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THE SITUATION ROOM

Israeli Troops Battle Hezbollah Guerillas in Southern Lebanon; President Bush's Global Test; North Korea: Missile Diplomacy; Army Ending Halliburton Contract; Khurshid Mahmood Kasuri Interview

Aired July 12, 2006 - 17:00   ET

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


WOLF BLITZER, CNN ANCHOR: 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 today's top stories.

Happening now, killings, kidnappings, and vows of revenge.

It's midnight in Gaza and in Lebanon, where Israel is unleashing an all-out assault on Palestinian militants and Hezbollah guerrillas. In Gaza, strikes to rescue an Israeli soldier. In Lebanon, two other Israeli troops are being held captive.

Israel calls that an "act of war."

The end of what some of calling a billion-dollar boondoggle.

It's 3:00 p.m. in Texas, where a Halliburton subsidiary sees its exclusive contract in Iraq pulled. Halliburton is the company once run by the vice president, Dick Cheney.

And it's 2:00 p.m. in southern California, where a raging wildfire is swallowing up the land. It's already scorched some 26,000 acres. Now residents are running for their lives.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Right now the world's hotspots are reaching full boil and world leaders are pondering how to respond. On North Korea's recent missile launches, today China and Russia offering a new U.N. Security Council resolution different from the one already proposed by Japan. Yet, the Security Council has already decided what to do regarding Iran. The five permanent members will send Iran back before the Security Council for possible sanctions over its nuclear program.

And in the Middle East, Israel is battling Palestinian militants in Gaza and the Hezbollah in Lebanon. Two Israeli troops are being held there. And Israel calls that an act of war. The Israeli defense forces telling an Israeli TV channel that if the soldiers captured by Hezbollah are not returned, Israel will "turn Lebanon's clock back 20 years."

Let's get some more now from CNN Correspondent John Vause. He's on the border between Israel and Lebanon. You're on the Israeli side, right, John?

JOHN VAUSE, CNN CORRESPONDENT: That's right, Wolf.

And from here, Israel has launched airstrikes and artillery rounds targeting Hezbollah training camps and buildings in the southern part of Lebanon. Roads and bridges have also been bombed.

A short time ago, the Israeli cabinet approved a severe response, but says the military operation will be gradually escalated to pressure the Lebanese government. This is offensive by land, sea and air, with the head of Israel's northern command warning that all of Lebanon is now a legitimate target.

So far, eight Israeli soldiers have been killed since this all began earlier today. Three were killed in the initial attack in which the two Israelis were taken hostage. Another four died when their tank hit an explosive just inside Lebanese territory. An eighth soldier was killed by gunfire trying to rescue them.

Here in northern Israel, residents have been ordered into bomb shelters after Hezbollah fired dozens of Katyusha rockets and mortars. At least four people were wounded.

Israel's prime minister, Ehud Olmert, says this goes way beyond an act of terrorism, and he's accused the Lebanese government of an act of war. But amid the celebrations in Lebanon, the government there says it does not condone the actions of the militants from Hezbollah, who are now demanding the release of prisoners held by Israel in exchange for the two Israeli soldiers.

Israel is now facing a hostage crisis on two fronts. To the south, in Gaza, Israeli soldier Gilad Shalit has been held for more than two weeks. Hamas militants there are demanding the release of Palestinian prisoners as well -- Wolf.

BLITZER: John, how did the Hezbollah capture these two Israeli soldiers? Did they cross the border into Israel? What did they do?

VAUSE: This was a routine patrol that the Israeli soldiers were on. They're in armored Humvees. It was a cross-border raid. It looked like it was very well coordinated.

Hezbollah fired Katyusha rockets and mortars to began with. It started at 9:00 local time. By 9:05, Hezbollah guerillas crossed the borders, attacked a patrol, and grabbed the two Israeli soldiers -- Wolf.

BLITZER: All right, John. Stand by. We're going to be coming back to you.

John Vause on the border between Israel and Lebanon.

Let's go to Germany right now. That's where the president of the United States has just arrived, getting ready for the G8 summit in St. Petersburg. First talks in Germany. Ed Henry is our White House correspondent traveling with the president.

How is the White House, officials traveling with the president, Ed, responding to these escalating tensions along the Israeli-Lebanese border?

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Well, Wolf, just about an hour or so ago, when the president arrived, even before that, there had been a very tough statement put out by the White House, basically blasting Iran and Syria, directly blaming them, putting the blame for this escalating violence squarely at their doorstep, saying that they're supporting Hezbollah, and that is the reason for this escalating violence.

I just spoke to a senior official here, adding a little more context, that basically the White House sees an opportunity here to really pounce on Iran in particular as a bad actor. They're already going after Iran because of their thirst for nuclear weapons. The White House sees an opportunity here to repeat the presidential mantra, the new one of diplomacy, diplomacy, diplomacy.

