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THE SITUATION ROOM

Fact Check on the Bush Administration's Iraq Report Card. Progress in Iraq.

Aired July 12, 2007 - 17:00   ET

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


CAFFERTY: Dave in Rochester, New York: "Jack, wimps? Isn't he the guy who cried on the House floor a few weeks ago?"
And Jim writes: "When the other side resorts to name calling, you know you've won the argument" -- Wolf.

BLITZER: Jack, thanks very much.

To our viewers, you're in THE SITUATION ROOM.

Happening now, Iraq's report card. The White House hands out mixed grades but says there's progress in the war. Democrats give the president an F. I'll speak with one war critic, Congressman John Murtha. That's coming up this hour.

Al Qaeda's stunning comeback right in the backyard of a key U.S. ally.

Could Pakistan be the staging ground for the next attack on America?

And dumplings cooked and stuffed with cardboard. We're tell you about the latest scandal to hit China's food industry.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

The report card is out. The grades are barely passing. The Bush administration has reviewed the performance of the Iraqi government in meeting 18 security and political benchmarks set by the U.S. Congress. But it's also a report card of the president's own Iraq own strategy.

Let's go live to our senior Pentagon correspondent, Jamie McIntyre.

He's watching this.

What's the bottom line -- Jamie?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, how satisfactory is the progress in Iraq?

It really depends on how you define satisfactory.

(BEGIN VIDEO TAPE) MCINTYRE: (voice-over): The Bush administration's interim review is an exercise in putting the best face on what the president himself admits is a bad situation.

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: I understand that it's an ugly war.

MCINTYRE: Take the crucial benchmark of reducing the level of sectarian violence, on which is judged satisfactory. It's true sectarian violence is down, if it's narrowly defined as Sunni versus Shia murders in Baghdad. But it's false that overall violence is lower. As a separate Pentagon report noted last month, violence across Iraq was unchanged, especially when the number of Iraqi and U.S. troop deaths are factored in.

Like most everything else in Iraq, it's a mixed picture.

BRIG. GEN. DAVID GRANGE (RET.), CNN MILITARY ANALYST: I think it's a balanced report. I think that the positives and negatives both came out and those areas in between, that there may be a little progress.

MCINTYRE: Of the other seven benchmarks that got satisfactory grades, none is an unqualified success. For example, yes, a constitutional review is done, but only after the Sunnis withdrew from the parliament. Yes, three trained Iraqi brigades reported for duty, but at less than full strength and not capable of working independently. Yes, Sunni insurgents have been pushed out of Baghdad. But extortion, intimidation and crime are still rampant. And, yes, Iraq is spending $10 billion of its own money on reconstruction. But the report concedes it won't all be spent this year.

(END VIDEO TAPE)

MCINTYRE: Now, the Bush administration, Wolf, stresses this is an interim report in which the criteria was progress being made. But in September's report, they're going to actually have to show that some of those benchmarks have been met in order to get that satisfactory stamp -- Wolf.

BLITZER: Well, they've got two weeks -- two months until then.

Thanks, Jamie, for that.

In Iraq meanwhile, the Interior Ministry says 19 people were killed today in a Baghdad mortar attack and the exchange of fire which followed.

Let's get a reality check of the actual situation on the ground.

No one better to do so than Michael Ware, our correspondent, joining us in Baghdad -- Michael, the president made a major point of saying that it wasn't that long ago that the al-Anbar Province sort of was written off as lost because of Al Qaeda's strength, the insurgent Sunni strength there, but now it's made a comeback.

It has made a comeback, but it's been at a cost, is that right?

MICHAEL WARE, CNN CORRESPONDENT: Oh, absolutely, Wolf.

Now, what the president is saying is true. Al-Anbar, in terms of Al Qaeda violence, has been checked to a fairly dramatic degree. That can't be begrudged. And it's through initiatives of the U.S. military.

But what they've done is, it means they've had to cut a deal with the Sunni/Baath insurgents. America doesn't know where Al Qaeda hides. America doesn't know where the facilitators are. The insurgents do. So they turn the insurgents against Al Qaeda. These insurgents are not bound by the same rules as the American military.

So these men can literally go out and use excessive force to arrest and interrogate Al Qaeda suspects and they can execute them. Indeed, we've unearthed video evidence of this and we've interviewed some of the militia members, as well, to confirm it. So that's one aspect.

