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PAULA ZAHN NOW

Al Qaeda Threatens Attacks Against Israel; Interview With Israeli Ambassador to United States Daniel Ayalon

Aired July 27, 2006 - 20:00   ET

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


PAULA ZAHN, CNN ANCHOR: And thank you all for joining us tonight. Glad to have you with us.
Our "Top Story" coverage of the Middle East crisis begins with the latest war bulletins from the front lines.

As fighting rages on between Israel and Hezbollah, reports from south Lebanon tell of bodies in the street and civilians trapped in buildings. Israel's war cabinet votes to continue, but not expand the conflict, and calls up thousands of reserves. Its defense minister says Israel is in for the long haul.

Secretary of State Condoleezza Rice returns to the Middle East this weekend. And reports say a top negotiator from Iran is in Damascus right now for talks with Syrian and Hezbollah leaders.

New threats tonight from al Qaeda -- its number-two man, Ayman al-Zawahri, says al Qaeda won't stay silent over the fighting, and that Israel and its allies must pay the price attacking Hezbollah.

The U.N. officially expresses deep shock and distress, but doesn't condemn Israel for Tuesday's attack that killed four U.N. observers in Lebanon. Clearly frustrated, some ambassadors imply the U.S. isn't allowing any stronger criticism of Israel.

As we speak, our reporters are standing by in Beirut, Jerusalem, northern Israel, and in Washington.

We start with the first images of Israeli troops inside Lebanese territory.

John Roberts is on the border with Lebanon right now, and he joins us now with the very latest -- John.

JOHN ROBERTS, CNN SENIOR NATIONAL CORRESPONDENT: Good evening to you, Paula.

Public opinion in Israel is still running overwhelmingly in favor of the military campaign against Hezbollah, but there's a growing split now behind hard-liners and the Israeli government on how the ground campaign should proceed. Hard-liners are saying, if you're going in to Lebanon to get rid of Hezbollah, go in with everything you have got.

Political leaders are saying, no, we want the ground campaign the way it is. But they are sending more troops to the front. (BEGIN VIDEOTAPE)

ROBERTS (voice-over): These are the first pictures of Israeli troops over the border in Lebanon, the town of Maroun al-Ras, the first village the Israeli army took in its ground campaign to rout Hezbollah guerrillas from southern Lebanon.

Maroun al-Ras appears quiet. There are still occasional skirmishes. One soldier died near the town yesterday. And the troops remain vigilant. But there's none of the fierce fighting here, like in Bint Jbail, where Hezbollah guerrillas killed eight Israelis on Wednesday.

General Shuki Shachar says, the battle was difficult, but Hezbollah lost far more than Israel.

GENERAL SHUKI SHACHAR, ISRAELI DEFENSE FORCES NORTHERN COMMAND: Just in this small battle, the soldiers of the Golani Brigade succeeded to inflict casualties on the enemy, more than double that they suffered by themselves.

ROBERTS: Reinforcements are being sent to the border. And as many as 15,000 reserves are being called up. This combat engineering battalion is staged and ready, waiting for orders to go in.

Sergeant Omri Azulay has never been in battle before. What happened in Bint Jbail has him worried, but he's still eager to join the fight.

SERGEANT OMRI AZULAY, ISRAELI DEFENSE FORCES: My first actually face-to-face combat, but I'm looking forward to it, because this is something I have to do for my family, for my friends, for my whole country.

ROBERTS: Lieutenant Shai Betiti has seen action in Gaza, but not the kind of organized guerrilla fighting he will face in Lebanon. Uncertain about the battle ahead, the deaths of his comrades, he says, have stoked his will to win.

LIEUTENANT SHAI BETITI, ISRAELI DEFENSE FORCES: Give us more motivation than before. They want get to in. They want to fight. They want to win.

ROBERTS: And what will they face when they get inside Lebanon? Paratrooper John Burch, an American who moved to Israel two years ago, was on some of the first reconnaissance missions.

JOHN BURCH, ISRAELI DEFENSE FORCES: I guess you could describe this type of warfare as a bush warfare. You know, there's a lot of close-quarters combat. We have been training, you know, to engage the enemy White House 10 to 15, 20 meters, because of -- the bush is, you know, you have to go around them and kind of search for the enemy. It's kind of like a game of hide and seek.

ROBERTS: And there are growing divisions over how far the ground campaign should go. The military has plans to push Hezbollah back 14 miles, to the Litani River. But, as world opinion turns against them, Israeli political leaders are beginning to dial back those goals.

As for when the war might be over, even one of the army's top generals can't say.

(on camera): How much longer do you think this is going to take?

SHACHAR: I have no idea how much it will take, because there are so many factors that influence, the opinion, the public opinion in Israel, the public opinion in the world, some international forces, and, of course, the decisions of the government.

(END VIDEOTAPE)

ZAHN: All right. So, John, yesterday, you had some 150 rockets falling on Israeli territory, even more rockets today. What exactly can the IDF do to stop this?

ROBERTS: And -- and rockets falling for the first time near the town of Metulla, which is where we're located. It has been spared so far, up until today, that is.