We're going to hear that in Germany, we're going to hear it then in Russia for the G8 summit. But obviously, given the fact that all of these hotspots around the world are bubbling up, if diplomacy does not provide any breakthroughs from Gaza, to North Korea, to Iran, there's going to be a lot more pressure on this president to come up with more than just diplomacy -- Wolf.

BLITZER: All right, Ed. Thank you very much.

Ed Henry reporting for us. He's traveling with the president.

Let's go back to Jerusalem. Government spokesman Gideon Meir is joining us now live from Jerusalem.

Thanks very much for coming in.

How serious is this current crisis right now? We hear words that there's going to be a severe Israeli response. What can you tell us?

GIDEON MEIR, ISRAELI FOREIGN MINISTER: I think it's very serious. And as you rightly said, there's going to be a severe Israeli response, because we cannot tolerate this kind of attack. And within two weeks, we're actually witnessing the same modus operandi, whether it's in the Gaza Strip, or in the northern part of Israel, in our border with Lebanon.

What happened here? About 10 months ago, Israeli moved from the Gaza Strip. There is no presence of Israelis, neither soldiers or settlers, in the Gaza Strip.

We withdrew from south Lebanon. The international community recognized the international border Israel implemented, United Nations Resolution 425. And actually, the Security Council and the international community demanded that the Hezbollah terror organization will be dismantled by the Lebanese government, which is a sovereign government of Lebanon.

And therefore, what our prime minister said today, that we see the government of Lebanon as responsible for what happened this morning on the border between Israel and Lebanon.

BLITZER: What does it mean when the Israeli cabinet authorizes a severe response? Because that could mean a lot. What does it mean from your perspective?

MEIR: From our perspective, it means that Hezbollah will have to pay a price for its aggression. It was unprovoked aggression. The same unprovoked aggression that we witnessed in Gaza.

And unprovoked aggressions will have to be responded by the Israeli government. And, Wolf, you will not expect me right now on the air to spell out what Israel is exactly going to do in the next hour or so, in the next coming days. But we have to expect a very severe response by our defense forces.

BLITZER: The Lebanese ambassador to the United States was on CNN earlier today. And he said this -- he said, "We have our prisoners, they have prisoners. An exchange would be appropriate, and I think it will resolve the problem."

Is Israel open today to an exchange between Israel and Lebanon -- Israel and Hezbollah, along the lines on what Israel has done in the past?

MEIR: Absolutely not. We expect our servicemen, whether it's Gilad Shalit in the Gaza Strip, or the two servicemen which were kidnapped this morning from Israeli soil in a Mafia-style operation, we expect them to be returned to us live and safely, immediately without any preconditions.

No negotiations, because negotiations will -- what will happen, it will lead to another kidnapping. This is a method, a method of terrorism which comes out from the school of terrorism headquartered in Damascus and Tehran.

BLITZER: Last week, the Israeli air force flew over -- flew over Latakia, the summer residence of the Syria president, Bashar al-Assad, clearly a signal to the government in Damascus. Today, the U.S. government, the Bush administration saying that Syria and Iran have responsibility for what has happened.

What are you planning on doing as far as Syria and Iran are concerned?

MEIR: Again, Wolf, I will not go into any operational -- the modus operandi of the Israeli defense forces. But I think it's enough when we are saying that the excess of terror and hatred goes to the two capitals of Syrian and Iran.

BLITZER: Let me give you one more quote from Hassan Nasrallah, the Hezbollah leader in Lebanon. He said this: "No military operation will return the abducted Israeli soldiers. The prisoners will not be returned except through one way: indirect negotiations and a trade."

Was it a mistake years ago for Israel to have those lopsided exchanges, hundreds of Palestinian prisoners released for two or three Israeli soldiers?

MEIR: I am not here -- I'm representing the Israeli government. I don't think it would be right for my position to say whether it was right or wrong.

We hear the voices here in Israel which were also voices in the past. Voices today which said it was a mistake. I can -- what I can say is, what is the policy of the Israeli government today? And that policy today is no negotiation. The return of the three servicemen immediately without any precondition.

BLITZER: Gideon Meir is a government spokesman in Jerusalem.

Thanks very much for coming in to THE SITUATION ROOM.

Let's go to New York right now. Jack Cafferty standing by with "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Well, guess what? Karl Rove, it turns out, was a source in the CIA leak case after all. That's according to columnist Robert Novak, who broke the original story.

He says that Rove, President Bush's chief strategist, confirmed the identity of CIA operative Valerie Plame. So far, the White House has declined to comment on any of this.

But remember when President Bush said this?

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: If there is a leak out of my administration, I want to know who it is. And if the person has violated law, that person will be taken care of.

(END VIDEO CLIP)

CAFFERTY: Oh, please.

Meanwhile, the president continues to insist how dangerous leaks about the government's NSA and banking surveillance programs are.

