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The Situation Room

Mideast on Brink of War?; Interview with Israeli Ambassador to U.S. Daniel Ayalon; Interview with Syrian Ambassador to U.S. Imad Moustapha; Rockets Land in Israeli Port City of Haifa; U.S. Military Concerned For Americans in Lebanon; Middle East Fighting Triggers Oil Market Worries; Valerie Plame Suing White House Officials

Aired July 13, 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, counterstrikes, kidnappings, killings. Can blistering tensions soon cause an all-out war?

Rockets fired from Lebanon reach deep into Israel. Israel is blasting right back, pounding hundreds of targets in Lebanon. And still, two Israelis soldiers are missing in Lebanon.

Now Israel fears Hezbollah guerillas could take them to Iran.

I'll speak this hour with the Israeli and the Syrian ambassadors to the United States about these extreme escalations.

And oil prices surging right now to all-time highs. We'll tell you how Middle East tensions are causing panic amongst supplies.

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

All day, the scene of bitter battles. For the first time ever, rockets from Lebanon hit deep into Israeli territory. Haifa is Israel's third largest city, just 30 miles from the Lebanese border.

Hezbollah denies today's rockets were its. Officials say the rocket launches caused no casualties.

Right now Israel is pounding away inside Lebanon. Israeli warplanes and artilleries are hitting hundreds of targets, including Beirut's international airport and a Lebanese TV station affiliated with Hezbollah.

Meanwhile, Hezbollah is responding by lobbing dozens of missiles into northern Israel, reportedly killing two Israelis. Lebanese officials say 47 people have died since yesterday.

And only moments ago, the United States vetoed a resolution that criticized Israel for its attacks in Gaza. The scale, the scope, the significance of this extreme like nothing seen in the region in some years.

CNN has reporters covering all the angles.

CNN's Ed Henry, he's standing by. He's traveling with the president in Germany.

Alessio Vinci is in Beirut.

Let's go to Haifa first. CNN's John Vause with the latest from there -- John.

JOHN VAUSE, CNN CORRESPONDENT: Wolf, the Israeli military says two Hezbollah rockets hit this port city within the last few hours. It is the first time ever Hezbollah missiles had reached so deep inside Israeli territory. There were no casualties, but the Israeli government says this attack is a major escalation.

Hezbollah, though, says the missiles were not theirs, despite just hours earlier a warning to carry out just such an attack. The militant group, though, has claimed responsibility for about a hundred rocket attacks on Israeli towns and cities in the north.

The tourist town of Nahariya was hit twice, once in the morning, once in the evening. At least one person was killed there.

And the town of Safed, home of Israel's northern command, has also come under fire. Seven Katyusha rockets there killing at least one person.

Israel's military offensive continues across Lebanon with airstrikes. Its navy is blockading the coast. And artillery continues to pound Hezbollah positions in the south of Lebanon.

Israel's defense minister says this is now about more than winning the freedom of two kidnapped Israeli soldiers. Israel wants to drive Hezbollah militants out of southern Lebanon and ensure they never return -- Wolf.

BLITZER: How are the people in Haifa reacting, John, to this attack on the city of Haifa?

Unfortunately, I don't think John Vause could hear me. But let's -- we'll get back to John Vause shortly.

CNN's White House correspondent, Ed Henry, is traveling with the president in Germany.

Ed, fill us in on what the secretary of state, Condoleezza Rice, is telling reporters.

ED HENRY, CNN WHITE HOUSE CORRESPONDENT: Wolf, it's just after 11:00 p.m. here in Germany. We were expecting the White House to turn in for the night, but suddenly Secretary of State Condoleezza Rice, the national security adviser, Stephen Hadley, came out, spoke to a small group of reporters near where I am now. We heard the audio, we have not gotten the tape yet. We will have that shortly. But basically, Secretary Rice was trying to tamp the situation down, calm everyone down, pointing out that the administration is playing close attention to what's happening in the Mideast. But she said the White House doesn't want to get into apocalyptic scenarios.

They don't want people to think this is going to spiral out of control. They're trying to calm the situation down as much as possible. She said the White House is following diplomatic efforts minute by minute, but this is coming at a time the president has a lot of other foreign policy challenges.

(BEGIN VIDEOTAPE)

HENRY (voice over): Chancellor Angela Merkel trying to make the visiting Texan feel at home with a German barbecue. The first one to carve up the boar that's been roasting for hours.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Thrilled to be here. Thank you.

HENRY: But in advance of the G-8 summit, President Bush is trying to shed the tough guy image, playing nice on the world stage while the White House is ripping Iran and Syria for escalating violence in the Mideast.

BUSH: It's really sad where people are willing to take innocent life in order to stop that progress. As a matter of fact, it's pathetic.

HENRY: The president still tried to play the role of peacemaker and find some middle ground.

BUSH: Israel has a right to defend herself. Every nation must defend herself against terrorist attacks and the killing of innocent life. Whatever Israel does, though, should -- should not weaken the government in Lebanon. We're concerned about the fragile democracy in Lebanon.

