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THE SITUATION ROOM

Injured Marine Details Events Leading up to Haditha Massacre; Predictions for Upcoming Hurricane Season; Sen. Hillary Clinton Officially Announces Bid for Reelection; Homeland Security Department Under Scrutiny over Anti-Terrorism Funding

Aired May 31, 2006 - 19:00   ET

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


WOLF BLITZER, CNN ANCHOR: Thanks very much, Lou. To our viewers, you're in THE SITUATION ROOM, where new pictures and information are arriving all the time. Standing by, CNN reporters across the United States and around the world to bring you tonight's top stories.
Happening now -- its 2:30 a.m. in Tehran, where Iran is reacting to a striking turn around by the Bush administration. We'll hear what the Iranians make of the U.S. offer to have direct nuclear talks and we'll go one on one with the Secretary of State Condoleezza Rice.

And it's 7:00 p.m. here on the east coast. Are the two main targets from 9/11 being shortchanged when it comes to anti-terror funding? Why there's outrage tonight in New York City and Washington, D.C.

And Hillary Rodham Clinton gets a rousing sendoff for her second term senate campaign. Could she find similar success in a presidential run? I'm Wolf Blitzer, you're in THE SITUATION ROOM.

Tonight, Iran reacts. For the Bush administration, it's a stunning turn-about, after a quarter century, an offer of direct talks on Iran's nuclear program. For Iran though it's, quote, a propaganda move. According to the "Associated Press," Iran's official news agency is now flatly dismissing the latest U.S. offer, saying it doesn't meet Iran's interest. The offer of talks came, though, as a significant shift in Bush administration policy.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES OF AMERICA: Our message to the Iranians is that, one, you won't have a weapon, and, two, that you must verifiably suspend any programs, at which point, we will come to the negotiating table to work on a way forward. I thought it was important for the United States to take the lead, along with our partners. And that's what you're seeing, you're seeing robust diplomacy.

(END VIDEO CLIP)

BLITZER: But along with that robust diplomacy the U.S. is holding other options, as well. Let's get some more on this latest U.S. offer from our national security correspondent David Ensor. David? DAVID ENSOR, CNN NATIONAL SECURITY CORRESPONDENT: Wolf, the secretary of state made the announcement, saying the U.S. is ready to sit down next to its European allies and talk directly with Iran about the nuclear impasse. But she set some tough conditions.

(BEGIN VIDEOTAPE)

CONDOLEEZZA RICE, SECRETARY OF STATE: As soon as Iran fully and verifiably suspends its enrichment and reprocessing activities, the United States will come to the table with our E.U. colleagues and meet with Iran's representatives.

ENSOR: Rice stressed the talks would not be bilateral, and Iran would first have to satisfy the world that it had stopped all uranium enrichment work. She said the U.S. and the other permanent U.N. Security Council members plus Germany are almost finished on a package of rewards and punishments offering Iran two roads.

RICE: One is a set of benefits, should Iran to agree to negotiate and negotiate in good faith, having suspended its program. But quite clearly also a set of penalties, or a set of potential sanctions, should Iran not be willing to act in good faith.

ENSOR: A senior administration official told CNN the initial sanctions if Iran refuses the offer would, quote, hurt. But they would not include sanctions on Iran's oil and gas exports.

KEN POLLACK, BROOKINGS INSTITUTION: There's no question that this gesture is going to divide the leadership in Tehran and is going to provoke a major debate over how to respond. At the end of the day, it is likely to be Iran's supreme leader, Ali Khomeini who makes the final decision. The key is that we don't really know what Khomeini is going to decide.

(END OF VIDEOTAPE)

ENSOR: Rice travels to Vienna with aides saying she hopes to reach final agreement there with Russia, China, and the Europeans, on the carrots and the sticks for Iran to choose from. Wolf?

BLITZER: David Ensor reporting. Coming up, my one on one interview with the secretary of state Condoleezza Rice, we'll talk about this latest U.S. offer of direct talks with Iran and also what's going on in Iraq right now. Meanwhile, in Iraq, the insurgency rages on. Bombings and ambushes today left at least 22 people dead, dozens more were wounded. The violence has been spreading south to the oil rich city of Basra, where Iraq's prime minister has now declared a state of emergency, vowing to use, in his words, an iron fist. New details, meanwhile, are also emerging about last November's killings of some two dozen Iraqi civilians in the town of Haditha. President Bush today said he's deeply troubled by reports of an alleged massacre there by U.S. Marines.

(BEGIN VIDEO CLIP)

BUSH: If in fact these allegations are true, the Marine Corps will work hard to make sure that culture, that proud culture will be reinforced, and that those who violated the law, if they did, will be punished.

