new book entitled "State of War: The Secret History of the CIA and the Bush Administration."

Steve Coll is a correspondent for The New Yorker magazine. His book entitled "Ghost Wars: The Secret History of the CIA, Afghanistan and bin Laden" won a Pulitzer prize.

And Peter Bergen is a CNN terrorism analyst. He's the author of an important new book as well, "The Osama bin Laden I know: An Oral History of Al Qaida's leader."

Welcome to all of you. Thanks very much for joining us. Steve, let me start with you. You have covered this Pakistan story for a long time. On Friday, there was word the CIA launched a Predator drone, a hell-fire missile, if you will, at a house along the border between Pakistan and Afghanistan.

And there were -- there was word immediately suggested that the target was Ayman Al Zawahiri, the number two Al Qaida operative. And he may -- may have been killed, although the Pakistanis now suggesting it probably was not the case.

What do you make of what's going on?

STEVE COLL, NEW YORKER MAGAZINE: It has to be emphasized there's a lot we don't know about what happened up in this tribal area. But it does appear that a strike was carried out and that Zawahiri was the intended target.

The Pakistanis are now saying that he wasn't there. But the American sources are suggesting that time is required to pick through the rubble and evaluate the remains of those who were killed.

One of the complications is that every time the United States shoots and misses, if, indeed, they did miss in this case, they create political trouble for Pakistan's rather insecure military leader, Pervez Musharraf.

And, so, there's been a great deal of emphasis on Pakistan since the strike protesting the United States, trying to quell rallies, popular protests. It complicates the next mission, if, indeed, Zawahiri is still alive.

BLITZER: The other side of that, though, is that, when the United States does take these actions, even if it misses, it sends a powerful signal to the Al Qaida leaders -- you know what; your days are numbered.

COLL: Well, if this intelligence was at all well grounded, it does confirm that the hunt for both Zawahiri and bin Laden continues in a very particular area, these federally administered tribal areas along the border with Afghanistan.

And, indeed, this agency where the strike apparently took place was one of the locations that a lot of people in the intelligence community had said was their main priority, north of Waziristan, but in a no-man's land where the local tribes are quite sympathetic to Al Qaida.

BLITZER: Peter, what's your current assessment on this strike?

PETER BERGEN, CNN TERRORISM ANALYST: Well, I just don't know because I don't think we really -- I think, as Steve says, obviously this causes problems for the Pakistani military government.

I mean, on the one hand, their foreign ministry has condemned it. On the other hand, President Musharraf hasn't really said anything directly, but every time we miss, it is a problem.

Sometimes we have hit, and been, you know, been lucky. For instance, in Yemen, you may remember there was a Hellfire missile strike, killed five very important members of Al Qaida, so we have taken these actions in other sovereign countries, not just in Pakistan.

BLITZER: You've spent a lot of time, Jim, covering the CIA. And when they launch one of these predator drones, these unmanned vehicles with a Hellfire missile, the argument I've heard from former intelligence officials is they better -- they have really good intelligence, otherwise, they wouldn't do it. They're not just trigger happy, if you will. What's your sense?

JAMES RISEN, NEW YORK TIMES: I think that's true. They also -- one of the things that, I think the dirty little secret in their relationship with Pakistan is that they don't do these things without Pakistani approval, at least some form of tacit approval at the very highest levels of the Pakistani government.

And so a lot of the Pakistani protests really are for internal consumption, an effort to show their people -- the Musharraf government's very sensitive about this and they've got to show their people that they're shocked, shocked that the Americans are operating against Al Qaida in their country when, in fact, they are doing this almost always secretly with the tacit approval of the Pakistani government.

COLL: I think Jim's right about that as a general matter but it's interesting. I don't know what happened in this case, but if you look at the history of similar cases, they have often operated with tacit general approval of the Pakistan government, but in particular cases they don't always tell the Pakistanis when they're going to strike. And so if they make a decision to strike without telling the Pakistanis and they get it wrong, it complicates the alliance that they operate in (inaudible).

BLITZER: And I think that's a good point, Peter. And correct me if I'm wrong. They may have a general understanding with President Musharraf, but there's still deep concern here in Washington that not everyone in the Pakistani military or the Pakistani intelligence service is on board, and if they give too much advance word to the Pakistani government, word could filter out from those who may not necessarily be supportive of the U.S. war on terror to protect the Taliban or Al Qaida or any other operatives the U.S. may be gunning at.