The reason why there are so many rockets still coming into Israel is because of the way that Hezbollah is engaging Israel -- this according to General Shachar, who told me today that he believes that there are some 1,500 Hezbollah fighters spread all across a 50-mile border between Israel and Lebanon, working in small teams.

They can pop their heads up very quickly. They can fire off some Katyusha rockets, duck back down again, and get out. And he says, that's just an enemy that's almost impossible to engage -- Paula.

ZAHN: It's a pretty stunning acknowledgement, as this conflict rages on.

John Roberts, thanks so much.

Now our "Top Story" coverage moves to the new tape from al Qaeda's number-two man. On it, Ayman al-Zawahri steps into the conflict in Lebanon and makes a broad threat to attack anywhere in the world.

Justice correspondent Kelli Arena has now the very latest on this chilling development.

(BEGIN VIDEOTAPE)

KELLI ARENA, CNN JUSTICE CORRESPONDENT (voice-over): Ayman al Zawahri appears in front of pictures symbolizing the September 11 hijacking, and calls for retaliation against the Israelis and the West for the attacks on Lebanon.

AYMAN AL-ZAWAHRI, SECOND IN COMMAND OF AL QAEDA (through translator): The whole world is an open field for us. As they attack us everywhere, we will attack them everywhere. They gang up to wage war on us. Our Islamic nation will fight them and wage war on them. ARENA: While the technology used to produce the tape appears more sophisticated than usual, intelligence analysts are more impressed with the turnaround time. Fighting in Lebanon began just two weeks ago.

Many say this is an attempt by al Qaeda to remain relevant, as attention turns to other groups, like Hezbollah, and, of course, to recruit and provoke others to act.

TONY SNOW, WHITE HOUSE PRESS SECRETARY: One of the weapons is to use the media and to use the Internet and to use mass communications as a way of fomenting hatred and encouraging violence. And this certainly fits into that pattern.

ARENA: Zawahri calls for support of -- quote -- "our brothers in Lebanon," but he never addresses Hezbollah by name.

Though they share a common enemy, Israel, a formal alliance between al Qaeda and Hezbollah is very unlikely. They're formed from different Islamic factions. Al Qaeda is Sunni; Hezbollah Shiite.

Instead, Zawahri is making more of a global pitch.

JOHN MCLAUGHLIN, CNN NATIONAL SECURITY ADVISER: He looks at the situation in the Middle East now, and it is primarily Hezbollah's spotlight. And there have never been particularly close relations between Hezbollah and al Qaeda. And, so, he's trying to come into that, I think, and say, remember me?

(END VIDEOTAPE)

ZAHN: So, Kelli, in this communique, al-Zawahri is basically saying, Israel and its allies must pay the price jointly for the attacks on Hezbollah.

ARENA: That's right.

ZAHN: What does that mean for the United States and any potential attacks on U.S. interests?

ARENA: Paula, you know, the FBI's head of counterterrorism, Willie Hulon, today said that the intelligence community always looks at these tapes to see if there are any hidden messages. And whenever a tape like this comes out, it is a reminder that the U.S. remains a target. And there is a lot of concern among the agents that I have spoken to, with what -- all that's going on.

But officials say that there isn't any specific intelligence at this point to suggest that any plan to attack is under way -- Paula.

ZAHN: Happy to hear that. It brings us all a little sense of relief, for the time being.

Kelli Arena, thanks so much.

So, how does this development play on the ground in Lebanon? We now get the view from Beirut tonight from senior international correspondent Nic Robertson, who joins me live.

Nic, what's the latest?

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Well, good evening, Paula.

Certainly, the worst of the violence in the south of the country today, but the statement coming from al Qaeda's number two really seen by a lot of people here as al Qaeda trying to exploit the tensions in this area.

(BEGIN VIDEOTAPE)

ROBERTSON (voice-over): On the 16th day of the war, new images of suffering in south Lebanon, death at the side of the road, families forced from their homes taking shelter in a government hospital.

"I come from Bint Jbail," she says. "The Israelis leveled our house. We came out from the rubble and walked."

Into this chaos, al Qaeda's leadership is threatening to intervene.

AYMAN AL-ZAWAHRI, SECOND IN COMMAND OF AL QAEDA (through translator): We will not stand by, watching these explosives pouring down on our brothers in Gaza and Lebanon.

ROBERTSON: But, among Hezbollah supporters, this is not a welcome message.

UNIDENTIFIED MALE: But we don't support them at all. We don't think their statements support us, also.

UNIDENTIFIED MALE: Here, Hezbollah is fighting just for Lebanon and for -- just for Lebanese people and our freedom.

ROBERTSON: Hezbollah characterizes its battle as a war of resistance against Israel. In the past, its leader, Hassan Nasrallah, has condemned the methods and operations of al Qaeda and its leader, Osama bin Laden.

But, as the war continues, anti-American sentiment is growing -- the accusation, that the United States and Israel are in the fight together against Lebanon.