(END OF VIDEO CLIP)

BLITZER: As investigators try to piece together the story of what actually happened in Haditha, let's get some more from CNN's Brian Todd. Brian?

BRIAN TODD, CNN NATIONAL CORRESPONDENT: Wolf, some of those details are just now coming out. A key part of the story comes from one young marine who was with the company involved in the alleged massacre, and was wounded in the attack that might have triggered it.

(BEGIN VIDEOTAPE)

TODD: At the center of the Haditha investigation, what happened when marine corporal James Crossan was unconscious? Crossan is barely 21 years old and scarred.

CPL. JAMES CROSSAN, U.S. MARINE CORPS: Sometimes I break down.

TODD: These past six months Crossan says, he's battled addictions to pain medication and alcohol. Battled sleepless nights, once waking up, screaming the name of his buddy. The name tattooed on his calf. Lance Corporal Miguel T.J. Terrazas. Terrazas was at the wheel of a Humvee last November, Crossan just inches away, as they drove away from what Crossan calls the cop, a command outpost in Haditha. They were struck by a roadside bomb.

CROSSAN: Last thing I knew, we were driving back, and we were, me and T.J. were just talking crap to one another, and next thing I knew, I was down on the ground. And then, passing out again, and that day haunts me, because, when we were at the COP, I was going to switch positions with him and drive back, and I don't know, I just didn't go through with it.

TODD: The explosion killed Terrazas instantly, broke Crossan's back, sent shrapnel into his body. Asked if he's spoken with Terrazas' family --

CROSSAN: No. Can't build up the courage to talk to them.

TODD: Making matters worse, what happened in those hours after Crossan lost consciousness? It was Terrazas' death, investigators believe, that might have triggered Crossan's mates in KILO Company to go on a rampage, allegedly killing 24 unarmed Iraqi men, women and children.

CROSSAN: If someone does get hurt, you are going to get angry, and you are going to want to retaliate, and some decisions that were made were bad ones, so -- I can't speak on behalf of them, because I wasn't conscious at the time.

TODD: Asked what those bad decisions were --

CROSSAN: Well, the innocent Iraqis that were murdered, or killed.

TODD: Crossan believes the investigation may not reveal the entire truth about Haditha, because of what he implies is a code of silence.

CROSSAN: I'm sure that some of them feel bad about it and they want to get it off their chest. But they know that they would be ratting on their family.

(END OF VIDEOTAPE)

TODD: We contacted the U.S. Marine Central Command about that comment from Corporal Crossan, and his characterization that bad decisions were made in Haditha. Lieutenant Colonel Sean Gibson responded in an E-mail quoting in part, "The investigations are on- going, therefore any comment at this time would be inappropriate and could undermine the investigatory and possible legal process." Wolf?

BLITZER: Brian, thank you very much. Brian Todd reporting. Closer to home now, a new hurricane season starting tomorrow, only hours from now in fact. There are -- amid all of this, some troubling new reports about what we might be in for, especially in New Orleans, which is still reeling from Hurricane Katrina. CNN's Tom Foreman is here in THE SITUATION ROOM with the latest forecast. Tom?

TOM FOREMAN, CNN NATIONAL CORRESPONDENT: Wolf, it's like the old country music song, the last thing we needed the first thing this morning was to wake up to headlines like these. Take a look at what we had last year when we had the hurricane season. We had all these storms that came sweeping in over this huge area. That's what we're expecting from the latest forecast, again, for another terrible summer.

(BEGIN VIDEOTAPE)

FOREMAN: 17 named storms, 9 hurricanes, 5 of them major, an ominous forecast on the eve of the 2006 hurricane season. But there's good reason to heed this prediction. William Gray and his tropical meteorology project at Colorado State University predicted one of the most active hurricane seasons on record. Turns out, it was the most active. And this latest forecast, identical to one he put out in April is in line with the official government forecast. Of the nine hurricanes Gray predicts this season, he says five of them will be category 3 or above, with sustained winds of at least 110 miles an hour and storm surges of at least nine feet. Gray says there's a 69 percent probability one of those storms will hit the U.S. east coast, including Florida, where a new campaign is urging residents to get a hurricane plan in place.

COMMERCIAL: Go to Florida disaster.org. There, you'll find a planning tool to help you develop your plan. It takes just a few minutes. And you'll have a plan to better protect your family when a hurricane threatens.

FOREMAN: They're making lots of plans in New Orleans, too, having learned the lessons of Hurricane Katrina. But even as the city struggles to rebuild, a new report is raising new concerns. Some parts of New Orleans, according to the study, are sinking faster than others, and more than anyone realized, upwards of an inch a year. The report blames the sinking called subsidence on a combination of overdevelopment, drainage and natural seismic shifts.