HENRY: And the precedent sound downright differential to the United Nations when pressed on how long the Security Council has to sanction Iran over its nuclear program.

BUSH: Oh, they've got plenty of time. I mean, the U.N. Security Council, they've got time to react.

HENRY: Compare that to the president in March of 2003, pressed on whether had to wait for the U.N. before launching the war in Iraq.

BUSH: I'm confident the American people understand that when it comes to our security, if we need to act, we will act. And we really don't need United Nations approval to do so.

HENRY: But now on hotspots like North Korea, a cautious president has changed his tune. BUSH: I'm hopeful that we can get some U.N. action on North Korea.

HENRY: The shift has come because the president's image around the world has been battered.

WILLIAM DOBSON, FOREIGN POLICY MAGAZINE: The president has to come sort of with his hat in had, doing the rounds, and hope that others are willing to listen.

(END VIDEOTAPE)

HENRY: Now, in this briefing with reporters just a few moments ago, Secretary Rice hit Syria hard, accusing them of sheltering terrorists from Hezbollah. She also said, "Syria has to act responsibly, bring all pressure to those it is harboring" -- Wolf.

BLITZER: Ed Henry, traveling with the president.

Thanks very much.

And joining us here in THE SITUATION ROOM to discuss all of this, the escalation and the violence, is Israel's ambassador to the United States, Daniel Ayalon.

Mr. Ambassador, thanks for coming in.

DANIEL AYALON, ISRAELI AMB. TO U.S. You're welcome, Wolf.

BLITZER: You earlier were threatening Syria and Iran for what is happening along the border between Israel and Lebanon. What are you going to do about this?

AYALON: Well, absolutely, they are very much responsible for the major escalation that we see. And if we connect the dots of what happened in Gaza with Hamas operations just two weeks ago, what's happening with the Hezbollah, what's happening in Damascus, we see that there is a drive by Damascus and Tehran to upset things in the Middle East, divert attention from the nuclear ambition and the program that they're working on in Tehran, and to upset any chance for political dialogue.

I think it is high time for the internal community to call Iran and Syria to the task and make them understand that there will be consequences that they will pay. And I think with a unified international position, now with the upcoming of the G-8, the U.N., I think it will be very, very effective to stop the escalation.

BLITZER: We heard in the last hour the U.S. ambassador to Iraq, Zalmay Khalilzad, make a very similar point, that the Iranians are trying to deflect attention from their own nuclear program, the criticism it's facing by, perhaps, using its influence with Hezbollah and Hamas to change the subject, to show that they have a card as well.

But let me rephrase the question. What can you do, Israel, against Syria and Iran, if, in fact, as you suggest, they are responsible for this situation? Because so far, what we've seen are attacks against various Hezbollah targets or other targets in Lebanon.

AYALON: Well, a lot could be done. We hope that the diplomatic efforts will suffice, and I think they will. But our main problem now is the Katyushas, the rockets of Hezbollah from the north. And this is what we have to stop.

We have been receiving shells in Haifa, in our major towns in the north. And this has to stop, and this is our main concentration now, is to deal with Hezbollah, to really defang them in such a way that they will not be able to perpetrate such terror attacks and escalation

BLITZER: What was the point of taking out three runways at Beirut's international airport?

AYALON: Very simple. To make sure that there would not be an ongoing supply flow from Syria, from Tehran, to the Hezbollah. They have been using the airport there. They're using other ways as well which we'll have to take care of.

But the airport was one of the outlets or inlets of equipment and explosives to the -- to the Hezbollah. We were quite careful. These runways -- and there were no basic infrastructures that were hurt. So things can be amended there quite easily. But right now, the objective is to deny the Hezbollah arms from Syria and from Iran.

BLITZER: We did see an attack, a second attack at the Beirut airport that went after oil storage facilities. Huge explosions there.

AYALON: The idea right now is, as I mentioned, to neutralize Hezbollah. And we will not allow the Hezbollah to be back on our borders.

Actually, what we are trying to arrange is for the exercise and the implementation of U.N. Security Council resolutions 1559, 1680, which called specifically for disarming the Hezbollah and for the Lebanese army and government to exercise their control all the way over their territory, up to the northern border.

If this is the case, I think all of us will benefit from these very trying hours and days that we are enduring right now.

BLITZER: Should authorities in Syria and Iran be worried about Israeli airstrikes?

AYALON: Well, Wolf, it's not our customs to make all kinds of threats, certainly not over the -- this medium. Certainly we will not discuss any contingency's plans, but I would say it is high time for Syria and Iran to stop playing with fire. And I think there should be consequences. And I think the international community understands that there should be consequences if we do not want to see a further deterioration in the Middle East, further escalation. You are quite right, Wolf, to mention that the Iranians and also the Syrians would like to deflect attention from what they're doing on their nuclear ambitions. Also, they would like to advance their cause. And Iran would like to see an Islamic -- radical Islamic Middle East, a la Iran-style, and they are advancing their pawns right now, and we must stop them. And this is what we will do.