So, let me see if I understand this. It's a threat to national security to leak information about the administration's secret and possibly illegal surveillance programs, but it's OK for one of Mr. Bush's closest political allies to confirm the identity of a CIA operative? Is that about it?

Here's the question. Now that Karl Rove has been identified as a source in the CIA leak case, what should happen to him?

E-mail us at CaffertyFile@CNN.com or go to CNN.com/CaffertyFile -- Wolf. BLITZER: Jack, thank you.

Jack Cafferty reporting.

And if you want a sneak preview, by the way, of Jack's questions, plus an early read on the day's political news and what's ahead here in THE SITUATION ROOM, sign up for our daily e-mail alert. Just go to CNN.com/SituationRoom.

Up ahead, dozens of homes destroyed, thousands of acres burned. A southern California wildfire burning out of control right now. We'll take you live to the fire lines.

Also, Defense Secretary Donald Rumsfeld in Iraq, visiting as violent surges across the country. We'll have the latest.

Plus, new developments in the giant and controversial Pentagon contract that went to Vice President Dick Cheney's old company.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New developments in the North Korean missile crisis. China and Russia are now proposing their own United Nations resolution, an alternative to a Japanese draft resolution that would punish Pyongyang for a series of missile launches last week.

Let's get the latest from our senior U.N. correspondent, Richard Roth -- Richard.

RICHARD ROTH, CNN SR. U.N. CORRESPONDENT: Wolf, thunder and lightning right now outside, a New York rain storm. Apropos atmosphere for what's going on inside the U.N. Security Council.

(BEGIN VIDEOTAPE)

ROTH (voice-over): After refusing to support a legally binding resolution on North Korea, China and Russia switch tactics and offer their own version.

UNIDENTIFIED MALE: We accept (ph) the format of the resolution and we think that is going a long way towards some wishes expressed by some council -- council members.

ROTH: But the Russian and Chinese draft is softer on sanctions against North Korea and urges rather than demands that North Korea reestablish a moratorium on missile tests. Proponents of the original resolution, the United States and Japan, appreciated the shift by Russia and China, but not necessarily the wording.

KENZO OSHIMA, JAPANESE AMB. TO U.N.: A quick glance of the text shows that there are very serious gaps on very important issues.

ROTH: So the diplomatic deadlock remains. More than a week after the missile launches, the U.N. Security Council has yet to respond.

The U.S.-Japanese camp doesn't think the Russia-China resolution goes far enough in punishing Pyongyang. The U.S. and Japan have been waiting with little result for any positive news from a Chinese delegation's visit to North Korea. The U.S. and Japan insists they are ready to put up their own resolution for a vote.

China issued a warning.

WANG GUANGYA, CHINESE AMB. TO U.N.: If that draft is put to a vote without any modifications, then instructions from me is to veto it. It's clear.

ROTH: The hot plate is getting hotter. North Korea has succeeded so far in harming Security Council unity. The Iran nuclear issue has also been referred back to the fractured Security Council.

JOHN BOLTON, U.S. AMB. TO U.N.: This is a case -- a question of whether the Security Council can handle two concrete cases, two cases of rogue states that are seeking nuclear weapons and ballistic missile development capabilities that threaten peace and security in their region and peace and security on a worldwide basis.

(END VIDEOTAPE)

ROTH: Ambassador Bolton said the Security Council should consider an act on North Korea first before Iran. But council ambassadors, Wolf, are discussing both nuclear country issues right now -- Wolf.

BLITZER: All right, Richard. Thanks very much.

And coming up in our 7:00 p.m. Eastern hour, the Bush administration's point man right now on North Korea, the assistant secretary of state, Christopher Hill, he'll join us live right here in THE SITUATION ROOM. He'll be in Beijing. He's working the North Korea crisis.

We'll ask him what the latest information is.

"Mission Accomplished," that's how the U.S. Air Force is describing a test of a missile defense system today.

Let's bring in our senior Pentagon correspondent, Jamie McIntyre -- Jamie.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Well, Wolf, can the U.S. shoot down an incoming ballistic missile? Well, yes, it can, and in more ways than one. The evidence came at the White Sands missile range today during a test of THAAD. That's Pentagon speak for Terminal High Altitude Area Defense.

As we see in the video, the tests involved a target missile being hit by a THAAD interceptor missile in the high endoatmosphere that's just inside the Earth's atmosphere. The shoot-down was designed as a test for the launchers, radars and fire control systems, and the successful intercept was described as a bonus.

THAAD is still years away from deployment. It's part of a multi- layered missile defense being developed by the U.S. The idea is, the more different systems you have to throw at an incoming missile, the better chance that one of them will work -- Wolf.

BLITZER: All right, Jamie. Thanks very much.

Jamie McIntyre at the Pentagon.

And still to come, a raging wildfire in California, it's already scorched 25,000 acres so far. And fearful residents are fleeing for safety right now.