BERGEN: I think that's the case, although certainly President Musharraf has purged ISI, the military intelligence agency, in the past few years of people that were regarded as sort of pro-Al Qaida, but we've seen, for instance, that, you know, Khalid Shaikh Mohammed, the operational commander of the 9/11 attacks, was actually arrested in Rawalpindi, which is sort of the headquarters of the Pakistani army, so it's clear that there may well be sympathizers.

He was -- Khalid Shaikh Mohammed, for instance, was being helped by a major in the Pakistani army so you certainly want to keep these things somewhat compartmentalized.

BLITZER: The big fish of Al Qaida really have been captured in Pakistan, either Rawalpindi or Karachi, the big cities as opposed to these tribal areas. Is that right?

BERGEN: Indeed. Again and again. Gudura (ph), Karachi, Peshawar, Quetta, these are where Al Qaida leaders have been found. And if you look at the recent videotapes from either Ayman Al Zawahiri or bin Laden, they seem to be operating in some environment that isn't exactly a cave. It's something a little bit more urbanized than that.

BLITZER: Let me play a tape, Jim. I want you to respond to this. The last time we heard from Ayman Al Zawahiri on videotape, he made this statement. Listen to this.

(BEGIN VIDEO CLIP)

AYMAN AL ZAWAHIRI (THROUGH TRANSLATOR): You remember, my dear Muslim brothers, what I told you more than a year ago, that the U.S. troops pulling out of Iraq was only a matter of time. Here they are now, and in the blessing of God begging to pull out. Seeking negotiations with the mujahideen, and here is Bush, who was forced to announce at the end of November that he will be pulling his troops out of Iraq.

(END VIDEO CLIP)

BLITZER: Here he is on television. It's not just on television. He's got fancy graphics and he's got, you know, nice video, and he seems to be pretty calm delivering this statement. Analysts at the CIA and other intelligence services around the world, they study this. They try to get some appreciation of what's going on, and they hope to get some answers, but I don't know how good they are. How good are they?

RISEN: Well, I think to me the interesting thing about that tape is that he -- it shows the importance of Iraq in the war on terror and today as opposed to before our invasion, and I think one of the interesting questions today is when you go after Zawahiri or Bin Laden, are they still as relevant as they were before the invasion of Iraq, because I think Iraq has created a whole new battlefield.

BLITZER: Has Iraq become the Afghanistan during the reign of the Taliban?

RISEN: That's the question I think that we have to look at. It's become the magnet for jihadis, and it's also creating a whole new environment for and a domestic insurgency from within Iraq.

BLITZER: What do you think?

COLL: I think Iraq's important, but I think what Zawahiri is doing in a tape like that is trying to create the appearance of global leadership and to assert, under pressure in exile as a fugitive, leadership over a war that he really doesn't have a lot of contact with, other than through his statements.

But the appearance of global leadership does have an impact on not just jihadi volunteers in Iraq, but those in southeast Asia and elsewhere in the middle East who may want to see themselves as part of a very powerful organization with global reach.

BLITZER: In your book, you write a lot about this phenomenon that Iraq has in effect evolved as a net plus for Al Qaida.

BERGEN: Well, you know, I think a leading indicator of that is Abu Musab Al Zarqawi, the leading insurgent commander in Iraq, has changed the name of his group to Al Qaida in Iraq and pledged allegiance to Bin Laden as of 2004. So, whether or not that's sort of propaganda or some kind of window dressing, I think it's an indicator that attaching yourself to this Al Qaida ideology and brand is something that even somebody like Zarqawi wants to do.

BLITZER: Let me just review very briefly, because we have to take a break, historically, Al Qaida in Iraq under Saddam Hussein. There's the perception out there that there was a close link, a close alliance. Let me just go through all of you and get your current assessment. What was Al Qaida's operation in Iraq, cooperation with Saddam Hussein before the war started? BERGEN: We've occupied Iraq for some period of time and Afghanistan for some period of time. We haven't found the documents that would prove that link. In my view there's no evidence for that link.

BLITZER: Steve?