BLITZER: One final question before I let you go. We just heard Condoleezza Rice suggest that Israel should exercise constraint right now. And she's especially concerned about the destabilization potentially of the Lebanese government.

Do you want to respond to that?

AYALON: Well, we have been quite constrained. If you look at the last six years since the abduction of our three soldiers back in September of 2000 -- and this was after our full pullout from Lebanon -- there is not one inch of Lebanon that we occupy -- and for them to do what they did, I think they misinterpreted our restraint for the last six years.

If we do not want to see further escalation, deterioration, violence, this is the time to stop the Hezbollah. And what we're doing is the most effective to stop them.

BLITZER: One of your Israeli colleagues today in Jerusalem suggested that they had indications that the Hezbollah was going to try to transfer those two kidnapped Israeli soldiers to Iran.

Is that true?

AYALON: It is true. And this goes to show again of the direct contact and connections between the Hezbollah and Iran, Hezbollah and Syria, Hamas, Syria, Hamas, Iran.

We're talking here about a network of organizations and countries who would like to destabilize the entire Middle East. Why will not let them

BLITZER: The ambassador of Israel to the United States, Daniel Ayalon.

Thanks for coming in.

AYALON: Thank you.

Let's get some more now.

For that, we're joined by Syria's ambassador to the United States, Imad Moustapha.

Mr. Ambassador, thanks for coming in.

IMAD MOUSTAPHA, SYRIAN AMB. TO U.S.: Hi, Wolf.

BLITZER: You heard earlier from the Israeli ambassador, Daniel Ayalon, that Iran and Syria right now are, in his words -- are playing with fire and it could have serious consequences.

How worried are you that Israel could take retaliatory action against targets in Syria?

MOUSTAPHA: Well, of course, this is pretty preposterous. The only party to blame for this collision of violence in the Middle East is Israel itself with its continuous occupation and with the atrocities it has committed against the Palestinians, particularly in the past two months.

Now, suddenly, it is Damascus once again, and it's Iran once again. Who is to blame for the results of their occupation?

BLITZER: But you acknowledge that it was in recent days, along the border between Israel and Lebanon, that Hezbollah guerrillas crossed into Israel, killed some Israeli soldiers, kidnapped two others, took them back into Lebanon.

Isn't that an act of war?

MOUSTAPHA: Look, for the past -- past decade at least, the Israelis have abducted many Lebanese. They are still in the Israeli prisons. Hezbollah has repeatedly demanded in the past six months that the Israelis should release their prisoners. The Israelis have done even worse things in the Palestinian territories.

BLITZER: But Israel withdrew from Lebanon six years ago.

MOUSTAPHA: Not all of Lebanon. The Shebaa Farms are still under Israeli occupation.

BLITZER: That's a tiny sliver that Syria -- that your government says it's part of Syria.

MOUSTAPHA: But also -- no, we don't say -- we never have said this is a part of Syria. We have always said this is a part of Lebanon.

But, most importantly, Israel continues to have Lebanese prisoners in its prisons, and Israel continues to infringe on the Lebanese sovereignty. Continuously it has done this, without any cessation in the past two, three years. But an important thing...

BLITZER: I don't want to get into a debate over Shebaa Farms right now.

MOUSTAPHA: Yes, of course.

BLITZER: It's a very complicated, small, little area. But do you justify Hezbollah going in and recent days and starting this escalating situation?

MOUSTAPHA: What I do not justify is that -- for the whole world to sit silently watching Israel doing whatever it wants to do. In the past two weeks, Israel has killed many, many Palestinian civilians. Today, Israel has killed tens and tens of Lebanese civilians. Families are wiped out completely.

And what happens? The United States -- this is very important. You have to compare the attitude of this administration to the past attitudes of all -- all past administrations in the United States.

BLITZER: Does the Syrian -- does the Syrian government want these Hezbollah militants to give up those two Israeli soldiers and to calm the situation down?

MOUSTAPHA: Hezbollah has said they want to exchange their imprisoned soldiers with the imprisoned Lebanese.

BLITZER: So do you support that position?

MOUSTAPHA: Would you agree with me that the Lebanese prisoners are also human beings equal to the Israeli soldiers?

BLITZER: But do you support that position of Hezbollah?

MOUSTAPHA: What we support -- what we support is the following: We want a comprehensive solution to the problem in the Middle East. Israel has stopped -- has to stop its occupation of the Arab territories. Israel has to understand that it cannot go on forever with immunity, doing whatever it wants to do.

Only last week they went into the Palestinian territories, they abducted, the Israelis, tens of civilians from Palestine, cabinet minister, elected members of the parliament. Nobody gave a damn about what the Israelis are doing.

Once two Israeli soldiers are captured by Hezbollah, look -- look at the reaction. And the stereotypical reaction of this administration is to blame Syria.