And the defense secretary makes a surprise visit to Baghdad, and he does not have positive things to say about the progress of Iraq's police forces.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Happening now, a wildfire burning out of control in the southern California desert. It's already charred 26,000 acres, destroyed at least 30 homes, and it's threatening many, many more.

CNN's Kyung Lah is joining us now from Yucca Valley with the latest.

How bad is it? It looks awful behind you, Kyung.

KYUNG LAH, CNN CORRESPONDENT: It is, but what you're seeing here is actually good news, Wolf.

I'm actually standing on the southern edge of this fire, this 26,000 acre fire. And this is good news.

Firefighters have had a lot of success setting these backfires. This wind, high heat and low humidity, they say, is a recipe for wildfire growth. And it is what they have seen today, 26,000 acres, zero percent containment. And this fire continues to march north.

Firefighters have widened the evacuation area this afternoon to include 100 additional residents of a local canyon community. That's just near where we're standing. Fifteen hundred houses are now endangered, and 30 structures, according to the fire department, have been destroyed.

We are still waiting to hear if any of those are homes or if they are simply out houses. We're expecting those in the next hour or so.

And here is the bad news, Wolf. Firefighters say that the forecast continues to show dry winds, dry, high heat here in the California desert, which does not bode well for fighting this fire -- Wolf.

BLITZER: All right. We'll check back with you, Kyung.

Kyung Lah reporting from the scene.

Let's get some more now here in THE SITUATION ROOM. CNN's Tom Foreman is watching this story develop as well.

What are you picking up?

TOM FOREMAN, CNN CORRESPONDENT: Well, let's get a sense of where this is happening, actually.

If you look out at Los Angeles to begin with, since everybody knows where that is, it's right down here on the coast. You move inland from that, eastern -- eastward, about 50 miles, you come to San Bernardino. And then we move out to the Morongo Valley, which is sort of ground zero for what's happening right now.

Look at this terrain in here: steep hills, sharp canyons, high desert. You're talking about in this whole area 4,000 to 7,000 feet in altitude. That's enough to make a workout for you if you're a firefighter trying to do your work. It's also high desert, where you have a lot of dry areas.

This is one of the target areas we've been watching very closely, Pioneertown. This was built back in 1946 as a place for movie sets. A lot of famous movie stars stayed out there. This is the motel they actually stayed in out there -- Gene Autry, Roy Rogers, Barbara Stanwick, folks like that.

This is one of the areas people watch very closely because it's a historic site, important particularly in California with the movie making business. But beyond that, people are looking out here, to the general Yucca Valley area, and, of course, to the Joshua Tree National Monument.

Still about 20 miles away, but in these rough canyons, where all these things are very dry, it's a tough place to fight fires, tough place to get out of if a fire comes your way.

BLITZER: Let's hope they can contain that.

Thanks very much, Tom Foreman, in THE SITUATION ROOM.

Coming up, Donald Rumsfeld gets a firsthand look at security nightmares in Iraq after a new and brazen attack.

And new details about the terror attack on those commuter trains in India. We're following the investigation and the hunt for the bombers.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Welcome back to THE SITUATION ROOM. I'm Wolf Blitzer in Washington. Today the defense secretary, Donald Rumsfeld, made an unexpected trip to Iraq. The defense secretary says the development of Iraqi security forces has been uneven. "Uneven," his word -- and that army forces are further along than Iraqi police forces. That help is badly needed to try to stem the unyielding violence.

For more on all of this, let's bring in our senior international correspondent, Nic Robertson, in Baghdad -- Nic.

NIC ROBERTSON, CNN SR. INTERNATIONAL CORRESPONDENT: Wolf, the most troubling outbreak of violence today came from the town of Muqdadiya, about 65 miles northeast of Baghdad. At a bus station there, early in the morning, insurgents went in and rounded up 24 people, passengers and bus drivers alike, took them away.

Later in the day, police discovered 20 bodies. They believe those bodies are the bodies of some of those people rounded up earlier in the morning.

In Baghdad, a car bomb in the center of the city killed two people, wounded another two people. And in a restaurant in the south side of the city, a suicide bomber walked into the restaurant, detonated his explosives, killed seven people, wounded 20 others.

This appears to be a recently rising trend, where suicide bombers are now choosing to go into restaurants to target areas where people are crowded, where it appears they know they can kill a lot of people in one go. But quite a bloody day in Baghdad today -- Wolf.

BLITZER: Nic Robertson on the scene for us in Baghdad.

Thank you.

Could this unyielding violence in the country bring about the very event American officials fear most?

(BEGIN VIDEOTAPE)

BLITZER: And joining us now, Major General William Caldwell. He's the chief spokesman for the coalition forces in Iraq.

General, it looks to the outsider like the country is falling apart and getting into the brink of a civil war. How bad is the situation right now?