COLL: Zarqawi operated in the territory of Iraq that was outside of Saddam Hussein's control prior to the U.S. invasion. So in that sense, Al Qaida was in Iraq, but not in the part of Iraq that Saddam controlled. He did seem to pay some visits, though there's no evidence of significant contact with Saddam's regime.

BLITZER: But was he Al Qaida then, before the war? COLL: He had been a volunteer in Al Qaida-ruled or -influenced Afghanistan. He did not call himself the leader of Al Qaida in Iraq until later.

RISEN: I think there were some tentative contacts between Iraqi intelligence and Al Qaida in the early '90s. They never really went anywhere, and beyond that there's no conclusive evidence that Al Qaida and Saddam ever formed an alliance. BLITZER: Why is it so hard four years after 9/11 to find Osama Bin Laden? God knows, the U.S. intelligence community has devoted an enormous effort to doing exactly that.

RISEN: Well, I think he is doing -- he's really adopted a very good strategy. He's gone to ground in probably the most remote section of the earth that he could find, a place where he's got a lot of sympathizers. You pointed out earlier there's been a lot of Al Qaida leaders arrested in the cities of Pakistan.

And that's I think -- that's because politically for the Pakistani security services, they don't have the same problems of taking on one -- individual Al Qaida operatives, capturing them in a city like you would in a law enforcement operation. When they go into these provinces, it's more of a military operation and it's more of a political problem for them, and so I think the Al Qaida operatives that have gone to the cities have made a major mistake. Bin Laden hasn't made that mistake.

BLITZER: What do you think, Steve?

COLL: I think Jim is right. This is like Alaska, except that everybody in Alaska is sympathetic to Bin Laden.

BLITZER: These tribal areas along the border.

COLL: It's very interesting, the Brits, the British in the late stages of their empire tried a couple of times to control this territory, gave up, and they spent a long time hunting for fugitives in a couple cases up there, some of whom they searched for for decades and who ultimately died of old age up in these hills. It is a difficult place to operate.

BERGEN: It's a problem of finding one person. You know, Pablo Escobar, the famous Colombian drug lord, he was captured and killed, finally, as a result of a joint Colombian-American operation in a city, Medellin, in Colombia, but we knew that he was in Medellin.

We don't even know where Bin Laden is. So it's the problem of finding one person with a support network who's not making obvious errors. People around him are motivated by cash. I don't think they're going to drop a dime on him.

BLITZER: Stand by, guys. We're going to continue this discussion. We have a lot more to talk about. We'll continue with our panel of experts on terror. But up next, we'll have a quick check of what's in the news right now, including some other important developments. Preparations to honor the 12 miners killed in West Virginia. Stay with us.

(COMMERCIAL BREAK)

(NEWSBREAK)

BLITZER: Welcome back to "Late Edition." I'm Wolf Blitzer in Washington. We're talking about spying, the war on terror, with CNN terrorism analyst Peter Bergen, James Risen of The New York Times and of The New Yorker magazine's, Steve Coll.

James Risen, you broke the story with your colleague at The New York Times on this warrantless surveillance, eavesdropping of American citizens as part of the Bush administration's immediate post-9/11 effort.

But you waited -- The New York Times did at least, a year. You sat on this story for a year, and there's been a lot of criticism of that. Explain to our viewers why your editors wanted to wait so long before informing the American public of that story?

RISEN: Well, as I've agreed with the paper not to get into the internal deliberations. I just think that it was a great public service that we did publish this story, and I think we've started a national debate.

And I think the substance of the story is far more important because we now have a debate about the legal and constitutional issues involved with the NSA program.

BLITZER: Was it a matter of you didn't have it hard, you needed more reporting, you needed to get it right, that's why you sat on it, or did you basically have it a year ago the same as you eventually had it when you released it and published it in December?

RISEN: Well, as I said, I'm not -- I can't get into all the details except to say I think it was the right thing to do to publish it when we did publish it.

And now we're -- now we can talk about this, so this whole program that nobody knows about. BLITZER: Why can't The New York Times -- I know that you're under your restricted in what you can say, but I know that even the public editor of The New York Times and others, why can't The New York Times be transparent with its readers and let us know -- and I'm a reader of The New York Times -- let us know the decision-making process, what happened?

RISEN: Well, it wasn't -- it's not my decision, and it wasn't my decision on when to public this story, and it's not my decision on when to discuss it publicly.

All I can say is that I think it was the right thing to do to publish it when we did.