DR. ALI FAYYAD, HEZBOLLAH CENTRAL COMMITTEE (through translator): It's the U.S., under the heading of Israel's right to self-defense, who provided the political cover for the Israeli attack on Lebanon.

ROBERTSON: A scenario that al Qaeda appears to be exploiting.

AL-ZAWAHRI: The dangerous events going on in Gaza and Lebanon are proof to any sane person that the crusader Zionist war is targeting us. ROBERTSON: Zawahri's message is not al Qaeda's first attempt to build alliances here. In the early 1990s, Hezbollah gave al Qaeda operatives weapons and explosives training.

(on camera): More recently, in the past few years, an unpublished official security report handed to CNN concluded that there is a clearly recognizable effort by al Qaeda to recruit groups in Lebanon, particularly in the south, where it's lawless, specifically in the Palestinian refugee camp.

(voice-over): A radical Islamist CNN interviewed near Beirut this week predicts, al Qaeda's anti-American message will resonate here, as it has in Iraq, drawing in Islamist extremists from outside.

SHEIKH OMAR BAKRI, AL-MUHAJIROUN LEADER: This could be the same scenario here, where people fight against Israeli forces and everybody aligns with them. So, it is -- the scenario could happen.

ROBERTSON: A suggestion that scares many here, including this Hezbollah sympathizer.

UNIDENTIFIED FEMALE: It's a little scary, because it says that this matter is taken much further than it should. And the hope for people, for the war to cease very quickly.

ROBERTSON: No indication that's about to happen, in a conflict that, in recent days, has only become more intense and more dangerous.

(END VIDEOTAPE)

ZAHN: So, Nic, coming back to al Qaeda, what is it about its methods, its way of doing business that Hezbollah is so critical of?

ROBERTSON: You know, Hassan Nasrallah, the leader of Hezbollah, has never really specified exactly that. He has more implied it, and particularly in reference to September the 11th.

The implication -- and many people may find this disingenuous -- but the implication being that al Qaeda's methods of killing so many innocent civilians are wrong, though he has never said that explicitly. And, of course, Hezbollah has been involved, in the past, of -- of killing innocent civilians in significant numbers.

But it seems that there is a real division. These are two very big players. Osama bin Laden and Hassan Nasrallah are two very big players, but in separate spheres. Hezbollah would see themselves as far more secular in their own view than -- than al Qaeda, who they see as very, very extreme Muslims.

And there's a -- and that's perhaps the most fundamental difference -- and, again, for a lot of people here, bizarre that they should see al Qaeda appealing to Shias, when, only a few weeks ago, they're calling on al Qaeda in Iraq to kill Shias -- Paula.

ZAHN: It's all very complicated. Thanks to you, very much, for helping us better understand all that, Nic Robertson. And, just a little bit earlier on, I spoke with Ibrahim Mousawi, a top official with Hezbollah TV, about al Qaeda's latest message.

(BEGIN VIDEOTAPE)

ZAHN: Al Qaeda's second in command, Ayman al-Zawahri, today pledged Muslim support in Lebanon. Do you welcome that support?

IBRAHIM MOUSAWI, CHIEF FOREIGN NEWS EDITOR, AL-MANAR TELEVISION: In this situation, everybody would welcome support from anyone.

But you're talking about another extreme. I mean, there has never been any connection, any relation, and any respect to the things that have been done by al Qaeda.

When it comes to Hezbollah, Hezbollah has condemned the 9/11 attacks, actually, and said this is against the religion itself, and it has made a distortion to the Islamist religion, more than any other thing. So, you're talking about two opposites, two extremes. And I don't see how I can welcome such a thing, though we are looking for any support from any part of the world.

ZAHN: Do you see, at any point, a time where Hezbollah would ever work with al Qaeda?

MOUSAWI: I don't see at all. I don't see any opportunity for that.

ZAHN: What is your understanding of how supplies are holding up for Hezbollah right now?

MOUSAWI: It was -- like an established fact that Hezbollah has more than 30,000 rockets. And, so far, they haven't sent more than 2,000 or 3,000. So, you're talking about an arsenal that they have still one -- 10,000 to send. I mean, so you -- you don't need any supplies so far.

ZAHN: While, in Rome, a cease-fire was not agreed to, there was a general consensus that, ultimately, an international stabilization force had to be put into southern Lebanon to allow the Lebanese government to regain control of the country. If that happens, would Hezbollah respect that rule or fight that stabilization force?

MOUSAWI: Hezbollah has never fought against the United Nations or the peacekeepers. It's Israel that is targeting them every now and then.

And we all know about the four Israeli -- four U.N. keepers that were deliberately killed by the Israelis and their positions bombarded for so many hours. Hezbollah has never fought against the U.N. keepers. And I believe Hezbollah is waiting for a serious initiative, a clear initiative. And he wants to know what kind of mission they are going to do, what is their task, and then they would answer.

This is what I was able to understand from some Hezbollah senior officials. ZAHN: Based on any contacts you have had with members of Hezbollah, what is their expectation over the next couple of weeks?