MAJ. GEN. WILLIAM CALDWELL, MULTINATIONAL FORCE, IRAQ: Wolf, there's no question that we've got some incidents that we're dealing with here in the Baghdad area. But we are by no means out of control.

What you really have are some extreme groups out there that are trying to do sensational attacks, they are sort of desperate, the al Qaeda in Iraq has been severely depleted, they are very desperate right now and they are going out and doing sensational things, they are producing casualties to grab headlines and attention and it's something we're focusing on and readjusting our efforts here in Baghdad to confront. BLITZER: In recent days we put together a list of some of the atrocities that have gone on. On July 9th masked Shiite gunmen abducted at least 40 Sunnis and killed them. Also on July 9th, two car bombs explode near a Shia mosque, 17 people dead. On July 11th, Shiite emergency operator labels a Sunni as terrorist and hangs him and the bottom line in recent days, since the weekend, 100 people have been brutally killed almost in a deliberate fashion, people looking for their I.D. cards, if they seem to have a Shia name, or a Sunni name, and they're dead.

CALDWELL: Wolf, let's take the incident at Jihad (ph) there on the 9th of July. U.S. forces eventually were called on to respond to that where supposedly 40 Sunnis were executed. When we arrived on the scene and assessed the situation, we were able to find 14 dead personnel. I mean, even one is too many but the reporting actually has gotten a little larger than what is actually occurring out there and we've seen that repeatedly lately as if to almost -- to somehow sensationalize what's going on.

There are challenges. There is no question but at the same time, it's not out of control as people are saying. The car bombs. At the same time that we're talking about these incidents you just talked about, I can tell you about four different events where we stopped kidnapping attempts, we being the Iraqi security forces, foiled four kidnapping attempts, stopping cars at checkpoints and freeing people who had been captured, freeing Red Crescent workers and three other local Iraqi nationals.

I can tell you an instance where we defused a car bomb sitting right out near the Green Zone because Iraqi security forces identified this car with literally five minutes left and defused a bomb.

So at the same time some of these things are going on, there's some great things that are happening too that the Iraqi security forces are doing that unfortunately just never reach the attention of anybody.

BLITZER: The defense secretary, Donald Rumsfeld, is in Iraq today. He said this earlier. He said, The problem in Baghdad is basically there are armed groups that roam the place and when our forces go in they disappear. So that tells you something. It's not like you can find an enemy and go in and address them."

A lot of people are wondering, three and a half years or so into this war, and General Casey himself acknowledged that in the short term the U.S. may have to beef up its military presence in Baghdad to deal with this emerging situation.

CALDWELL: Baghdad is the center of the universe here in Iraq. There is no question. As goes Baghdad, so will the rest of this nation and so we have got to put the right focus there. And the insurgent elements, the anti-Iraqi force elements know the same thing and they're focused on Baghdad, too.

And we are going to continue to look and refine this plan. The government of Iraq has had a lot of meetings over the last few days with us there in support of them as they talked about how they might reorient what they're doing inside of Baghdad to further address some of the people acting as illegal groups, operating outside of the law, that need to be dealt with.

There is no question there are some out there and then they are working some plans right now to in fact do that.

BLITZER: Can you - have you been able, the U.S. intelligence community, to confirm that that gruesome video that al Qaeda apparently released the other day of these two American soldiers who were killed in Yusufiyah, that that gruesome video was in fact the mutilation of Private First Class Kristian Menchaca and Private First Class Thomas Tucker?

CALDWELL: We have not been able to positively confirm it at this point although I know they are working on that now to do that verification but what we do know is that the brutality of those groups that did that to those two young soldiers there that were taken and then posted on the Internet as if somehow that brutality being shown on the Internet is somehow glorifying what they are doing. It just shows you the evil that we're confronted with over here and that the poor people of Iraq have to deal with every day themselves.

BLITZER: And this notion that they were killed in revenge for the alleged rape of an Iraqi woman by a U.S. soldier and some others? What do you make of that?

CALDWELL: Wolf, at this point there is absolutely nothing we can find to show any correlation between the two. It appears it's a chance opportunity that they've taken advantage of because we have been so open about the incident we're dealing with down there.

We had an incident down there. We've been very open and transparent about it. We're investigate it and we're going to seek justice in that situation to ensure that justice is done whereas this element that's posted the pictures on the element, they are seeking revenge. They have no idea what it is to seek justice out there and this is something that the people of Iraq unfortunately have not had the opportunity to experience.

BLITZER: General Caldwell, as I always tell you, be safe over there. Thanks very much for joining us.

CALDWELL: Well, thank you very much.

(END VIDEOTAPE)

BLITZER: Meanwhile, the former dictator Saddam Hussein is on a hunger strike. A U.S. military spokesman says he has refused all meals since Friday, drinking only coffee with sugar and fortified water. The strike is to protest poor security for his defense attorneys, three of whom have been killed since Saddam Hussein's trial. This is also Saddam Hussein's third hunger strike since then.