BLITZER: Steve, when you were the managing editor of The Washington Post, you used to have to make these decisions all the time. What do you think of the way The New York Times handled this. I assume you're jealous that The Washington Post didn't have it when The New York Times had it. But what do you think about it?

COLL: Well, it's impossible to evaluate their decision-making without knowing the factors that led them to make the specific calls they did along the way. I certainly respect what they've said in public about their desire to try to balance the public interest in this very important story with the possibility that publishing the wrong kind of story would jeopardize lives and jeopardize irretrievable national security assets.

I know having sat through a few of these decisions myself it's an extremely difficult balance to pull off carefully, and I have nothing but respect for The Times and its editor, so I await the moment when they feel they can tell us more about why they did what they did.

BLITZER: The Washington Post had, I guess, a similar kind of agony they probably had to go through with that story about the secret CIA run, prisons in Europe that caused a huge uproar over there, as well.

COLL: Yes, I was not managing editor at the time that those particular decisions were made but The Post executive editor, Len Downie, has said that he sought a similar kind of balancing and decided that he could publish all of the relevant public interest aspects of their investigation without jeopardizing certain particulars that he was persuaded would unnecessarily or gratuitously jeopardize national interests or national security operations.

BLITZER: You've studied these, both of these stories very carefully, Peter, and you're our CNN terrorism analyst, you've spent a lot of time studying Al Qaida, trying to understand this war on terror.

From your perspective, was there damage done to the war on terror by the information that was released in The New York Times on the warrantless surveillance of American citizens, and on The Washington Post story on the CIA prisons that were supposedly operating in eastern or central Europe? BERGEN: Obviously I'm not in a position to know that, but I would say kind of a larger point perhaps is that I think we've done a lot of things that have been rather counterproductive and that have not served the national interest particularly well. For instance, the rendition program, I think has been sort of a public relations disaster with many of our allies...

BLITZER: Rendition program, meaning? Explain what that is.

BERGEN: Meaning us going to some country X and taking somebody from there and putting them into country Y and having them perhaps being tortured.

The republic has survived two centuries without these kinds of extraordinary measures, and it seems to me that whether it's Guantanamo Bay or renditions a lot of things have been rather counterproductive, have not served the national interest in the sense that they've opened the United States to a lot of criticism.

In Guantanamo, for instance, I think we're in the process of really beginning to kind of close that down, send people back to their home countries -- not everybody, but we're already doing the deals with Saudi Arabia, with Afghanistan, with Jordan, with Yemen, to really return these people and not have this extraordinary prison system that we have. BLITZER: Jim, in your book, "The State Of War: The Secret History of the CIA and the Bush Administration," you write this: "It appears that there was a secret agreement among very senior administration officials to insulate Bush and to give him deniability, even as his vice president and senior lieutenants were meeting to discuss the harsh new interrogation methods."

BLITZER: Explain what happened.

RISEN: Yes, sources at the CIA have told me that the CIA inspector general staff has been told that the CIA management did not brief President Bush personally or formally on the enhanced interrogation techniques that were being used by the CIA in their prisons around the world with Al Qaida and that they briefed Vice President Cheney, NSC Adviser Rice and other senior members of the administration, including, I think, Mr. Gonzales and Mr. Ashcroft at the time, but that it appears that there was a decision that they did not want to go into the Oval Office, sit in the Oval Office and discuss in great detail the very harsh and, in graphic detail, the very harsh techniques that they've been using.

BLITZER: So the president would have deniability?

RISEN: That's what it certainly appears to be, yes.

BLITZER: Knowing how this president operates, knowing his advisers, the vice president -- he was referring to Mr. Gonzales who was then the White House counsel, Mr. Ashcroft who was the attorney general. Does this ring true to you that they would deliberately say to the president, you know what -- they would deliberately make the decision amongst themselves -- we're not going to tell the president about these enhanced techniques -- which, some would argue, a euphemism for torture -- because the president needs to be protected?

COLL: Well, I think advisers to presidents and kings throughout history have tried to insulate their leaders from the most difficult implications of those leaders' decisions in all sorts of situations.