The second aspect is that this success using these Sunni insurgents is driving a wedge between the U.S. and the Iraqi government. The Iraqi government is vehemently opposed to this program. They see it as America putting ammunition in the guns of armed groups who actively oppose this government. They suspect that this is an American insurance policy or a counterbalance against the government.

Why?

Because this government is Shia dominated. It's controlled mostly by militias, most of whom, according to U.S. intelligence, are controlled by Iran. So, it's not without a price -- Wolf.

BLITZER: So the criticism against this Shia-dominated government coming from Washington, whether in the report card or from what various politicians are saying, how do they react to that criticism?

Do they react by doing what they're supposed to do or do they get their backs up and they just get angry and not do what they are supposed to do?

WARE: you know, what I actually suspect that this government does, or the key driving factions within it do, is they don't react negatively. They don't get their backs up. They don't get defensive.

What they do is they play American domestic policy -- politics, the American domestic mood against the mission here. Indeed, when you talk to some of these Shia hard-liners with links to Iran within this government, you listen to them and it's so clear that they are finally tuned in to the American public mood and they shape their answers just so. At the end of the day, whatever the administration cares to say about this government, they turn it against America.

They say you criticize us because we're not taking control of security. Well, you don't treat us as a sovereign state. You don't let us control our armed forces. You don't let us operate the way we want to. Get out of our way and then you'll see security.

So they're quite clever, in fact -- Wolf.

BLITZER: Michael Ware reporting for us from Baghdad.

Michael, thanks very much.

WARE: Thanks, Wolf.

BLITZER: Let's go to Jack Cafferty in New York for The Cafferty File.

When he speaks, a lot of people should listen -- Jack.

We've said this before.

JACK CAFFERTY, CNN CORRESPONDENT: Well, you get a context and depth of understanding of the mindset over there that I don't think is available too many other places. So, we're privileges to have Mr. Ware join us here periodically.

When the first Iraq Study Group came out last December, it was ignored by the White House. That's despite eight months of work by 10 of the best bipartisan minds to try to address what is arguably the biggest problem in this country -- the war in Iraq.

President Bush wasn't interested.

The Group's report recommended starting to bring our troops home. They decided to send more troops -- surge.

Yes, that will do it.

It was only when the criticism of the president's policies became deafening that the White House allowed as to how the group wasn't a total waste of time and the president actually agreed to take a look at some of the ideas in the report.

But that did little more than ignite a lot of false hope. Thinking the president might actually be interested in what someone else thought, they revised the Iraq Study Group and the vote was overwhelming -- 355-69.

Well, they should have known better. According to the "Washington Post," the president is not interested.

Surprise. Surprise.

The mistake the House of Representatives made was thinking this president would listen to anyone besides Dick Cheney and Karl Rove when it comes to the unmitigated disaster that's the war in Iraq.

Not a chance. But it was a nice idea.

Here's the question -- why would the White House not want to revive the Iraq Study Group? E-mail Cafferty file at cnn.com or go to cnn.com/caffertyfile -- Wolf.

BLITZER: Thank you, Jack, for that.

Still ahead, Al Qaeda said to be thriving in a chunk of Pakistan, in what some describe as a safe haven for terrorists.

Are new plots against the U.S. being developed right now?

Plus, you're not going to believe what investigators found going on in a popular Chinese treat. We're going to show you the video, raising new concerns about the products made in China.

And President Bush defending the latest Iraq report card. But Congressman John Murtha has a very, very different take. The Vietnam veteran, the outspoken war critic, he's standing by to join us live.

All that coming up right here on THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Democrats are lashing out at the White House report card on Iraq, saying President Bush is reading it through rose colored glasses. Some are calling him delusional.

Joining us now from Capitol Hill, Democratic Congressman John Murtha of Pennsylvania. He's one of the early voices calling for a troop pull back in Iraq.

Congressman, thanks very much for coming in.

REP. JOHN MURTHA (D), PENNSYLVANIA: Nice to be with you, Wolf.

BLITZER: I'm going to play a little excerpt of what the president said earlier today and get your reaction.

Listen to him.

(BEGIN VIDEO CLIP)

GEORGE BUSH, PRESIDENT OF THE UNITED STATES: I don't think Congress ought to be running the war. I think they ought to be funding our troops. I'm certainly interested in their opinion, but trying to run a war through resolution is a -- is prescription for failure, as far as I'm concerned, and we can't afford to fail.

(END VIDEO CLIP)

BLITZER: All right, what do you say to the president?