Coming up, it had no competition for Pentagon Iraqi contracts worth billions. Now, the controversial deal is about to end. We'll have the latest on Vice President Dick Cheney's old company, Halliburton.

And coming up in our 7:00 p.m. Eastern hour, the assistant U.S. secretary of state Chris Hill, he is the Bush administration's point man on North Korea. He's in Beijing right now, he is working the crisis, traveling throughout the region. He's going to join us live from Beijing right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The U.S. army is ending its multi billion dollar contract in Iraq with Halliburton, the company once run by Vice President Dick Cheney. The deal was highly controversial because it was awarded without competing bids. Our Pentagon correspondent Barbara Starr is following the story. She is joining us live. Barbara?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Wolf, the army made the decision to go ahead and rebid that contract to Halliburton, one of the most controversial contracts in Pentagon history. A multi billion dollar contract to provide food, water, fuel, even laundry services to thousands of U.S. troops in Iraq, Afghanistan and around the world.

Now the army had been paying Halliburton between five and seven billion dollars a year as the sole source of this type of work. There have been almost constant allegations, of course, of overcharges, and other contract problems, problems that Halliburton had denied. This was their Kellogg, Brown and Root subsidiary. Halliburton, as you say, the former company of Vice President Dick Cheney.

So what the army is going to do now, they say it's just part of their lessons learned on how to do business better. They're going to open up that contract. They're going to bid as to as many as three companies with a fourth company that they will select to oversee it all. But army officials, Wolf, behind the scenes are already telling us, there are very few companies that can do this kind of work on such a large scale. So they expect Halliburton to bid again and still be in the business. Wolf.

BLITZER: All right, Barbara. Thank you very much.

The death toll from the series of bombings on commuter trains in Mumbai, India, now up to 185 with more than 700 people injured. And new details of the attacks are emerging from the investigation. CNN's Aneesh Raman is joining us now live from Mumbai, formerly known as Bombay. Aneesh?

ANEESH RAMAN, CNN CORRESPONDENT: Well, Wolf, yet to emerge is exactly who was behind these attacks. The Indian prime minister earlier today addressed the nation. He said India stands united but does not mention, nor any has any public official here suggested who was behind the attacks.

Now, all of the assumptions on the ground at the moment is that it was an Islamic militant group operating within Indian, one of the larger ones because of the high sophistication involved in these attacks. Some seven bombs and an eighth outside of the trains taking place in the course of 11 minutes.

But the Indian public and in Mumbai specifically are waiting for something tangible. They do think as well, that they have some leads, that there were timers found in pencils, perhaps within these trains and of course eerie similarities between what happened in Mumbai, what happened in Madrid, what happened in London.

That is also playing into the investigation. Meantime, though, for the families of the dead, they have burned them today as is Hindu custom. I met with some of the families, I went to some crematoriums, they are angered. They are wondering why yesterday it took hours for the communication to come back up. Why people were rushed into government hospitals that were overcrowded. Those that have enough money transferred their loved ones who are injured into private hospitals.

And so as the city itself rebounds and moves forward, it suffered attacks to this before. To this magnitude, not for perhaps with a decade. It does so with these residents who are then resigned, essentially, Wolf, to the fact that this will happen again and the government has no control. But the key dynamic we're waiting for is if the Indian government does, as it has in the past, called upon the Pakistani government to do more and whether it thinks that the Pakistani government and President Musharraf will respond with force to the militants they think are operating in Pakistan in reaction in this attack.

Wolf?

BLITZER: All right, Aneesh Raman, joining us live from Mumbai, thank you.

And I talked about the bombings earlier with Pakistan's foreign minister, Khurshid Kasuri and I asked him about accusations that Pakistan may have played a role in the attacks. Listen to this.

(BEGIN VIDEOTAPE)

KHURSHID MAHMOOD KASURI, PAKISTANI FOREIGN MINISTER: Well, one thing I know, that these people do not wish Pakistan and India's peace process well. They are the enemies of the peace process and we condemn this unequivocally. It's a dastardly act. The government of Pakistan, the president, the prime minister and I have condemned it unreservedly.

BLITZER: Because as you know, there are already statements coming out of India, given the history of the tensions between India and Pakistan, pointing fingers at Pakistan. One former member of the Indian national security advisory board is quoted in the "Wall Street Journal" this week as saying it has all the hallmarks of a terrorist act coming from a militant organization that has got its headquarters and gets its sustenance from Pakistan.

KASURI: Well, let me make a few comments on that. There have been statements from high government officials, civil and military, in which they have admitted publicly and it has been carried widely by Indian newspapers that what they describe as movement across the Line of Control has calmed down drastically.