In the past, you know what the U.S. administration would have done? It would have sent envoys to the Middle East, it would have mediated, it would have calmed down the situation. This administration...

BLITZER: The administration isn't just blaming Syria. They are blaming Iran, too.

MOUSTAPHA: Yes. Yes, this administration typically would only blame other parties and they would do nothing. This flagrant bias towards Israel is not helping the situation in the Middle East.

BLITZER: You heard -- maybe you didn't hear what the U.S. ambassador to Iraq, Zalmay Khalilzad, said in the last hour here in THE SITUATION ROOM.

MOUSTAPHA: No, I didn't.

BLITZER: Something similar to the Israeli ambassador, Daniel Ayalon. Said almost the same thing, that they sense that Iran, under great pressure to suspend its nuclear activities, is trying to change the subject now by allowing or encouraging Hezbollah and Hamas to go ahead and kidnap Israeli soldiers.

MOUSTAPHA: There's a dichotomy here. What we say is the following.

Israel is trying to divert attention to what it has been doing to the Palestinians since Hamas was elected democratically by the Palestinian people. Israel has driven the Palestinian economy into collapse. Israel has killed tens and tens of Israeli civilians, including men and women and children in the past three, four months. And everything that is happening has Israel to blame because Israel continues to occupy the Palestinian territories

BLITZER: Is there an alliance now in effect between Syria and Iran?

MOUSTAPHA: No, there is no alliance. Iran is our regional neighbor. We have good relations with all of our neighbors: Iran, Turkey, Jordan Egypt.

We want good relations with everybody. And repeatedly, repeatedly we have invited Israel itself to engage in peace talks with us. It was Israel who categorically refused, because does not want peace to prevail in the Middle East.

BLITZER: That border between Israel and Lebanon had been very peaceful in recent years since the -- relatively peaceful since the Israeli withdrawal in the year 2000. Only two weeks ago you were here in THE SITUATION ROOM, and you said this -- I want you to listen to what you said.

MOUSTAPHA: Very good.

(BEGIN VIDEO CLIP)

MOUSTAPHA: Once the Israelis left Lebanon, Hezbollah has not been involved in any way whatsoever in anything that has nothing -- that has not to do with the Lebanese issues. This should be clear, and we should not believe Israeli propaganda.

(END VIDEO CLIP)

BLITZER: Do you want to clarify what you meant?

MOUSTAPHA: Of course. Let me remind everybody of what's happening.

Israel actually holds Lebanese prisoners who happen to be members of the Hezbollah. Hezbollah has repeatedly invited Israel to engage in a prisoner exchange. It's very similar to what Israel has twice done with Hezbollah with German mediation.

And Hezbollah is saying today the same, we want Israelis, through mediation, through third parties, to involve in a prisoner exchange. Why do you think it's fair for Israel to have Lebanese prisoners while it's not fair for Hezbollah to have Israeli prisoners?

BLITZER: Is there any solution?

MOUSTAPHA: I think the only solution is for the United States to play the role it used to play in the past and to undertake its responsibilities as a superpower, and to impose on its ally, Israel, restraint, not something similar to the -- to the killing that is happening today under destruction in Lebanon, and to ask all parties to involve in real serious peace talks.

BLITZER: Are you afraid of all-out war?

MOUSTAPHA: It is a possibility. Israel is trying to escalate the situation, the tension in the region. We have -- we have to call for restraint.

The United States has a play to role. It is the role of the United States. Today, what did the United States do? It vetoed a United Nation's Security Council resolution.

This is negative diplomacy. We want proactive, positive diplomacy from the United States. The United States has to undertake its international obligations.

BLITZER: Imad Moustapha is the Syrian ambassador here in Washington.

Thanks for coming in.

MOUSTAPHA: You are welcome. Thank you.

BLITZER: And coming up, the Pentagon is closely watching the escalating violence in the Middle East and making contingency plans right now. We're going to take you live to the Pentagon for details and what the United States military could be called on to do.

Plus, a bird's eye view of the region and crisis. Our Tom Foreman, he's standing by with a report you will see only here in THE SITUATION ROOM.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to THE SITUATION ROOM. I'm Wolf Blitzer in Washington, D.C. We're following all the breaking news coming out of the Middle East this hour.

Here are the latest developments.

Israeli warplanes have bombed Beirut's international airport for the second time. Lebanon's health ministry says at least 47 people have been killed since the fighting started yesterday. And two rockets fell on the Israeli port city of Haifa earlier today, no one was injured. Israel's is blaming Hezbollah but that group denies responsibility. Israel's ambassador to the United States is calling the Haifa attack, and I'm quoting now, "a major, major escalation." President Bush says Israel has a right to self-defense but just a short time ago, the secretary of state Condoleezza Rice warned Israel it's important to act with restraint. Israel says it will not let Hezbollah return to southern Lebanon. Yet officials say it's their right to remain on any part of Lebanese soil.