It doesn't surprise me at all. And, in this case, while there's a lot we don't know, if you look at the record that has been published about the antecedents of the enhanced interrogation methods of Abu Ghraib and other episodes, there is a pattern in which the president makes broad decisions and then his advisers implement them. And there's no particular record of them going back and filling the president in on the details. It doesn't mean it didn't happen, but that's what the paper trail, so far, suggests has been the practice in this administration.

RISEN: Just to add one thing: I think it's important that the CIA believes -- the CIA management felt very strongly that they needed approval from the Bush administration before they would go forward and they got that.

They got Justice Department legal opinions and they got very clear guidance from the White House. There's no doubt that the president understood, generally, what was going on, that the White House, the whole Bush administration understood what was going on and the CIA felt very strongly they had much stronger approvals and authorization to do this than the military did at Abu Ghraib.

And so that's not really the question. The question is, how detailed, how graphic do you get in a personal one-on-one meeting with the president of the United States in the Oval Office?

BLITZER; The CIA has slammed your book. Jennifer Millerwise Dyke, the spokeswoman for the CIA director of public affairs -- she said this: "It is most alarming that the author discloses information that he believes to be ongoing intelligence operations, including actions as critical as stopping dangerous nations from acquiring nuclear weapons."

Setting aside whether what he wrote is accurate or inaccurate, it demonstrates an unfathomable and sad disregard for U.S. national security and those who take life-threatening risks to endure it."

That's an extremely serious accusation.

RISEN: Yes. And I think the difference between the United States and other countries is that vigorous investigative reporting, aggressive independent investigative reporting, is critical to a healthy democracy.

And I think it's one of the things that separates us from other countries around the world.

And, you know, I think that we all have to balance the way we look at civil liberties, national security. There's a lot of balancing going on, but I think that, to the degree possible, the American people have to understand the way the war on terror and the war in Iraq are being fought.

BLITZER: The accusation, in, I guess, plain English, that she makes against you is that you're not only undermining national security but you're endangering U.S. lives, compromising what they call "sources and methods."

You've studied this. You've covered this story for a long time. Do you sleep easily given this charge against you?

RISEN: Yes, I -- you know, I think that there is -- I disagree with what she says. I don't think there's anything in my book that will harm national security.

And I think that all of the operations that I've discussed in there are either over with or are something that I believe the American people should know about -- for instance, the NSA operations.

BLITZER: So, looking back, no regrets on anything you reported?

RISEN; No. BLITZER: These are difficult, Steve. I've reported this kind of stuff over the years myself. These are the most difficult kinds of decisions a reporter and his or her editor have to make -- when to go to press or go to air with these kinds of sensitive nuggets, details of national security.

COLL: It's true. There are not that many cases, though, where you possess the kind of detailed information that would jeopardize lives or ongoing operations, and so, it is possible for responsible editors and journalists to work through those relatively rare cases.

After all, you do start from a bias to publish. We live in a free society; that is, the constitutional system in which we all operate, including journalists and editors and, presumably, governments, as well.

And it is in the interest of that system to expose instances where, for instance, any government operates in an extralegal manner, evades constitutional constraints on wiretapping and the like.

And so, you begin those kinds of discussions with a sense of confidence that the public will want to know and has the right to know when the government is perhaps abusing its authority.

BLITZER: We're almost out of time, Peter. But that was the thought and, certainly, a lot of us reporters who have covered these areas over the years - we've clearly had that. But is there a change?

Should there be a change in attitude after 9/11? BERGEN: I think the short answer is no. I mean, the nation has faced much more serious crises than 9/11.

We faced an existential crisis in the Cold War and with the Nazis; 9/11, obviously, was a very big deal, but I think we need to have some perspective.

We're not in a situation where our enemies can simply annihilate us as the Soviets could. Certainly, they can do us a lot of damage. But we have to, sort of, weigh that against the fact that we also want to live in a society where constitutional -- the Constitution is paid attention to.

BLITZER: We're going to leave it right there.

Peter Bergen's new book is entitled "The Osama bin Laden I Know." Peter, thanks very much for joining us.

James Risen's book is called "The State of War: The Secret History of the CIA and the Bush Administration." Thank you very much to you for joining us.

Steve Coll wrote a great book called "Ghost Wars" which we all read. I deeply admire it. You're working on a new book, right?

COLL: Yes.

BLITZER: When is it going to be out?

COLL: Not too soon. Thanks, Wolf.

(LAUGHTER)

BLITZER: Well, hurry it.