MURTHA: Well, it's delusional, to say the least. As I said earlier, and you heard me say, it's a failed policy wrapped in illusion. Nothing has gotten better. Incidents have increased. We've had more Americans killed in the last four months than any other period during the war. More Iraqis have been killed. Incidents are up. Unemployment is still 40 percent to 60 percent. Oil production is below prewar level. And this -- this rhetoric about the constitution and the changes -- they say, well, they're making changes. There's no changes that have been made. They haven't done the thing that's necessary in order to satisfy the Sunnis.

So our troops are caught in a civil war. As I've said over and over again, It can't be won militarily. There can only be a diplomatic effort. And I think this surge is a perfect example where we aren't making any progress and we've got to start to redeploy the troops as quickly as possible (INAUDIBLE).

BLITZER: But he says Congress should not be running the war -- that's a responsibility for the military commanders out in the field, as well as the commander-in-chief. You're stepping on his turf.

MURTHA: Well, the constitution is very clear. It says we'll provide for the Army and the Navy and, of course, when the constitution didn't have any other forces. But the constitution is very clear -- we're the people that decide whether we go to war. We're the people that decide whether the war should be funded.

Now, when they keep making mistakes, as they have made, we have to intercede. The public spoke in the last election and it said very clearly -- we want these troops redeployed. Congress has agreed with that, basically. But it's a matter of getting a resolution through to convince the White House.

Now, I see more and more people coming around. I'm more optimistic than I've ever been that we're going to start redeployment before long. The problem we've had, Wolf, and the thing that's happened that's so -- hurting the troops so badly is they extend these people and break all of the rules and guidelines they have because they haven't been able to raise the number of forces that they have.

So we're looking at a poorly managed war, a war -- we went to war unnecessarily.

BLITZER: All right --

MURTHA: We didn't have weapons of mass destruction. We no Al Qaeda connection. And now they're saying things -- that things are going better. There's no way you can measure things going better.

BLITZER: On a couple of the points, they say things are moving in the right direction. It says the government of Iraq has made satisfactory progress toward providing three trained and ready Iraqi brigades to support Baghdad operations. And then it says the government of Iraq has made satisfactory progress in ensuring the Baghdad security plan does not provide a save haven for the outlaws, regardless of their sectarian and political affiliations.

Do you acknowledge that some progress over the past several months has been made?

MURTHA: I don't acknowledge there's been any progress made. Maybe in Baghdad. But it just breaks out someplace else. We called for extra troops two years ago. We put money in for 30,000 troops. They haven't been able to raise the 30,000 troops they have. So they have to break all their guidelines. But there's no progress being made. And the way you measure it is, is the security itself.

Are the incidents decreased?

No.

Have the civilian deaths gone down?

No.

Have the American deaths increased?

Yes.

That's the way you measure whether we're making progress. We need a diplomatic effort rather than a military effort. The chief of the Joint Chiefs said we can't win this militarily. The secretary of defense said it before our subcommittee, you can't win it militarily. I've been saying it for two years.

The only answer is to let the Iraqis handle this themselves. They have to step up. We can't intercede every time they fail.

BLITZER: Well, the president says if you do that, if the U.S. were to simply withdraw, as bad as the situation is now, it would be a whole lot worse, not only for the Iraqis, but for the entire region. And he also raises the specter of Al Qaeda having a base there from which to attack America.

MURTHA: Well, first of all, let me say there's more Al Qaeda because we're in Iraq. That's the incentive for the Iraqis -- for the al Qaeda. They see us as occupiers and they fire up the Sunnis and Shias. As soon as we leave, the Shias and the Sunnis will get rid of Al Qaeda, because they're such a small group. They actually incentivize them.

So, because the president and the White House says that we're going to have chaos, it doesn't mean we're going to. Heaven's sakes, the Iraqis want us out of there. They think we're occupiers. And they said there's weapons of mass destruction. They said there's an al Qaeda connection. They continue to say for four -and-a-half years there's progress.

So why would I believe that there's going to be chaos just because they say it?

BLITZER: Congressman John Murtha, thanks, as usual, for joining us.

MURTHA: Nice to talk to you, Wolf.

BLITZER: Still to come here in THE SITUATION ROOM, a deadly two month standoff ratcheting up with new fighting. Artillery shells raining down on a refugee camp. We're going to show you what's going on.

Plus, details of the undercover sting revealing how easy it could be to get materials to make a dirty bomb, right here in the United States.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Carol Costello is monitoring stories coming into THE SITUATION ROOM right now -- hi, Carol.

What do you have?