CNN's Alessio Vinci is joining us now live from the Lebanese capital of Beirut with more -- Alessio?

ALESSIO VINCI, CNN CORRESPONDENT: Hello, Wolf, two developments out of Beirut in the last couple of hours. First of all, as you mentioned, an Israeli gun boat has actually targeted a fuel depot at Beirut's international airport, setting it ablaze. We've seen television pictures here on local television showing extensive damage but no casualties.

This is the second strike of course on Beirut's airport. Earlier this morning Israeli air strikes hit all of the three runways of the international airport, basically bringing it to a complete shutdown, re-diverting incoming passengers to Cyprus as well as many of the flights, outgoing flights had to be cancelled.

And a second development that is being reported by several local television stations here carrying an Hezbollah statement including, by the way, one television station that was bombed earlier today by Israel, affiliated with Hezbollah. They're carrying statements from Hezbollah saying that Hezbollah is denying that it has actually targeted Haifa, the northern Israel city as a retaliation attack for what is happening in southern Lebanon.

We do know that those television stations earlier today had reported that Hezbollah would indeed bomb Haifa, should Israel target the southern outskirts of Beirut. That is an area, of course, predominantly Muslim and inhabited by people supporting Hezbollah. But that is not happening, what we have seen tonight is Israeli warplanes dropping leaflets, urging civilians in that area to stay away from the buildings. Wolf back to you.

BLITZER: I'll ask you question I asked our John Vause earlier. He's in Haifa. Are people in Beirut going into bomb shelters tonight?

VINCI: Not in Beirut. But, they are staying home, that's for sure. On a Thursday night here in the middle of summer, there should be people out in the streets, enjoying the evening, drinking, having fun, going to outdoor restaurants. The entire city is completely calm, quiet. Certainly there is a fear here and a feel that something may happen overnight and certainly there is no mood here to party.

BLITZER: Alessio Vinci in Beirut for us, thank you very much. Let's get some more now from CNN's Tom Foreman. He's got a closer look at this region in crisis -- Tom.

TOM FOREMAN, CNN CORRESPONDENT: Let's look first at what Alessio was talking about a moment ago. The attack on the fuel center at the airport here. We move up into Beirut that is Lebanon up here that we're going into right now. This is the airport which as we know from earlier today, there was a strike on the various runways out here earlier today.

But this is the fuel storage area off to one side here that was hit and that you see burning over and over again. But beyond that, let's look at the bigger picture here. A short while ago, you were talking to the Syrian ambassador, let's give you some points of reference here on what we're talking about.

Syria in this region is right over here. There's Lebanon up there, there's Israel down here, here's Syria over here bordering the northern part of Lebanon. A little bit further over, the other one that U.S. is talking about a lot is supporting Hezbollah is Iran over here. Why all of this matters is because of the fight that's been going on in Lebanon involves primarily the southern part of the country.

And if we look at all of the action that we've had along the border here, you see all of these explosions and things have been going on today, all along that border, Israel down below and we've got Lebanon up above. The southern part of Lebanon is where Hezbollah fundamentally functions. They're part of the real Lebanese government, but they also operate largely autonomously in this region.

So Israel has been hammering that region trying to attack the base of Hezbollah, trying to shut down supplies through the airport, trying to shut down supplies through the port. They set up their own blockade out on the port out there, hoping that they can cut off Hezbollah from supplies, and that's the military strategy of this. And the big question politically of course, is the support from Syria, the support from Iran, how much can that help Hezbollah as this goes on.

BLITZER: Tom Foreman thanks very much for that good explanation.

A region in crisis indeed. And these tensions may not directly involve the United States, yet many Americans in the region may still be in danger. Our pentagon correspondent standing by with details, Barbara?

BARBARA STARR, CNN PENTAGON CORRESPONDENT: Wolf, the U.S. military has been watching this situation unfold all day long. They are concerned for a very good reason.

(BEGIN VIDEOTAPE)

STARR (voice-over): Bombed out runways at Beirut International Airport, now forcing the pentagon to plan for a worst case scenario. How to evacuate 25,000 Americans living in Lebanon without using the airport. Military officials tell CNN, it's just prudent contingency planning. But if an evacuation were ordered, it could involve sending in marines by helicopters from ships off shore in the Mediterranean.

Hours before Hezbollah rockets hit Haifa, Israel's third largest city, the U.S. navy had already pulled one of its small ships out of the harbor. Haifa is the southern-most point Hezbollah rockets have ever reached, hitting the city with a strategic port and oil refineries changed the military equation Israel says in its fight against Hezbollah.

DANIEL AYALON, ISRAELI AMBASSADOR TO THE U.S.: They have more than 10,000 rockets, medium range and longer rage. And Haifa, which is about 50 miles or so. 50 miles in the region is a strategic range. So, for the Hezbollah to do that, it's a major escalation.

STARR: Analysts say it's an indication that a Bush administration nemesis may be behind Hezbollah's increased military capability.