Experts say it could help explain some of the levee failures during hurricane Katrina, but it also raises some disturbing new concerns for a city struggling to rise even as it falls.

(END OF VIDEOTAPE)

FOREMAN: If we go in just a little bit closer, you can see more of what we're talking about in New Orleans. Right in this area all of the blue areas in the outline, those are the areas that are sinking the fastest. Nonetheless, it's a long-term issue that has nothing to do with the rebuilding or protection of New Orleans right now for this season. But something to remember, all of these storms as they come in, even if they're big, it depends on where they hit. And the trick is this. Much, much, much of the growth in this country, over the past several years has been all along the coastline. Many more targets out there than their used to be just 10 years ago.

BLITZER: Good point. Thanks very much, Tom. The official hurricane season starting tomorrow.

Jack Cafferty is in New York, he's joining us with "The Cafferty File." Jack?

JACK CAFFERTY: You're not going to scare me. The Department of Homeland Security, Wolf is going to hand out $740 million to communities all around the country. That's the good news. The bad news is, these 46 areas are considered likely targets for terrorists. Three cities that were passed over last year, Memphis, Ft. Lauderdale, Orlando all qualified for funding this time around. Grants used to be based on population but now the department is mostly awarding the money based on a city's threat risk and how effectively it will use the funds.

Ironically the two cities targeted in the 9/11 attacks will get less money this year in order to spread out funds to other cities considered to be in danger. New York City will get a lot less. They'll get $124 million this year, down from $207 million last year. Republican Congressman Peter King is outraged. He says it's disgraceful and that as far as he's concerned the administration has declared war on New York. Here's the question -- How would you feel if your city was given more money to fight terrorism? E-mail your thoughts to CaffertyFile@CNN.com or go to CNN.com/CaffertyFile. Wolf?

BLITZER: Jack, thank you very much.

Coming up here in THE SITUATION ROOM, candidate Clinton. The former president is at his wife's side as she launches her bid for a second term in New York. Is this, though, just a dress rehearsal for a run at the White House?

Plus, third party candidate. Voters on the lookout for the next Ross Perot. Is that going to happen in the race for the White House? And nuclear negotiations. The U.S. opens the door to talks with Iran, if Iran stops its uranium enrichment program. Will it lead to a diplomatic breakthrough or a standoff? The secretary of state, Condoleezza Rice, is in THE SITUATION ROOM. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Senator Hillary Rodham Clinton is officially running. But tonight, some are asking for what. Our Mary Snow is in New York. She has more. Mary?

MARY SNOW, CNN CORRESPONDENT: Wolf, Senator Hillary Rodham Clinton was the main attraction here in Buffalo as she officially kicked off her bid to seek a second term in the senate. The question many are asking, though, is can her popularity extend beyond New York?

(BEGIN VIDEOTAPE)

SNOW: It was a scene reminiscent of political conventions past. But this time, it was Senator Hillary Clinton in the limelight, with former President Clinton playing the supporting role. The music that accompanied them seemed to put into words what many speculate about. Will Senator Clinton return to the White House, this time as president? She was greeted like a rock star, but she took no questions and never mentioned 2008. She did, however, target the republican administration and congress with predictions of sweeping democratic victories.

SEN. HILLARY RODHAM CLINTON, (D) NEW YORK: We need new leadership and I believe we're going to start seeing that happen this November. We're going to be electing democrats across New York and across America, because Americans know we have to change direction.

SNOW: Direction in everything from Iraq to energy, which she addressed in her speech. A theme for democrats with criticism, there must be positive solution. That's something former President Clinton echoed when I asked him if democrats could win.

BILL CLINTON, FORMER PRESIDENT OF THE UNITED STATES: We just need to keep working on what Hillary tried to do today, making sure people know not just what we disagree with, that the current congress and administration have done, but what our people would do if we elected them.

SNOW: The Clintons insist Senator Clinton is only focused on her senate reelection. But some had other ideas.

SHELDON SILVER, N.Y. STATE ASSEMBLY SPEAKER: I think she's definitely ready to be president of this country and she'll pull the same surprise that she pulled here in New York nationally.

SNOW: But not everyone was so positive.

UNIDENTIFIED MALE: There are others out there that I'm looking at, too. So, whether I would support her or not at this time is hard to say. (END OF VIDEOTAPE)

SNOW: Even though she has no major opposition here in New York and she has a war chest of at least $20 million, Senator Clinton wasted no time campaigning. She enlisted former President Clinton to address supporters in a conference call at a campaign event. Wolf?

BLITZER: Mary Snow in my hometown of beautiful Buffalo, New York. Mary is part of the best political team on television. CNN, America's campaign headquarters.