CAROL COSTELLO, CNN CORRESPONDENT: A bit of developing news, Wolf.

A co-chair of John McCain's presidential campaign in Florida facing charges of soliciting prostitution. Police say State Representative Bob Allen offered an undercover officer $20 in exchange for sex at a park in Titusville. Allen calls the incident a big misunderstanding and "a very gross mistake." And in a news conference just a short time ago, he said he will enter a plea of not guilty.

(BEGIN VIDEO CLIP, COURTESY CENTRAL FLORIDA NEWS 13)

UNIDENTIFIED MALE: That is not true. It is inaccurate. And it is, therefore not guilty. And I will be standing strongly for that. And for people who are standing with me and my family, I'm appreciative.

(END VIDEO CLIP)

COSTELLO: We'll have more on the story for you at 7:00 Eastern in THE SITUATION ROOM.

Take a look at the mess on Interstate 96 near Detroit. Both sides of the highway shut down because of flooding caused by a water main break. Some drivers actually had to be rescued from their cars. The main was shut down and the officials asked residents to restrict their water usage.

A tanker is aground off New York's Coney Island with 23 million gallons of diesel oil on board. None of it spilled, though, and Coast Guard officials say they're lightening the ship's load with plans to try to get it off the sand at high tide tonight. They say a problem with the ship's steering system apparently sent it off course.

And in news affecting small businesses, there's a growing demand in the workplace for college graduates and that translates into higher starting salaries for many. A new study shows chemical, computer and mechanical engineering graduates are faring exceptionally well, with starting salaries up between 4 and 5 percent over last year. But political science majors lead the pack. Their starting salaries are up almost 6 percent. That's a look at the headlines right now -- Wolf.

BLITZER: All right, good for them, political science majors.

Thanks very much, Carol.

Coming up, in depth -- undercover investigators easily buy ingredients for a radioactive dirty bomb. Could terrorists do the same thing?

Brian Todd looking into this story.

And China's latest food scandal -- not as deadly, but disgusting. You're not going to believe what's in those dumplings.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening now, President Bush's pick to be the next surgeon general of the United States denying any antigay bias. Dr. James Holsinger questioned at a Senate hearing on a 1991 paper in which he implied homosexuality is unnatural and unhealthy. Holsinger said that doesn't necessarily reflect his current views.

Also, new shelling in northern Lebanon. The Lebanese Army pounding Islamic militants holed up in a Palestinian refugee camp. This standoff is now about two months old. Dozens of militants and soldiers have been killed in the fighting.

And not one, but two new records in Wall Street. Both the Dow and S&P 500 closing at all time highs td, bolstered by merger news and positive retail reports.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

A secret U.S. intelligence report concludes that Al Qaeda is as strong as it's been since the start of the war on terror. And it's happening in the backyard of a key U.S. ally in that war.

Our justice correspondent, Kelli Arena, is here in THE SITUATION ROOM -- Kelli, what's the latest?

KELLI ARENA, CNN JUSTICE CORRESPONDENT: Well, Wolf, there was a great deal of discussion today about Pakistan and whether it is committed enough to the war on terror.

(BEGIN VIDEO TAPE)

ARENA: (voice-over): Al Qaeda is gaining strength. And according to U.S. intelligence, Pakistan is a big factor.

JOHN KRINGEN, CIA DIRECTOR FOR INTELLIGENCE: They seem to be fairly well settled into the safe haven and the ungoverned spaces of Pakistan there.

ARENA: Pakistan's government limited military action in the tribal areas on the border with Afghanistan last year in exchange for promises from tribal leaders that they would prevent terrorist activities.

Ever since then, however, intelligence officials say Al Qaeda has taken advantage of those promises to regroup. In fact, officials say several suspects in recent U.K. Terror plots trained in camps in the tribal areas.

PAUL CRUICKSHANK, NYU LAW & SECURITY CENTER: They've launched a sequence of operations which have involved Pakistani training camps, training recruits in the art of bomb making skills and encouraging them to become suicide bombers.

ARENA: Pakistan's ambassador to the U.S. flatly rejects that.

MAHMUD ALI DURRANI, PAKISTANI AMBASSADOR TO U.S.: If you think that Pakistan is letting them sit there by design and we know that they're there and we are not doing anything, this is ridiculous. This is not true.

ARENA: A message reinforced today in a speech by President Musharraf, who promised to root out terrorists in every corner of his country.

In the immediate aftermath of 9/11, Pakistan aided the U.S. in the capture of several high profile terrorists, including Ramzi bin al Shibh, a key player in the 9/11 attacks.