JOHN PIKE, DIRECTOR, GLOBALSECURITY.ORG: Iran, which is one of the manufacturers of this the primary source for these rockets, Hezbollah's primary source for these rockets, is doing a lot of work over the last 20 years or so to improve the quality of these rockets, their reliability, their accuracy and their range.

(END VIDEOTAPE)

STARR: The U.S. military clearly wants to stay out of this fight. But they are very aware of potentially Iran and Syria's involvement in backing Hezbollah. One source even telling us, that U.S. intelligence noticed just yesterday, a top Iranian military official was in Damascus -- Wolf?

BLITZER: All right Barbara, thank you very much, Barbara Starr at the Pentagon. Much more on this story coming up. We're going to tell you what's happening right now in the crisis in the Middle East. Also, how is the turmoil affecting oil prices? Guess what, they're reaching record highs today. But will they push even higher? And what are the political considerations in the conflict? We'll discuss all of that in our strategy session. That's coming up.

(COMMERCIAL BREAK)

BLITZER: This just coming in to CNN from the president of Iran, Mahmoud Ahmadinejad, saying this, according to Iranian State Television. "If the Zionist regime commits another stupid move and attacks Syria, this will be considered like attacking the whole Islamic world and this regime will receive a very fierce response." The Iranian president quoted as saying that in a telephone conversation earlier with the Syrian Bashar al-Assad. The situation clearly heating up.

Let's bring in our strategy session right now. Joining us, our CNN political analyst, the Democratic strategist James Carville and CNN political analyst and former Republican Congressman J.C. Watts.

James, you worked in Israel, you were helping Ehud Barak an elected prime minister several years ago. As you see this situation unfolding, looks like the region is teetering right now.

JAMES CARVILLE, DEMOCRATIC STRATEGIST: Oh it is and it's obviously a very serious situation. And most people I've talked to today are of the opinion that things have to get worse before they get better. I haven't talked to a person anywhere in the world that doesn't think it's not going to get worse in the days coming. Now maybe the fact that things are so bad, and they're bad in Iraq, they're bad in Afghanistan, maybe it will force people to sort of focus on this and at least get some breathing room here. There's not a very pretty situation over there right now. People are certainly not very optimistic in the short term.

BLITZER: You studied this situation in the Middle East for a long time yourself J.C.

J.C. WATTS (R), FORMER U.S. CONGRESSMAN: Wolf, there's obviously tension but I don't think this is a necessarily unique situation when you consider this tension has been there since the '40s. And every decade, we continue to go through this.

So, obviously, I think you have to monitor it. I don't like what the Iranian president is saying. I mean there is speculation that he's involved in this and kind of fueling the fire with Hezbollah and Hamas. But nevertheless, it's something that we've seen for many, many decades and it's pretty tense right now.

BLITZER: And it comes right as the president is getting ready for the G-8 Summit in St. Petersburg, Russia, that's going to start tomorrow and go through the weekend. It clearly does change the subject from Iran's nuclear program to the possibility of a real war involving Israel and Lebanon and the Palestinians.

CARVILLE: yes. Who knows, I don't think the Russians are all that disappointed with $76 a barrel oil either, but Putin -- $77 a barrel oil. If you will, you know Wolf, this thing will eventually get resolved. The conflict has been going on for 5,000 years, it won't get resolved. But I mean, hopefully at a point it will get so bad that something will happen and somebody will be able to come in and broker some kind of a temporary deal.

But you're altering the face of Lebanese politics pretty good right here. You really are. What happened is, you know Hamas -- remember, Hezbollah has two seats in the Lebanese government. Hamas won the election in Palestine. And so you got -- how this works itself out, I don't think anybody knows right now.

BLITZER: How does this affect the president's really strong effort to promote democracy in the Middle East? Because Hamas was democratically elected, Hezbollah was democratically elected in Lebanon to the parliament.

WATTS: Wolf you hope -- and I think that theory that ideology is still in tact and I still think that's a civilized way to go to continue promoting democracy. But I think you have to recognize, that this tension is nothing new. It's not unique. It's been happening, as James said, for many, many years. But I do think that, you know, over the G-8 Summit, I do think we'll see some focus there.

I think you'll see some of those entities getting involved and calling on center heads to prevail. But I think another thing Wolf, we've talked about the Gaza strip that land give-away. I think it proves that that's been a failure. You've got to deal with these types of people. I think the way that Israel is trying to deal with them ...

BLITZER: You don't think the Israelis are overreacting?

WATTS: You know, you always have to be careful how you use force, how you react. But I think we've seen that in spite of the fact that they tried to compromise, in terms of the Gaza land, it didn't work, and the terrorists and the bad things continued to happen. So this is a way they've retaliated.

BLITZER: Put on your political hat for a moment. How does this affect the politics which has been humming along here in Washington, this new crisis in the Middle East?