MOUSAWI: It's in the Israeli hands now. If they're going to continue their incursions and their offensive, they're going to be confronted by a very fierce resistance, like the one they saw in Maroun al-Ras and Bint Jbail. If they are going to cease their fire, there could -- there could be a cease-fire and negotiation.

ZAHN: Ibrahim Mousawi, thank you so much for your time tonight. We appreciate it.

(END VIDEOTAPE)

ZAHN: And there's much more of tonight's "Top Story" coverage just ahead, including the devastating effects of war in a place that was once considered paradise.

(BEGIN VIDEOTAPE)

ZAHN (voice-over): It's the biblical land of milk and honey, but Hezbollah rockets are turning it into no-man's land -- tonight, an exclusive look at one of the world's most beautiful and dangerous places.

Two powerful armies locked in bitter struggles with shadowy enemies -- is Lebanon becoming Israel's Iraq?

Our "Top Story" coverage of the crisis in the Middle East continues after this.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAHN: Still ahead in our "Top Story" coverage: the efforts to end the fighting. And, then, in a little bit, we will take you behind the scenes for a look at what kind of peace settlement is starting to emerge.

Tonight, Israel's military says, more than 150 missiles have landed inside Israel in the last 24 hours, and more than 1,500 since July 12.

Well, today, Wolf Blitzer got an aerial tour of the areas of northern Israel facing that constant threat.

And Wolf, who is anchoring "THE SITUATION ROOM" from Jerusalem, joins me now -- Wolf.

WOLF BLITZER, HOST, "THE SITUATION ROOM": It was a real opportunity, Paula, to see what was going on, see it from a distance, not get too close, but we got close enough to go to the danger zone and to see it from up in the sky.

(BEGIN VIDEOTAPE) BLITZER (voice-over): The U.S.-made Black Hawk helicopter waits to take Israeli Air Force Brigadier General Ido Nehushtan and us to the war. We fly north at a relatively low level along Israel's Mediterranean coastline, toward Haifa and beyond.

BRIGADIER GENERAL IDO NEHUSHTAN, ISRAELI DEFENSE FORCES GENERAL COMMAND: (INAUDIBLE) approaching the Karmiel (INAUDIBLE) which eventually ends up in Haifa (INAUDIBLE)

BLITZER: The further north we go, the less traffic we see along the coastal highway. And that's for good reason, since Hezbollah rockets have rained down over northern Israel by the hundreds for more than two weeks.

Many Israeli citizens living in those areas have relocated, for their own safety. Haifa, a city of some 300,000 under normal circumstances, is drained.

We fly over warehouses, factories and garages, including one struck by a rocket the other day, killing eight people working inside. The huge port area, usually full of cargo ships from around the world, is largely empty. So are the beautiful Mediterranean beaches nearby.

(on camera): The beaches are empty. There's no traffic.

NEHUSHTAN: The port is empty. The beach is empty. And all traffic, very low traffic in the streets, no people out. It's as if there is no life, and this is the third largest city in Israel.

BLITZER (voice-over): We continue north from Haifa, about 20 miles.

NEHUSHTAN: We're now approaching the border with Lebanon.

BLITZER: Flying overhead underscores how tiny these areas are.

NEHUSHTAN: On the right coming the beach of Nahariya, completely empty. The city today makes a living from tourism and (INAUDIBLE) industries -- nothing there now, ghost town.

BLITZER: We can easily see Lebanon, though we don't fly there. We stay completely on the Israeli side. As destructive as this side of the border is, I know it's a lot more destructive on the other, the result of heavy Israeli shelling and airstrikes.

General Nehushtan knows that as well.

NEHUSHTAN: This -- this is our challenge, how to give the people security, how can restore -- how can we restore life here, here and on the other side?

BLITZER: Some 90 minutes after we took off back near Tel Aviv, we touch down at a military base near Haifa. The sights were spectacular, the story so heartbreaking.

(END VIDEOTAPE) BLITZER: And it was only a few moments after we landed at -- at that small military airfield outside Haifa that, all of the sudden, we heard the sirens start wailing. "Incoming, incoming," some of the soldiers began saying.

And we ran quickly for shelter, didn't stay in there very long, because, fortunately, the Katyushas that were anticipated in that area didn't come anyplace near where we were.

But it gave me, Paula, a little flavor of what a lot of people up north in Israel are living with, that terrible fear every single moment, especially during daylight hours, that Katyusha rockets could be coming in -- Paula.

ZAHN: And, Wolf, after that all-clear sign was sounded, describe to us what else you saw on the ground.

BLITZER: I had been to Haifa over the years many times. And it's really a -- normally, a very bustling, beautiful city, and -- and packed with tourists this time of the year, packed with cars and the residents.

And it was just like a ghost town. It was virtually empty. Almost all the stores were shuttered. As we drove up Mount Carmel, going up the mountain, which normally would be packed, it was -- it was just sad to see what -- what had -- what -- what -- what had become of this third largest city in Israel.