Zain Verjee also part of that team, she's joining us now from the CNN headquarters with a closer look at some other important stories making news. Zain?

ZAIN VERJEE, CNN CORRESPONDENT: Wolf, police in Alabama tell CNN they found a Birmingham attorney who was kidnapped earlier today. Police say they found the woman at a local motel. Police also say they found the alleged kidnapper who's now in custody. He's expected to be charged with robbery and kidnapping. Earlier disturbing surveillance camera images caught the apparent kidnapping on tape. 34-year-old Sandra Eubank Gregory pulls into a parking lot near her apartment. Take a look at this. She gets out, and then, the gunman apparently forces her back into the car, and then they just speed off.

Today, cyclist Lance Armstrong was cleared of doping in the 1999 Tour de France. The Dutch investigators are blaming anti-doping officials for misconduct in dealing with Armstrong. A new report recommends a tribunal to discuss the possible legal and ethical violations by the world anti-doping agency. Last August a French sports newspaper reported that Armstrong's 1999 urine samples tested positive for an endurance boosting hormone. Armstrong has always maintained that he has never used such substances.

In East Timor, young people slashing their rivals with machetes, burning buildings, looting stores, that's causing a massive wave of fear and uncertainty. And according to one official, causing at least 100,000 people to just flee their homes. Many of the evacuees are trying to find safety in places like churches, community centers, with relatives nearby as well. Weeks of bloodshed started after the government dismissed some of its soldiers back in March.

It's now very cold but once was hot. Scientists say 55 million years ago, the Arctic was as hot as Miami and even had alligators and palm trees. Scientists base the conclusion on samples taken from more than 1,000 feet below the Arctic Ocean floor. The experts say it could be a warning of the dangers of global warming. Wolf? Ever been to the arctic?

BLITZER: Not yet. But I hope to make it one of these days. Thank you Zain.

Still to come, the secretary of state Condoleezza Rice here in THE SITUATION ROOM. We'll talk about nuclear negotiations with Iran, the war in Iraq, also we'll find out what she wants to do when her tenure as secretary of state comes to an end. Also, terror funding outrage. The feds cut money going to New York and Washington, D.C. Find out why one U.S. congressman says the government has now declared war on New York. Stay with us.

(COMMERCIAL BREAK)

BLITZER: More now on what Jack Cafferty mentioned near the top of the show, that scathing criticism for the Department of Homeland Security. It's changed the way it allocates anti-terror funds to major U.S. cities, and that has some U.S. officials outraged, especially some members of congress. Once again CNN's Tom Foreman is here in THE SITUATION ROOM. Tom?

FOREMAN: This issue is cutting right to the core of something that terrified people in some of the major cities of the east. And their leaders are responding right now with a lot of concern.

(BEGIN VIDEOTAPE)

FOREMAN: When the government first started giving cities anti- terrorism funds in the wake of the 9/11 terror attacks, there was virtually no question that New York and Washington should get the lion's share. After all, they were the targets. But something is different this year. There's less money to go around, and more cities seen as potential targets. So, the Department of Homeland Security is reducing the grants to New York and D.C. And officials in both cities are outraged.

MAYOR ANTHONY WILLIAMS, (D) WASHINGTON: I think it's short-sided for the federal government to cut funds in this way to the district and to the region.

SEN. CHARLES SCHUMER, (D) NEW YORK: Some how this administration thinks that Georgia peanut farmers are more at risk than the Empire State Building. Something is dramatically wrong.

FOREMAN: New York Congressman and Chairman of the House Homeland Security Committee Peter King was even more blunt in a statement, calling the move - indefensible and disgraceful. Adding, "As far as I'm concerned - D-H-S and the administration have declared war on New York City." Still, the metropolitan area is getting, by far, the largest share of the money, more than $158 million. Los Angeles comes in second at $80 million. Chicago, third with $52 million. And the nation's capital, $46 million.

On the other end of the scale, some cities were passed over for funds last year, including Ft. Lauderdale and Orlando, Florida. They are each getting more than $9 million this year. And Memphis, Tennessee, also new to the list, is getting a grant of just over $4 million.

(END OF VIDEOTAPE)

FOREMAN: The Department of Homeland Security says it's changed the formula used for awarding these grants. Now instead of looking at population, it tries to focus on overall risk as well as how cities have used past grants. Under Secretary George Foresman says, "At the end of the day, our job is to make sure that we apply our resources in an appropriate manner across the full breadth of this nation, so that we get the maximum benefit out of those dollars."

Obviously some of the big cities are very concerned about this, and they're used to being heard unless those Georgia peanut farmers all across this country also want to be heard when it comes to their security. Wolf?