CARVILLE: I'll give you both theories. One theory says that the president is the leader of the world. The world is in a state of disarray. That will hurt the president. Another theory, this will be fast, people will say the world is in disarray, it's a dangerous world, but that may help the Republicans, it'll help the president and people may rally around the president because it's so dangerous. Take your pick, theory one or theory two.

BLITZER: What's your opinion?

CARVILLE: It looks like theory one is operative now because the world's been in disarray for some time and the president's poll numbers are not very good and neither are the Republicans. So I think that people would like to see a little more order in the world and its increasing disorder. My guess is, but to be fair, there are a substantial number of people I'd say that this would actually help the president down the road.

WATTS: Well I would hope that people would understand and I think those two theories are in play. But I would hope the people would understand but this is not unique to this president. President Clinton had to deal with this, President Carter had to deal with it, President Nixon.

Presidents have had to deal with this before. So I think it's a good time, if there is such a thing, a good time for it to be happening when we're having a G-8 Summit because I think this will be a topic of discussion and I think, you know, hopefully cooler heads will prevail and they can bring some stability to it.

CARVILLE: Five thousand years might have been a little excessive but it's been going on for a long time.

BLITZER: James Carville, J.C. Watts, let's hope it ends very, very soon. That would be good. Thanks very much.

The escalating tensions in the Middle East are helping to drive oil prices to record highs right now. For more on the surging prices and the potential fallout right here in the United States and around the world, let's bring in CNN's Mary Snow, she's joining us from New York -- Mary.

MARY SNOW, CNN CORRESPONDENT: Wolf that potential fallout is an economic one. Oil prices are reaching $77 a barrel on concerns that an already tight supply will get tighter.

(BEGIN VIDEOTAPE)

SNOW (voice-over): As fighting escalated in Lebanon and Israel, it triggered new worries in the oil markets. A major concern? Traders say it's the fear that this conflict will incite Iran and choke off the 25 percent of the world's supply of oil that travels through the Strait of Hormuz.

ERIC BOLLING, INDEPENDENT TRADER, NYMEX: I think you're going to see $100 price for a barrel of oil at some point and that will translate into a $4 gallon for gasoline.

SNOW: Some say it won't take long for the ripple effects of the Middle East conflicts to be felt at gas pumps.

UNIDENTIFIED MALE: It's going to be rapid and it's going to be sustained over $3 for the rest of the summer now.

SNOW: Not even halfway into the summer, gas prices were almost as high as they were right after hurricane Katrina hit last year. The most recent Lundberg survey shows $3 per gallon of gas is the average nationwide, with places like Honolulu at $3.27. Many say those high prices are linked to consumer demand and has defied expectations.

PETER BEUTEL, CAMERON HANOVER: I had really expected that at $3 and $3.25 that we would see marked changes in the way consumers drive. But so far that has not born out statistically at all.

SNOW: Veteran energy traders like Eric Bolling keep close tabs on hot spots around the globe. Tensions in places like Iran and Nigeria are keeping oil prices high. But Bolling says unless people start conserving, the prices simply won't go down.

BOLLING: That's the only real solution to this. It's not a question of we're going to find more oil or there's going to be peace in the mid east. Clearly those aren't going to be two of the reasons why oil comes down.

(END VIDEOTAPE)

SNOW: And with some expecting gasoline to hit $4 a gallon, they do believe that that could be the thing that causes consumers to finally scale back -- Wolf.

BLITZER: All right Mary, thanks very much. I just want to update our viewers, Reuters and the Associated Press now reporting that Israeli aircraft have hit the Beirut to Damascus highway, that's the main road that links the Lebanese and the Syrian capitals.

We're trying to independently confirm this right now. The Israel defense forces earlier in the day said they did hit that highway. The question now is whether a second strike has destroyed at least part of that main thoroughfare between Beirut and Damascus.

As we check that out, let's go to Lou Dobbs in New York. He's got a quick check of what's happening on his program that begins right at the top of the hour. Lot's going on Lou.

LOU DOBBS, CNN ANCHOR: Absolutely Wolf. Thank you. Coming up at the top of the hour here on CNN, we'll have the very latest for you on what now appears to be an escalating undeclared war in the Middle East. Israel today attacking hundreds of targets in Lebanon. Radical Islamist terrorists firing rockets at Haifa, one of Israel's largest cities for the first time. We'll be live in Haifa and in Beirut with reports for you.

Also, a new flash point in the showdown over illegal immigration and border security. Do multi lingual ballots divide our country or enhance our democracy? We're have a special report and I'll be talking with the head of La Raza, Janet Murguia.

And scientists say wildfires now raging in California could be the latest evidence of global warming. Is global warming an imminent threat and if so, is it too late to prevent a world wide catastrophe? Three of the world's leading climatologists join me. We're going to cut through the clutter and get to what the solutions could be. We hope you'll be with us for that and a great deal more at the top of the hour. Wolf, back to you.