And it's indicative of what's happening, not only in Haifa, but in all the cities and towns and villages in the northern part of Israel, about 15 percent of the population either living in shelters or fleeing further south to Tel Aviv or Jerusalem, or all the way south to Eilat, Israel's southernmost port, which is packed now with residents from the north. You can't get a hotel in Eilat, by the way -- Paula.

ZAHN: A terrible burden that all these folks have to live through.

Wolf Blitzer, thanks so much.

And joining me now is Israel's ambassador to the U.S., Daniel Ayalon.

Good of us to join us, sir. Thank you so much for being with us.

So, let's talk about what came out of this Rome conference to try to bring about a cease-fire. Your justice minister was quoted as saying this: "We received permission from the world to continue the operation."

How are you interpreting a statement that said, "I will -- we will work immediately to reach, with the utmost urgency, a cease- fire"?

DANIEL AYALON, ISRAELI AMBASSADOR TO UNITED STATES: Well, very simply, Paula -- and it's good to be here with you -- I don't think that we seek, nor do we request, any permission from anybody to defend ourselves and protect our lives. This is something which is very, very obvious.

We do take a lot of encouragement from the G8 statement of a week ago, which called for cessation of hostilities and the immediate and unconditional release of our two hostages, the two kidnapped soldiers, which were abducted over international lines in our country, and the cessation of all the -- the rockets shelling of the Hezbollah.

ZAHN: But -- but, Mr. Ambassador, you also know that the European Union is -- is warning that Israel should not take this lack of agreement to reach a cease-fire as -- as being seen as a green light to launch further military operations.

AYALON: Right. But we are not seeking green lights.

We are a sovereign country. And we have to do what is best for our people, and, also, I believe for the region, and really beyond, the entire world. We are now in the forefront of the war, of global war of terrorism.

Now, we do what we have to do. And we will continue doing that. Now, there is some kind of inconsistency, Paula, with the position of the Europe -- European Union, or for the U.N., for that matter.

On the one hand, they ask us for a -- an early, or immediate, cease-fire. On the other hand, they ask us for restraint. This does not go together. Because we are restrained, we cannot go for an early cease-fire, because we are very systematic. We are very careful. We suffer a lot of casualties by being care -- by being careful, and not targeting civilians, but only Hezbollah strongholds, which specifically are located...

ZAHN: Right.

AYALON: ... in densely populated areas.

So, it's going to be longer than -- than expected. But we will not be deterred, because what's at stake is not just the security and safety of Israel. It's not just the security and safety of the Lebanese, when...

ZAHN: Sure.

AYALON: ... we would like to see Lebanon goes back to -- to -- to the Lebanese.

ZAHN: But...

AYALON: But it's the entire region's safety and beyond.

ZAHN: But -- but, Mr. Ambassador, you talk about how concerned you are of the safety of the civilians. And, after the tragic death of four U.N. observers, you now have international agencies coming in to Lebanon, doing humanitarian work, wondering if your country can guarantee safe passage and if they can trust Israel.

AYALON: Well, we can, to the extent that Hezbollah does not interfere.

And -- and, Paula, I think that it was your network, CNN, that showed that one of the -- the guys of the -- the UNIFIL position was e-mailing, for the last four or five days, to U.N. headquarters that Hezbollah is being all over them.

What Hezbollah is doing, specifically locating themselves smack- dab to U.N. positions. This is why they were caught in the crossfire. This is why they were hurt, because of Hezbollah's tactics.

ZAHN: Right, but...

AYALON: So...

ZAHN: ... they also maintained they had made repeated calls to warn that this fire was coming closer and closer, and to -- to make the Israeli forces not bombard that area.

AYALON: Yes, but when you call the forces, which are themselves under fire, things happen.

You know, friendly-fire also happens. We, of course, regretted it. But the -- the source of the problem is the Hezbollah tactics. And we will not fall into this. And we will make sure that, because of these tactics, they cannot be -- not vulnerable and they cannot continue. And this is what's...

ZAHN: We...

AYALON: ... what's at stake here.

ZAHN: We have got to leave it there.

Ambassador Ayalon, always good to see you. Thanks so much for dropping by.

AYALON: Thank you.

ZAHN: Now, the U.S. is clearly standing by Israel, but is such unwavering loyalty actually hurting efforts to end the fighting? We are going to go in depth on that question tonight, as our "Top Story" coverage continues.

(BEGIN VIDEOTAPE)

KARL PENHAUL, CNN CORRESPONDENT: I'm Karl Penhaul in Tyre, Lebanon.

We revisited today the site of a devastating bomb attack on an apartment building. There was another bomb attack today -- that story when PAULA ZAHN NOW continues.

(END VIDEOTAPE) (COMMERCIAL BREAK)

ZAHN: We move on now to more of our top story coverage tonight, thousands of people continue a desperate effort to move up the Lebanese coast to escape Israeli air strikes. Just yesterday a ten- story building was bombed to the ground in Tyre, and today Karl Penhaul got a close-up look at what's left of it.