BLITZER: Tom, thank you very much. And to our viewers, remember, stay tuned to CNN day and night for the most reliable news about your security. And don't forget Jack's question of the hour specifically gets to this issue. How would you feel if your city was given more money to fight terrorism?

Just ahead, did the Bush administration blink in the nuclear showdown with Iran? That and much more, my interview with the secretary of state, Condoleezza Rice, that's coming up next.

And have Americans had enough of the bickering and backstabbing in Washington? Is it time for a bipartisan presidential ticket? Is it time for a third party? Another Ross Perot on the horizon? We're going to tell you about a new movement getting started on the Internet.

(COMMERCIAL BREAK)

BLITZER: Welcome back to THE SITUATION ROOM. I'm Wolf Blitzer in Washington. Let's get back to our top story now. Iran is reacting to a striking shift in policy by the Bush administration, an offer of direct talks on Iran's nuclear program. Iran is calling it, quote, "a propaganda move." According to the "A.P," the "Associated Press," Iran's official news agency says the offer doesn't meet Iran's interest. The U.S. offer was made by the secretary of state, Condoleezza Rice. Shortly afterward, I sat down with her for this interview.

(BEGIN VIDEOTAPE)

BLITZER: Madam Secretary, thanks very much for joining us.

Let's talk about Iran. This is a country that supports terrorism, is that right?

CONDOLEEZZA RICE, SECRETARY OF STATE: It's absolutely right. It's a country that supports terrorism. It's a country that has a president who has said the most terrible things about the Israeli government. And it is -- about Israel. And it is indeed a country that does not give freedoms to its own people.

We are not by any means confused about the nature of this regime. In fact, the nature of this regime makes it even more urgent that the world's insistence that Iran not get a nuclear weapon be carried out.

BLITZER: Here is what the president said after 9/11 on countries that support terrorism. He said, "America has a message for the nations of the world. If you harbor terrorists, you are a terrorist. If you train or arm a terrorist, you are a terrorist. If you feed a terrorist or fund a terrorist, you're a terrorist. And you will be held accountable by the United States and our friends."

You were the president's national security adviser when he said that. Does this look like the United States is making concessions to what you would regard as a terrorist regime?

RICE: The United States is supporting an international consensus that has been developing for the last year and a half that Iran must not be allowed to get a nuclear weapon, that Iran has but one choice. And that is to abandon its nuclear weapons ambitions, or it can face the path of isolation. That's what the United States is supporting here.

BLITZER: But you understand your critics on the right will say that you blinked.

RICE: Let's be very clear, Wolf. The United States is holding to conditions that have been set for some time with Iran. Conditions that we have been supporting in the negotiations with the European 3, that Iran must first suspend verifiably and fully its enrichment activities.

We do not want Iran to continue its march toward a nuclear weapon, toward industrial capability, industrial production scale capability by the end of the year. We want Iran to come back to negotiations, negotiations that we have been supporting, and that we would now be prepared to join if Iran suspends.

But let me very clear what this is not. This isn't some sort of grand bargain. This isn't an offer of normalization of relations. This isn't an offer of, let's let bygones be bygones and we'll try to establish a new relationship.

This is a very specific choice that is being given to Iran: abandon your nuclear weapons ambitions or face isolation. And we need it -- and we need now to sharpen that contradiction and to make it possible to know whether Iran intends to negotiate seriously or not.

BLITZER: As you remember, American diplomats were held hostage by Iran for 444 days in 1979, 1980. And since then, the United States has avoided any direct diplomatic contact with Iran. Since then, in recent months, Iran has formally gone ahead and started to enrich uranium.

Why, once again, will the critics argue, are you rewarding Iran for what you yourself would regard as bad behavior?

RICE: I can only speak to the international consensus in which the United States is a part that Iran has a choice, a choice to abandon its nuclear weapons ambitions through negotiation and diplomacy, which the president has said that he fully supports, or to face the path of isolation.

We are not going to engage in a grand bargain with Iran. We are not going to engage in bilateral talks with the Iranians to talk about improving the general relationship with the United States. We are not going to talk with the Iranians, negotiate with the Iranians somehow about the terms of terrorism.

Terrorism is wrong. There is nothing that can be said about that. But Iran needs to understand it is time to abandon its nuclear weapons ambitions. It is in everybody's interests, the interests of the United States, the interests of states in the Persian Gulf, the interests of the world, that we give diplomacy its very best chance so that Iran will abandon those nuclear ambitions.

BLITZER: What are the chances that Iran, the president, Ahmadinejad, will accept the condition that you put forward today that Iran stops enriching uranium? What are the chances that the Iranians will abandon its nuclear weapons program and then the U.S. would begin to participate in these multilateral talks with the Iranians?