(LAUGHTER)

Thanks very much, gentlemen, for joining us.

Coming up next: In case you missed it, we'll have some highlights from the other Sunday morning talk shows here in the United States. We'll be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back. Now, in case you missed it, let's check some of the highlights from the other Sunday morning talk shows here in the United States. On CBS's "Face the Nation," Republican Senator John McCain and Democratic Senator Dianne Feinstein had strong words on Iran's nuclear ambitions.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: There's only one thing worse than the United States exercising a military option. That is a nuclear- armed Iran. Now, the military option is the last option, but it cannot be taken off of the table.

SEN. DIANNE FEINSTEIN (D), CALIFORNIA: I don't think it's a stretch to say that if the Iranians had a nuclear missile, that this president might well use it against Israel. This is one of those times the Security Council of the United Nations has to stand up, and has to take firm action.

(END VIDEO CLIP)

BLITZER: On NBC's "Meet the Press," the former U.S. Ambassador, the Administrator, in Iraq, Paul Bremer, addressed criticism that more American troops should have been in Iraq once Saddam Hussein's government was toppled.

(BEGIN VIDEO CLIP)

PAUL BREMER, FORMER CPA ADMINISTRATOR: Throughout the time I was there, I was focusing on this question of combat capability. And more troops could have been better, more trained Iraqi troops, there could have been more coalition forces. In the end, as it was, we had about the same number of troops when I left as when we got there. My concern at the beginning, by the way, which is the opening of this book, was the looting that was going on.

(END VIDEO CLIP)

BLITZER: On ABC's "This Week," the Senate Judiciary Committee's Republican Chairman, Arlen Specter, offered this response when asked what could be done if President Bush was found to have sidestepped the law by ordering the warrantless surveillance of Americans.

(BEGIN VIDEO CLIP)

SEN. ARLEN SPECTER (R), PENNSYLVANIA: I'm not suggesting remotely that there's any basis, but if you're asking really theory, what's the remedy, impeachment is the remedy. After impeachment, you could have a criminal prosecution. But the principal remedy, George, under our society is to pay a political price.

(END VIDEO CLIP)

BLITZER: And on "Fox News Sunday," the three men trying to become the next House Republican leader weighed in on where they think the race to succeed Tom DeLay stands right now.

(BEGIN VIDEO CLIP)

REP. ROY BLUNT (R), MISSOURI: Over the last seven years, I've counted more votes than anybody else on the House floor. And I'm confident that we are now where we need to be to get this done.

REP. JOHN BOEHNER (R), OHIO: What we've seen over the last week is what I would describe as a poll, each of us polling our colleagues. What really matters is when our colleagues actually vote and have a secret ballot election. We'll see where the votes really are. REP. JOHN SHADEGG (R), ARIZONA: We need a clean break from the past. We need a new image. And we need to clean up these kinds of issues so that the American people can look back at our substantive agenda, which I think is vitally important.

(END VIDEO CLIP)

BLITZER: Highlights from some of the other Sunday morning talk shows here in the United States. Highlights on "Late Edition," the last word in Sunday talk. Up next, the results of our web question of the week, What's the best way to handle Iran's nuclear program? Diplomacy, sanctions, or military action? We'll get the answers. We'll be right back. First, though, this.

(BEGIN VIDEOTAPE)

BLITZER: What's her story? Carole Keeton Strayhorn is taking on Texas Governor Rick Perry this fall, a race that's sure to be watched at the White House, where Strayhorn's son, Scott McClellan, is President Bush's press secretary. Strayhorn is a Republican, but she's leaving the GOP and running as an independent, sidestepping a touch primary fight against Perry in March.

Strayhorn's announcement raises questions of loyalty for McClellan. Should he stand by his mom, or stay on message for the incumbent Republican? McClellan said his mom has his full support.

(COMMERCIAL BREAK) BLITZER: Our "Late Edition" web question asks, What's the best way to handle Iran's nuclear program? Here's how you voted. Fifty- five percent said diplomacy, 18 percent said sanctions, 27 percent said military action. Remember, though, this is not a scientific poll.

That's your "Late Edition" for this Sunday, January 15. Please be sure to join us next Sunday and every Sunday at 11 a.m. Eastern for "Late Edition," the last word in Sunday talk. I'm Wolf Blitzer in Washington.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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