(BEGIN VIDEOTAPE)

KARL PENHAUL, CNN CORRESPONDENT (voice-over): The ruins are still smoldering the morning after an Israeli air strike. Firefighters scoured the wreckage. Hours earlier it was chaos here.

Now the only sound you can hear is an Israeli reconnaissance drown buzzing overhead and water gushing from broken pipes. Just yards from the bomb site Jihad al-Husseini tries to clean up the office of his driving school.

JIHAD AL-HUSSEINI, DRIVING SCHOOL ARMY: The good army, when you make war with another army, not with people and children. Why?

PENHAUL: This was a ten-story apartment building and residents say civilians lived here. The Israeli Defense Forces say the target was Hezbollah leadership. This war has shattered homes, yet some reminders of more peaceful times survive. The mementos of happy families who have now fled the battlefield. Since the conflict exploded there has been a steady exodus. Now, as I drive around Tyre, after Wednesday's attack in downtown, I see the streets are emptying faster than ever.

MOHAMMED AL-HUSSEINI, CITY HALL OFFICIAL: Every here isn't confident about anything because we're expecting any time, anywhere a bomb.

PENHAUL: Yesterday more than 40 people were bunkered down in the basement of this apartment block in Tyre. But yesterday's attack convinced most of them they were no longer safe. Now, only fisherman Ali Ateya (ph) and his family are left.

ALI ATEYA, LEBANESE FISHERMAN: I am afraid to leave because from the bomb of yesterday.

PENHAUL: His son Hussein has seen the news on the TV that diplomatic efforts to broker a cease-fire have failed.

HUSSEIN AL-HUSSEINI, SON: We have no chance to be -- to stop the war.

PENHAUL: Amid the ruins of bombed out buildings hope is hard to find. Karl Penhaul, CNN, Tyre, South Lebanon.

(END VIDEOTAPE)

ZAHN: And now on to a very important part of this top story, the behind the scenes effort to stop all this fighting. A lot of things have been tried before. What could possibly work this time?

We will also consider whether this country's obvious support for Israel hurts its ability to be an honest broker. We'll be right back.

(COMMERCIAL BREAK)

ZAHN: So just how soon will the conflict in Lebanon end? Our top story coverage continues now on the diplomatic front, talks in Rome went nowhere yesterday. But this weekend Secretary of State Rice will go back to the region to talk again with leaders in Israel and Lebanon, and John King brings us now up-to-date on hopes for a diplomatic solution.

(BEGIN VIDEOTAPE)

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT (voice-over): No cease-fire in sight and a public display of the differences blocking a diplomatic deal to end the fighting. From the European Union a warning. It says Israel should not take the failure to reach a cease- fire deal at this week's Rome summit as a green light for military operations.

BENITA FERRERO-WALDNER, EUROPEAN UNION COMMISSIONER: The killing of innocent people has to stop because we think that never, ever a military action will bring an end to this.

UNIDENTIFIED MALE: I thank you very much, Mr. President.

KING: But at the White House, President Bush made clear he won't accept a cease-fire that doesn't deal with longer term security issues.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Making sure there's a lasting peace, not a fake peace, not a fake, you know, circumstances that make us all feel better and then sure enough the problem arising again.

KING: Yet, for all the tough U.S. rhetoric that a cease-fire must include disarming Hezbollah a U.S. official involved in the talks concedes that would be a process, not something that happens overnight. That is why the administration supports both Israel's effort to degrade Hezbollah now and a strong mandate for the international force included in any cease-fire deal, including the authority to engage Hezbollah guerrillas.

MICHAEL O'HANLON, BROOKINGS INSTITUTION: That could be violent, that could involve European armies, for example, fighting against an Arab resistance group on its home territory. This is not going to be fun.

KING: The United States isn't planning to send troops so the European Union is taking the lead recruiting role. Diplomatic sources tell CNN at least four countries are offering so far, France, Italy, Turkey, and Norway, but a cease-fire is needed first, and Secretary of State Rice plans to return this weekend to discuss the major stumbling block with Israel and Lebanon. In the meantime Israel's defense minister vows to press ahead with military action.

AMIR PERETZ, ISRAELI DEFENSE MINISTER (through translator): The goal is to bring about the situation in which Hezbollah will not threaten the safety of Israel, not now and not in the future.

KING: But U.S. officials tell CNN they believe Israel underestimated Hezbollah's capabilities. Israeli officials privately concede the fight is more difficult than anticipated.

JOHN MCLAUGHLIN, CNN NATIONAL SECURITY ADVISER: They're not amateurs. This is many respects is a far more professional organization than al Qaeda ever was, or probably ever will be. So I'm not surprised.

KING: Some experts see a bit of deja vu in southern Lebanon. Israel's powerful military learning the same painful David versus Goliath lesson the United States faces against the Iraqi insurgency.

ROBERT MALLEY, INTERNATIONAL CRISIS GROUP: The record of invasions that try to get to the heart of a militant guerrilla organization as opposed to a conventional army is not very good.

(END VIDEOTAPE)

ZAHN: So, John, let's talk about what's in store for the secretary of state when she goes back to the region. Do you think she's going to push for any concessions from Israel?