RICE: Well, we're about to find out.

BLITZER: But what do you think the chances are?

RICE: We are about to find out if the Iranians are serious. They have said all along that, yes, they want a negotiated solution. Now they have a chance for a negotiated solution if they're prepared to suspend their enrichment programs and to negotiate seriously.

I can't judge what the Iranian regime will do. I hope that the Iranian regime will take this path that has been opened to them. But if they don't, it is also very clear that if they're not prepared to negotiate, that we're going to go to the Security Council, we are going to bring sanctions and isolation against Iran.

We're going to continue anyway to work with our friends and with like-minded states to protect ourselves from proliferation, to counterterrorism around the world. That continues regardless.

BLITZER: If the Iranians reject this overture and you go to the United Nations Security Council and seek sanctions against Iran, will the British, the French, the Germans, will the Russians and the Chinese support those sanctions?

RICE: We have an understanding, an understanding that, by the way, comes out of our meetings in New York a few weeks ago that this is a matter of two paths. And there will be a document that memorializes those two paths.

On the one hand, Iran can choose to negotiate, and there are certain benefits associated with that. On the other hand, Iran can chose to refuse to negotiate. And then we will go to the Security Council and we will seek sanctions.

We understand that. The Europeans understand that. Our other partners understand that. And this move by the United States to enhance the power of a negotiating track gives us a very strong ground from which to say to our partners Iran now faces a choice, it's a choice that they must make now.

BLITZER: And if in the end they continue to pursue a nuclear weapon, despite the sanctions, despite the pressures, what is the viability of a U.S. military option to destroy Iran's nuclear capabilities?

RICE: Well, the president is not going to take his options off the table, but we believe that diplomacy has plenty of room to go here, because Iran cannot tolerate the type of isolation the international community can bring against Iran in a unified fashion. But we don't want to let this go on any longer with Iran pretending that it might want negotiations. Saying one day, "Oh, we're interested in the Russian plan." The next day, "Oh, we'd like to go back to negotiations with the Europeans."

Let's find out. It's time to find out if the negotiating track is real. If it's real, we're prepared to negotiate. If it's not real, and Iran is not prepared to suspend -- by the way, a condition that the Europeans set, not the United States -- then it's time to pursue other means.

BLITZER: Well, describe what other means are?

RICE: We have sanctions that can be imposed, political sanctions, financial sanctions, economic sanctions that can be imposed. The Security Council can bring its weight to those sanctions.

But this is an opportunity. It's an opportunity for Iran to take the right step for its people, for the region, and for the international community. And that right step is to abandon its nuclear ambitions.

BLITZER: Have you forgotten about the 444 days when the Iranian regime held those Americans hostage?

RICE: The United States of America and most certainly this administration will never forget what the Iranian regime did to our American diplomats. It will never forget the outrage of that. We will never forget that Iran is still a state sponsor of terrorism, in fact, the key state sponsor of terrorism. And we're never going to forget that Iranians themselves do not enjoy freedoms.

We are not in any way confused about the nature of this regime, but the nature of this regime makes it even more important that it not get a nuclear weapon. And so doing everything we can through diplomatic means to make sure that it does not get a nuclear weapon and that there is an international coalition that will do what is necessary to present that nuclear weapon from coming into being, is made even more important by the character of that regime.

BLITZER: Let me read to you what Ehud Olmert, the prime minister of Israel, told a German newspaper, "Bild", on May 1. "Ahmadinejad talks today like Hitler spoke before seizing power. We are dealing with a psychopath of the worst kind, with an anti-Semite. God forbid this man from ever getting his hands on nuclear weapons."

Is Ahmadinejad like Hitler, psychopath?

RICE: I certainly know that an Iranian president who talks about wiping Israel off the map and who talks about denying the Holocaust is certainly not dealing in any way that a reasonable and responsible president of a country would. It's simply unacceptable.

Again, the nature of this Iranian regime makes it even more important that it not get a nuclear weapon. We don't want to see the spread of nuclear weapons, period. But an Iranian nuclear weapon in the volatile Middle East would be particularly dangerous.

The president has said that he's going to do everything that he can through diplomatic means to prevent that from coming to -- coming to pass. And that is why he has made the decision that we are prepared to join negotiations if the Iranians are prepared to suspend their program. And by the way, if they suspend their program, they're not making progress on their nuclear weapons program. And that's also an important part.

(END VIDEOTAPE)

BLITZER: Up ahead tonight, part two of my interview with the secretary of state. I'll ask her about allegations of a massacre by U.S. Marines in the Iraqi town of Haditha.