In some cases they have left it at that and in some cases they have claimed the credit for having defense their and for the effectiveness of the government, of the Indian government ...

BLITZER: You're talking about the Line of Control in Kashmir, the disputed area ...

KASURI: Yes, yes.

BLITZER: Between India and Pakistan.

This is the source of all the tensions between the two governments.

KASURI: Absolutely. And they have themselves said that has been controlled. Now while it is being controlled to a very large extent, in their words, the point is that why should there finger-pointing every time? India is a vast country, it has its own problems, there are attacks in other parts of India. We strongly condemn this incident but there should not be a knee jerk reaction that everything happening in India starts from Pakistan.

(END VIDEOTAPE)

BLITZER: And you can see the full interview with the Pakistani foreign minister, this will air this Sunday on LATE EDITION, 11:00 a.m. Eastern only here on CNN. Let's check in with Lou Dobbs to see what's coming up right at the top of the hour.

Hi, Lou.

LOU DOBBS, CNN ANCHOR: Hi, Wolf, thank you.

Coming up at 6:00 Eastern here on CNN, tonight we'll be reporting on the huge Israeli military assault against Lebanon after the abduction of two Israeli soldiers. The White House today blames Syria and Iran. To discuss Israel and war in the Iraq one of the word's leading authorities, Puati Jami (ph) joins us.

Also tonight, computer hackers successfully gained access to some of the most sensitive information in the U.S. State Department. Have communist China and North Korea declared cyber war against the United States? We'll have that special report.

And the White House and the Senate incapable of dealing with our illegal immigration and border security crisis. Now, states taking action on their own. We'll have that report and I'll be talking with Senator Rick Santorum who is battling for his political life and is strongly opposing his president's immigration policies. We hope you will be with us for all of that and a great deal more at the top of the hour here on CNN. Wolf, back to you.

BLITZER: Lou, do you ever get the sense that between North Korea, Iran, Iraq, Afghanistan, now Israel with the Palestinians and in Lebanon, that the whole world is falling apart? DOBBS: The fact of the matter is as we've been reporting on this network for some years. This is a war against radical Islamist terrorists. And there should be no mistake. I've always said for years that it's a mistake to call it a war on terror, this is a war against a very specific group of people, radical Islamists, and it is global.

BLITZER: Lou Dobbs coming up right at the top of the hour. Thanks very much.

DOBBS: Thank you, Wolf.

BLITZER: The prominent political advisors behind a new Web site call it the online equivalent of a national town hall meeting, a digital nonpartisan forum where millions can discuss and dissect hot political topics. The site's name? "Hot Soup." Internet reporter Jacki Schechner is standing by with more.

Jacki, tell us about this new site.

JACKI SCHECHNER, CNN INTERNET REPORTER: Wolf, Mark MacKinnon was the chief media strategist for Bush/Cheney in 2004 and Joe Lockhart was press secretary for President Clinton.

But now they're coming together as part of a team pooling its funds and its resources to create a new online community that they are calling "Hot Soup." One of the women involved is Alik Fabarino (ph) and she has experience with online community and video and she tells me the goal is to create a place where people can have intelligent bipartisan conversation. The site is set to launch in October and they're inviting leaders in business, entertainment and politics to have open, unedited conversation.

The site is going to be run by Ron Fournier (ph) a former Associated Press political writer. And he's supposed to pose questions and keep the dialogue going. We are seeing plenty of skepticism online already, and that, too, Wolf, is bipartisan. Everything from talking about how the site is going to take immediately to conversation about how you're going to need more than a Web site to fix political polarization in this country.

Wolf?

BLITZER: And I spoke earlier with one of the founders of this new Web site, Joe Lockhart, the former White House press secretary under Bill Clinton, he's very excited about this. And we're going to have him on at some point to talk about this new Web site, "Hot Soup".

Thanks, Jacki, for that.

Up ahead. Karl Rove on Jack Cafferty's mind. He's wondering what should happened now that Rove has been identified as a source in the CIA leak case.

And this note coming up in our 7:00 p.m. Eastern hour. It was the head butt heard around the world. You watched it, you saw it, now the guy who butted is going to tell his side of the story. And it's a story made for our Jeanne Moos. You'll want to see it. That's at 7:00 p.m. Eastern.

(COMMERCIAL BREAK)

BLITZER: Here's a look at some of the "Hot Shots" coming in from the friends at the Associated Press. Pictures likely to be in the home town newspapers tomorrow. Southern Lebanon, smoke rises after an Israeli air raid as people flee in a Mercedes.

Seoul, South Korea, protestors burn the North Korean flag. A police officer is quick to douse it with a fire extinguisher.

Marengo Valley, California. Wildfire rages out of control, thousands of acres on fire. Thousands of acres are on fire.