KING: Well, concessions may be not the right word, Paula, but certainly she wants to tell the Israelis, first and foremost, be careful in your targeting, try not to hit any civilian targets. Number two, if there is a cease-fire agreement in the works, be prepared not only to have a prison swap with Hezbollah, but also to give back some land as part of the solution. Israel would have to give back some disputed territory essentially so that the Lebanese government could say to its people and say to Hezbollah, we are winning something here, and try to take away the rationale for Hezbollah's existence. It says it exists to fight an Israel that has taken some of Lebanon's land. If the land goes back, easier to try to convince Hezbollah, still won't be easy, but perhaps easier, to get out of the terrorism business.

ZAHN: Well, we will be following how this all plays out with you in the days to come. John King, thanks so much for the update.

And as we've just seen, there's intense pressure on the U.S. to find a diplomatic way out of this crisis, but is the Bush administration's support of Israel undermining its effort to be an honest broker? It's a red hot political question tonight, and we will go in depth next.

JOHN VAUSE, CNN CORRESPONDENT: I'm John Vause in northern Israel, where one small village, a kibbutz, is so close to the border with Lebanon that Hezbollah rockets and Israeli artillery fly overhead. But the people who live there have few fears for their own safety. Details on that when PAULA ZAHN NOW continues. (COMMERCIAL BREAK)

ZAHN: And continuing our top story coverage of America's role as peacemaker in the Middle East. On the heels of a failed attempt of a cease-fire at an international conference in Rome, Secretary of State Rice says she's ready for another round of diplomacy in the Mideast this weekend. Still, many countries have doubts about just how effective the U.S. can be because of its historically close ties to Israel. So just how close? From senior political correspondent Candy Crowley.

(BEGIN VIDEOTAPE)

CANDY CROWLEY, CNN SR. POLITICAL CORRESPONDENT (voice-over): Israel gets more U.S. foreign aid than any other country.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The United States is strongly committed, and I am strongly committed to the security of Israel as a vibrant Jewish state.

CROWLEY: The bottom line is close to $100 billion loaned or given to Israel since its creation.

DAVID MAKOVSKY, WASHINGTON INST. FOR NEAR EAST POLICY: This relationship really goes back to the 11 minutes after Israel was founded, when Harry Truman, against the advice of some of his advisers, recognized Israel, and it's gone on for the last 58 years.

CROWLEY: And through the decades, there's been weapons and military equipment from Washington to Tel Aviv, the best and the latest.

ED KOCH, FORMER NYC MAYOR: We're democracies. That we're willing to stand together against those who want to destroy democratic values, liberties.

CROWLEY: Helicopters and missiles and so many F-16s, Israel has the largest fleet outside the U.S.

BILL CLINTON, PRESIDENT OF THE UNITED STATES: The United States will always stand with Israel, always remember that only a strong Israel can make peace.

CROWLEY: Lots of guns, lots of butter, but defenders of this closest of relationships, presidents and U.S. lawmakers through the decades, say the cement is the kindred souls of two comparatively young countries, born of religious persecution, sharing democratic ideals.

BUSH: These ties have made us natural allies, and these ties will never be broken.

CROWLEY: But these ties put distance between Main Street and the Arab street, where U.S. flags are burned to protest American support for Israel. AHMED YOUNIS, MUSLIM PUBLIC AFFAIRS COUNCIL: Much of why we are hated throughout that part of the world is because of a perception of an uneven handed relationship with Israel that has really existed at the expense of the Palestinian people.

CROWLEY: And these ties become talking points in the world court of public opinion.

BASHAR JA'AFARI, SYRIAN AMBASSADOR TO U.N.: The problem is the American backing of the Israeli aggression against all the area since 1967.

CROWLEY: But if the U.S. cannot broker a deal in the Middle East, who can? The answer, many observers say, is no one. Even if the U.S. is biased toward Israel, it is also seen as the only one who can reach Israel.

MAKOVSKY: Israel believes that America cares about its best interest, and therefore if Israel has to take risks for peace, the United States will work to minimize those risks.

CROWLEY: The question, it seems, is not so much weather the U.S. could broker an agreement, but whether it will.

REP. DARRELL ISSA (R), CALIFORNIA: We're going to have to give Israel some very tough love. Israel's not going to want to have this international force deal with the Golan Heights. They're going to want to have a little separation of somebody else's land as a buffer zone. We're going to have to say no.

CROWLEY: And because in the Middle East every answer is followed by a question, if the U.S. says no to Israel, will Israel say OK?

Candy Crowley, CNN, Washington.

(END VIDEOTAPE)

ZAHN: Another thing to add, British Prime Minister Tony Blair is headed to Washington for a meeting at the White House tomorrow morning. No doubt the crisis in the Middle East will be on the agenda.

Our top story coverage continues in just a moment, but first, we're going to take a quick biz break.

Profit taking pulled stocks lower. The Dow fell 2 points, the Nasdaq lost 16, and the S&P closed 5 points lower.