Plus, will there be a third-party presidential candidate in 2008? We're going to show you one group on the lookout for the next Ross Perot. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Let's get to my interview with the secretary of state, Condoleezza Rice. This segment on Iraq and the alleged slaughter of civilians last November by U.S. Marines.

(BEGIN VIDEOTAPE)

BLITZER: The president earlier today said he's troubled by these reports of what happened at Haditha, allegedly U.S. Marines massacring about 24 Iraqi civilians. Are you worried about the impact that this incident might have, as far as the U.S. image, in the Arab and Muslim world, and around the world in general?

RICE: Well, first, we're all just worried because of the deeply troubling report. Whatever the impact, it's a deeply troubling report that something like this might have happened. There is going to be a full investigation of it. If the charges are proved, the people will be punished.

That's the way democracies react to circumstances like this but, clearly, no one would want to countenance anything of the kind that is being said to us happened at Haditha. That's our first concern. And, of course, it would be a terrible stain for the United States were something like that to have been demonstrated, but our principle concern right now is to get to the truth.

BLITZER: As far as Iraq is concerned, are you confident that this new Iraqi government can get its act together, bring a real, stable democracy there? So far, even as we speak, they've been unable to get a defense minister or interior minister in place who would be in charge of local police. RICE: I'm confident that this is an Iraqi government that is now permanent, that has been democratically-elected by the Iraqi people. They are people who are serious. They are people who are sacrificing themselves a great deal to bring their country this opportunity for freedom and for stability, and I'm confident that they're going to be able to do it.

We have to give them a little time. You know, every time we have thought and said the Iraqis are not going to make it, they've actually done it, whether it was elections that people said couldn't take place or a constitution that people said couldn't get written or a government that couldn't come into being. They've always more than exceeded our expectations, and I think they will again.

BLITZER: We're totally out of time, but I got to ask you two little questions that you can answer very quickly. NFL commissioner?

RICE: If it's still open, I'd love to at some point. I'm a little busy right now, so it will have to wait.

BLITZER: You're going to pass, right now?

RICE: I think we'll have to have to pass right now.

BLITZER: You're going to serve out as secretary or state until the end of your term?

RICE: As I said, Wolf, my ship has come in. I think I'll have to let it leave port without me.

BLITZER: And what about running for president in 2008?

RICE: I have no desire to be president of the United States. It's not what I want to do with my life.

BLITZER: What do you want to do?

RICE: I love being an academic. I love the world of ideas. I love teaching. I think that when I'm done with this work, I'd love to go back and resume my life in the world of ideas.

BLITZER: Madam Secretary, thanks very much.

RICE: Thank you.

(END VIDEOTAPE)

BLITZER: And up ahead, a party that wants you to help pick its presidential ticket. It's called Unity08. Our senior political analyst Bill Schneider will show us what it's all about.

Plus, happening now, glory and defeat at the fiercest competition in the nation. We're taking you online to the National Spelling Bee. Can you spell you're in THE SITUATION ROOM?

(COMMERCIAL BREAK) BLITZER: Could it the answer to the nation's problems? A Republican and a Democrat running together for the White House in 2008. One movement hopes that's the answer. Let's get more now from our senior analyst Bill Schneider. Bill?

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, things fall apart, the center cannot hold, William Butler Yates wrote. But that was in 1919, before the Internet.

(BEGIN VIDEOTAPE)

SCHNEIDER (voice-over): Iraq. Immigration. The deficit. Gas prices. Unsolved problems. Meanwhile, Washington bickers and postures. Remember the $100 gas rebate?

SEN. RICHARD DURBIN (D), MINORITY WHIP: What does $100 buy you? Two tanks of gas, if you're lucky.

SCHNEIDER: Enter unity08.com. A new party, not quite. It's an Internet based movement aimed at electing a bipartisan ticket in 2008. A condition for one party for president, and the other party for vice president.

ANGUS KING (I), FORMER MAINE GOVERNOR: The whole idea is to take all the votes that would have gone to the other parties and the win the election. That's the purpose. We're not in this as spoilers.

SCHNEIDER: He's Angus King, former Independent governor of Maine.

KING: The people just want the problems solved. And that was the approach I took.

SCHNEIDER: Voters see politics as the enemy of problem solving.

KING: The general public stands back and looks at all the fighting and the negative ads and stuff, says, who are these people? What are they -- why are they doing this?

SCHNEIDER: Sound familiar?

ROSS PEROT (I), FORMER PRES. CANDIDATE: But in Washington, you have a combination of this theater, images, magic acts and illusions.

SCHNEIDER: The market for an independent candidate is greater now than at any time since 1992 when Ross Perot got nearly 20 percent of the vote. Unity '08 is being started by King and Republican and Democratic political operatives from the Ford-Carter era.