BLITZER: Sounds important and good. Thanks very much Lou, for that. And just ahead here in THE SITUATION ROOM, there's a new development in the CIA leak case, potentially significant, a lawsuit filed by Valerie Plame Wilson targeting White House officials. We're going to show you whom she's suing.

Plus, Jack Cafferty wondering why the White House agreed to let a special court review the NSA domestic surveillance program. Jack's standing by with The Cafferty File. We'll be right back.

(COMMERCIAL BREAK)

BLITZER: Let's check in with CNN's Fredricka Whitfield. There's a developing story out west. What's going on Fred?

FREDRICKA WHITFIELD, CNN ANCHOR: Well those fires in southern California get more frightening now entering the fourth day of burning. Immediate mandatory evacuation orders are being put in place for people living north of highway 62 between Palo Verde and the Riverside county line. Hundreds of homes in northern and western Morongo Valley are being threatened.

Now we already know that some 1300 firefighters have been battling a nearby saw tooth complex fire which is in Yucca Valley. Already that blaze has burned 40,000 acres, destroyed 42 homes and 55 other structures. It's very serious out there -- Wolf.

BLITZER: All right, we'll continue to watch that story. Fred thanks very much. We're also watching the situation in the Middle East, the crisis that's escalating. There's been some important developments that we've been watching. We'll get back to that story in a moment.

But first there's a surprising new development in the CIA leak case. The woman at the center of it, former CIA operative Valerie Plame is suing White House officials, including the vice president. CNN's Brian Todd has the story -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Wolf, filed just this afternoon in U.S. District Court here in Washington. This lawsuit raises the stakes in the CIA leak story. The plaintiff's former CIA offer Valerie Plame Wilson and her husband, former U.S. Ambassador Joe Wilson, accuse Vice President Dick Cheney, Cheney's former top aid Lewis Scooter Libby, Deputy White House Chief of Staff Karl Rove and 10 so-called John Does in the government are conspiring to destroy their careers.

The suit seeks compensatory and punitive damages but no amount is given. At one point in the document, they claim that Cheney, Rove, Libby and the John Does, "Reached an agreement to discredit, punish and seek revenge against the plaintiffs that included disclosing Valerie Plame's then classified identity to the media.

On the injuries the Wilson's say they suffered invasions of privacy, they feared for their safety and the safety of their children. That as a result of the defendant's actions, Valerie Plame Wilson was not able to pursue her career at the CIA. That both Wilson's were impaired in their ability to pursue other professional opportunities and that their first and fifth amendment rights were violated.

When contacted by CNN Vice President Cheney's spokeswoman Lea Anne McBride gave this statement, quote, "It appears that the lawsuit relates to a matter already before the courts. For that reason, standard policy of not commenting on a matter in litigation will be followed."

We also got this statement from a spokesman for Karl Rove. Quote, "It is clear that the allegations are absolutely and utterly without merit." We were also able to reach a spokeswoman for Scooter Libby, she had no comment -- Wolf?

BLITZER: Thanks very much Brian. We're take a quick break, Jack Cafferty with your email, that's next.

(COMMERCIAL BREAK)

BLITZER: We're back to New York and Jack Cafferty. Jack?

CAFFERTY: Wolf, the question this hour is, why has the White House agreed to allow a special court to review the NSA domestic surveillance program.

Roger in Madison, Wisconsin: "The fall election would seem to be a factor or maybe the administration has finally realized the advocates of impeachment might actually be on to something. It may be a case of CYA before the indictments start coming down."

Michelle in Dallas: "If you'll recall when the FISA court heard what the White House and NSA were doing behind their backs, several of the judges quit. My guess is that now the White House will stack the court with replacement judges who will rule in their favor." More likely than not and if FISA does not rule in favor of Bush he'll just continue to break the law anyhow, laws don't matter to him.

Margaret in Dexter, New Mexico, "A promise was made to put it in a secret court that will agree with Bush. Why else would they have had the meeting in private for it?"

Chris in Denver, "I have a feeling this law could finally trigger a profound constitutional conflict. Can the Republican congress pass a law to protect the president from their own party? That's a very interesting question. It's tantamount to the president pardoning himself for his crimes."

Nick in Pennsylvania writes, "I think the Bush administration's attempting to appease the congress as well as the American citizens that are still on the fence about the president's actions. Regardless of the outcome the government simply does not want to look like it has something to hide headed into the elections."

And Kevin in Wilmington, Vermont, "It seems old cowboy Dubya has come upon a hitch in his swagger and sees what most everyone else has seen for quite some time now. His gun belt is down around his knees." If you didn't see your e-mail here, you can go to CNN.com/CaffertyFile where we each day post many other of these on the internet. That was well done.

BLITZER: It's a good read for all of our viewers. Jack see you back here in one hour. We're here in THE SITUATION ROOM weekday afternoons, 4:00 to 6:00 p.m. eastern, back for an hour at 7:00 p.m. eastern. In the meantime, let's go to New York, "LOU DOBBS TONIGHT" starts right now -- Lou.

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