And in Mobile, Alabama, after early morning rainfall, look at this. A rainbow reaches across the sky. Some of today's "Hot Shots". Pictures often worth a thousand words. Let's go back to CNN's Fredricka Whitfield, she's joining us from the CNN Center in Atlanta with a closer look at other stories -- Fred.

FREDRICKA WHITFIELD, CNN ANCHOR: And Wolf, we have some new pictures coming in to CNN. A Houston news station is reporting 200 people have been exposed to a toxic chemical leak in the city. KHOU television reports that a drum of hydrobromic acid was punctured at a warehouse in northeast Houston. At least six city buses are said to be on the scene apparently to provide mobile triage units for the victims.

Safety inspectors in Massachusetts say that bolts attaching three ton ceiling panels in a tunnel in Boston are lose in more than 60 places. This after a falling panel killed a motorist on Monday. Despite the problems, chairman of the state's turnpike authority says Massachusetts tunnel system is, quote, "safe."

Drug makers are reporting that the FDA today approved the first once daily pill for fighting HIV/AIDS. The new pill combines three medications produced by two pharmaceutical companies. HIV and AIDS patient have traditionally had to take a so-called cocktail of medications that involved many pills a day. Wolf?

BLITZER: Thanks, Fredricka Whitfield reporting. A new report crowns MySpace.com as the most visited Web site in the United States. But is the social networking site really more popular than, say, Yahoo!? Let's bring in our Internet reporter Jacki Schechner. Jacki?

SCHECHNER: You just wanted to say Yahoo! Hitwise is one of those companies that tracks Web traffic and they did just say that MySpace was the most trafficked Web site in the United States, puts it above Google, Yahoo!, Yahoo! mail, even Hotmail.

Well, they also cite growth as one of the reasons. If you take a look here at the blue line, here is MySpace, this is Google. A survey of some 10 million Internet users nationwide. But here is the catch. Hitwise separates out different aspects of Web sites. It separates Yahoo! mail and Yahoo! search. So MySpace may be more visited than each of those separately, but not more than those combined.

Yahoo! says that the hit results are misleading and in a statement they say they are still the most popular Internet destination in the world. And if you tike a look at one of the other Web site traffic tracking sites like Alexa, they do say the same thing. They put Yahoo! number one in the United States, Google number two and MySpace comes in at number three.

Wolf?

BLITZER: My favorite is CNN.com.

SCHECHNER: Me too.

BLITZER: Thanks very much, Jacki, for that.

Up next, Jack Cafferty wondering what should happen to Karl Rove now that he's identified as the source in the CIA leak case. The "Cafferty File" straight ahead. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Let's check back with Jack in New York. Jack.

CAFFERTY: Wolf, the question this hour is now that Karl Rove has been identified as Bob Novak as a source - pardon me -- in the CIA leak case, what should happen to him. Donna in Bremerton, Washington writes, "Fire Rove. He committed an act of treason and should be punished. He along with Novak endangered the lives of many people and put in peril numerous projects that would have benefited our national security."

Peg writes, "What should happen to Karl Rove now? As a former fed I could tell you what would have happened to any of us who did a similar thing. Fired. He should be off the government payroll and out of the White House. Where is some integrity here? Government employees take an oath. And most of us mean it. I guess political employees are above so much things."

Steven in Atlanta writes, "Karl Rove should be put in jail. If he was a source for the leak then the man needs to do time. I am so tired of politicians getting off and getting a slap on the wrist a la Cynthia McKinney for performing illegal acts that anyone else would be fined and jailed for."

Jesse writes, "He should receive the Presidential Medal of Freedom, of course."

Chuck in Macon Missouri writing, "The president should keep his promise and fire him as he said he would. If that should happen then the energy crisis would be solved as well because we could all use flying pigs for transportation."

And Jim in Fort Worth, Texas, "If Rove has violated the law, he should be forced to spend three days listening to reruns of the 'Cafferty File.' That would be punishment for anyone." BLITZER: Did you get any e-mails supporting Karl Rove?

CAFFERTY: Not outright support. We got some suggesting that he wasn't indicted by Fitzgerald and he hasn't been convicted of any crime and those kinds of things."

We didn't get anything, though, of Karl Rove is my favorite all- time American human being. I didn't read anything like that.

BLITZER: So what you are suggesting, what a lot of our viewers, at least, are suggesting, there should be one standard for being fired from the government, another for having criminal charges filed against you?

CAFFERTY: Well, maybe there is two different issues here. And President Bush made it fairly clear - my tie is so crooked I can't even stand it. Pardon me.

President Bush made it very clear that if he found anybody in his White House that was leaking sensitive information to the press, it would be addressed. So if Rove talked to Novak about Valerie Plame, that seems to fit what the president was talking about and the president so far hasn't done anything about it.

BLITZER: We'll see you in an hour, Jack, thanks very much.

CAFFERTY: Yes.

BLITZER: We're back in one hour. Let's go to Lou Dobbs. He is in New York. Lou?

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