New home sales in June slowed once again with more houses left unsold. Mortgage rates are also pulling back from a two-year high.

Oil giant Exxon Mobil reported a boom in second-quarter profits -- $10.4 billion. That's $1,300 every second, if that's the way you want to compute it tonight.

That brings us to our "Crude Awakenings." The states with today's highest gas prices are in red, the lowest ones in green. And the average today for unleaded regular, $3.01 per gallon. That's a high point in the average price so far, as you can see from our chart there.

Coming up in just about 11 minutes from now, "LARRY KING LIVE," but he's going to give us the privilege now of talking to him so we can get a little preview of what's he doing tonight. Hi, Lar.

LARRY KING, HOST, LARRY KING LIVE: It's my privilege, dear.

ZAHN: Oh, thank you. I bet you say that to all your fellow anchors?

KING: No, no, no.

ZAHN: No, you don't?

KING: No, just you, dear.

ZAHN: OK.

KING: John Walsh, the host of "America's Most Wanted." His son Adam disappeared 25 years ago today, July 27th, 1981. That became the spurring moment, when Adam's body was discovered, to spur on John Walsh's life. And today at the White House, they signed a bill dedicated to young Adam Walsh. Well, we're going to have the entire family on, John, his wife, and other children, all together, plus late in the show we'll meet the prime minister of turkey, all that ahead at 9:00 Eastern, 6:00 Pacific, Paula.

ZAHN: I look forward to it. John Walsh and his family deserve an awful lot of credit for raising a lot of important issues about the safety of our children. Have a good show, Larry, Thanks.

KING: Thanks Paula.

ZAHN: Do you think you live in a nerve racking neighborhood, just wait? Coming up next our top story coverage a small town where the sky is filled with both Israeli shells and Hezbollah rockets.

(COMMERCIAL BREAK)

ZAHN: On to another tense night in the Middle East crisis, imagine rockets and artillery shells flying directly over the heads of your family night and day for weeks on end. Well, that happens to be the reality in one small Israeli town, smack in the middle of the deadly battle between Israel and Hezbollah. John Vause now takes us to the place some call rocket central.

(BEGIN VIDEOTAPE)

VAUSE (voice-over): Rumbling across the not too distant valleys, the sounds of conflict shattering peace and tranquility on this small Kibbutz called Adamit, home to about a hundred Israelis.

AVNER KLEIN, ADAMIT RESIDENT: We're heading toward a viewpoint out over a canyon that separates Israel from Lebanon.

VAUSE: Avner Klein has been listening to the sound track of this war for the past two weeks.

KLEIN: I'd say my pulse rate is pretty much normal. I'm not scared.

VAUSE: Because Adamit is in the eye of the storm, so close to the Lebanon border when the Hezbollah rockets and Israeli artillery are flying, they're flying directly overhead.

KLEIN: It's an advantageous position in that almost all the incoming and outgoing artillery and Katyushas fly high above, and we're down below the arc. We've been very lucky nothing has fallen here yet.

VAUSE: But this village has not been untouched by war. The metal shop where most work has been shut down, few leave there homes, the children stay indoors. Israeli soldiers are on guard, but for now, no one has used the bomb shelter.

(on camera): The last time this Kibbutz took a direct hit from a rocket was 24 years ago and despite the almost constant boom of the outgoing artillery and the incoming Katyushas there is an odd sense here of feeling relatively safe, which may explain why most residents have decided to stay.

(voice-over): No one flinches. And Meir Shaked, the Kibbutz ambulance driver, says the explosions seem like white noise.

MEIR SHAKED, ADAMIT RESIDENT: We're used to it. Like a person that lives near an airport, the planes that are up and down, it doesn't bother him.

VAUSE: From here they can see the smoke rise over Southern Lebanon and feel the vibrations from the thousand pound bombs, giving them a unique perspective.

KLEIN: But, you hear it very well. You hear the Air Force planes going over and then shortly thereafter you hear loud rumbling sounds, and it's trouble for the people below.

VAUSE: But here the war is only heard. Never really seen. John Vause, CNN, Adamit, northern Israel.

(END VIDEOTAPE)

ZAHN: And our top story coverage continues in just a moment. Coming up at the top of the hour on "LARRY KING LIVE" John Walsh, who was at the White House today, as President Bush signed a law dedicated to his murdered son, Adam. We'll be back with more right after this.

(COMMERCIAL BREAK)

ZAHN: Updating our top story now, Israel's cabinet calls up more military reserves, but says right now there will be no expansion of operations. More than 150 Hezbollah rockets hit northern Israel today and in Lebanon security officials say 405 people have died in the conflict.

Coming up this weekend, CNN looks back at a traumatic event that is still shaping U.S. policy in the Middle East. Please tune in Saturday and Sunday at 8:00 p.m. for "CNN PRESENTS: Marine Barracks Bombing." That wraps it up for all of us here. We will be back same time, same place tomorrow night as we wrap up the week. We hope you will join us then. Again thanks so much for joining us tonight, hope to see you tomorrow night. "LARRY KING LIVE" is next.

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

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