Voters will choose the Unity '08 ticket by voting over the Internet. A presidential campaign is a horse race. Does Unity '08 have a horse, a candidate for president they can rally behind?

KING: A horse is hopefully coming to us. We're not starting with a horse.

(BEGIN VIDEOTAPE)

SCHNEIDER: Unity '08 is relying on the fact that America is an entrepreneurial society. If there is a market, in this case for a new kind of political voice, there's bound to be product. Wolf?

BLITZER: Bill Schneider, thank you very much. Let's move from one competition to another. Top spellers from around the world are in the nation's capital right now, competing in the largest spelling bee in U.S. history.

As we head into the final rounds. Let's get at an online look at the competition, from our Internet reporter, Abbi Tatton.

ABBI TATTON, CNN Internet REPORTER: Wolf, 274 kids at the beginning of the day. Now we are down to just down to 46 still standing. On the official Web site you get all the information about who these contestants are. About 50-50 boys and girls. Mostly public schooled although 13 percent are home schooled. Compare that to a national average of 2 percent.

Some of them are well used to the stress. There are five-year repeaters, those two are still in the running and there is 23,000 words listed at the site if you want to brush up on your skills. If you don't know a word, it puts it in context for you, like Bart slipped a lebkuchen to the Schnauzer, if that clears it up. All the results are coming in online. Wolf?

BLITZER: That's an easy word to spell. Thank you very much. Paula Zahn is an excellent speller. She's joining us from New York with a preview of what's on tap at the top of the hour.

PAULA ZAHN, CNN ANCHOR: Oh, Yes. You don't know how much I use spell check these days?

BLITZER: All of us do.

ZAHN: Saves my life, Wolf. Coming up, we all talk about the fountain of youth, we are going to talk about a controversial medical study that points to a way that we can all live to be 120. But do you really want to spend that long counting every calorie, restricting everything you eat, and starving yourself to live that long? You're going to meet folks who are doing just about that.

We are going to explore one of the most intriguing political question in the country. Is she or is she not running for president? Hillary Clinton. What is the state of her marriage and does it really matter? We'll pose those questions to some smart people, and we hope you join us at the top of the hour. Wolf?

BLITZER: We certainly will, Paula. Thank you very much. Paula Zahn coming up in a few moments. Still ahead, how would you feel if your city is given more money to fight terrorism? Jack Cafferty is standing by with answers to his question of the hour. Stay with us.

(COMMERCIAL BREAK) BLITZER: Check out the bottom line on today's markets. The Dow, the S&P and the Nasdaq all finished on an up note. Jack's in New York.

He's got "The Cafferty File." Jack?

CAFFERTY: Wolf the Department of Homeland Security is going to spread around $740 million to communities considered to be as risk of being attacked by terrorists. Meantime the two cities targeted on 9/11 will get considerably less money this year in order to spread out the funds to other cities. The question is how would you feel if your city was given more money to fight terrorism.

Gabrielle of Brookline, Massachusetts. "I think we should balance the budget before we start hemorrhaging money to put bullet proof vests on dogs and bridges to nowhere and every other ridiculous frenzied money fiesta that comes our of congress. This government wouldn't know what to do if we had another terrorist attack. We are all on our own."

Diane in Houston. "I'd be delighted if Houston got more money for preventing terrorist attacks. We're sitting on roughly one fourth of the petrol chemical and refining capacity in the country and for the most part it is now protected by security guards with flashlights and a chain link fence." That's comforting.

Aaron in Watertown, Wisconsin. "I live in a city of 23,000 people. If Watertown's mayor were to ask for counter-terrorism money, I'd smack him upside the head."

Michael in Los Angeles. "How would I feel? I would feel ashamed that money needed for our dying education system is being used to keep Americans afraid."

Randy writes, "My roommate just said in a voice dry enough to peel wallpaper, "I'd be thinking it was time to move."

Dave in Fort Lauderdale. "I just heard Ft. Lauderdale has received an additional $10 million to combat terrorism. Since this money will inevitably wind up in the hands of Halliburton and Bechtel, I would rather the money be split between you and Zain Verjee so the two of you could host a show between 1:00 and 4:00 p.m.

BLITZER: Good programming ideas down in Ft. Lauderdale.

How do you feel about $8 million going to Omaha, Nebraska?

CAFFERTY: They're cutting $80 some million from New York City. And this was Ground Zero. What the hell is going on here?

BLITZER: It's Washington, D.C. In action, Jack. We'll talk about it a little bit more tomorrow. We're here in THE SITUATION ROOM weekday afternoons, 7:00 eastern as well. Let's go up to New York, Paula Zahn is standing by to pick up our coverage. Paula.

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