But there are limits on what Pakistan has been willing or able to do since then and calls for the U.S. to push harder.

(END VIDEO TAPE)

ARENA: And that's because intelligence officials have said that if the U.S. is attacked again, it's very likely, Wolf, that that plot will be traced back to Pakistan.

BLITZER: And this is such a delicate situation is in Pakistan, it could be worse if Musharraf, who is pro-U.S. if he were to go. They're -- that is a country that has nuclear weapons and the nightmare scenarios out there could be -- could be awful.

Let's get -- you speak with these law enforcement types all the time.

Are they frustrated, though, that Musharraf's government isn't letting them get the information, doing the job they'd like to be doing in that border area? ARENA: They're very frustrated. Intelligence officials really do want to get in there. They feel that it is too much of a safe haven, that there's no way to gather intelligence, that there's no cooperation at this point and that Musharraf could be more aggressive than he is.

BLITZER: A delicate, delicate situation.

Thanks, Kelli, very much.

A secret sting operation. Congressional operatives go undercover to buy the radioactive ingredients they need for a dirty bomb.

Could terrorists just as easily do the same thing?

Brian Todd is watching this story -- Brian, this is a very, very disturbing government report.

BRIAN TODD, CNN CORRESPONDENT: It is, Wolf.

Investigators say they posed as businessmen and got past the government agency that's supposed to keep those materials out of the hands of terrorists.

(BEGIN VIDEO TAPE)

TODD: (voice-over): The panic of a dirty bomb attack. A blast of radiological material, designed as seen in the simulation, to inflict mostly chaos and moderate harm.

Who can pull it off?

GREGORY KUTZ, GAO INVESTIGATOR: We were able to beat the system with a basic ruse.

TODD: Congressional investigators say that earlier this year, they conducted a clandestine operation, created a bogus company, used it to get a real license for radioactive material from the Nuclear Regulatory Commission. They doctored up that license then used it to at least start to buy enough material to make a moderate sized dirty bomb.

KUTZ: We bought from public sources anybody could buy.

TODD: They say, aside from a couple of phone calls and faxes, no one from the NRC checked to see if they were legitimate. The NRC says it's plugging the gaps.

EDWARD MCGAFFIGAN, NRC COMMISSIONER: We have to have greater defensive depth in our system. We are going to have to do a better job with these manufacturers and distributors to make sure that they're not putting the dollar ahead of the American interests.

TODD: NRC officials also say the amount of the dirty bomb material the investigators were after would only have had the radiation equivalent of a C.A.T. Scan to the chest. The investigators say that's not the point. They say the could have kept right on buying material until they had enough to do some real damage.

And homeland security expert David Heyman, who's done several exercises on radiological attacks, adds this.

DAVID HEYMAN, CTR. FOR STRATEGIC & INTERNATIONAL STUDIES: Any amount of stuff will be considered dangerous in the public mind. If you have a dirty bomb that goes off, that's a large explosion with a little bit of radiation in there. Once we start detecting radiation, people will get scared.

(END VIDEOTAPE)

TODD: An even greater threat according to Heyman, radiological material abroad in the former Soviet Union and elsewhere. Much of that, he says, still not secured. And the small amount needed for a dirty bomb could easily be brought across U.S. borders, Wolf.

BLITZER: So, where do the federal investigators, Brian, go from here?

TODD: Well, they're going to keep pressuring the NRC. I spoke with two congressional staffers close to the investigation. They say they will have a dialogue with the agency. They will follow up on the NRC's promise to tighten up procedures. But they're leaving open the possibility of another secret probe if the climate does not change.

BLITZER: Brian Todd watching this important story for us, thank you.

The most radioactive materials terrorists could use are available for medical, military, research and industrial sources. For example, Cobalt 60 is used to irradiate food.

Other are substances are used for medical tests and treatments. Even smoke detectors use small amounts of radioactive material. Military grade Plutonium and uranium would be much more lethal, but also much more difficult to maintain and transport.

A lot of this information coming for the Institute for Biosecurity over at St. Louis University.

Now to the war in Iraq. What would happen if troops pulled out?

BLITZER: And joining us now, our special correspondent, Frank Sesno with this week's "What If" segment -- Frank.

FRANK SESNO, CNN CORRESPONDENT: Wolf, we heard the president asking passionately today for more time in Iraq. But what if he doesn't get it? Of course we know the poll numbers and what's that's doing and everything. But it's the numbers that are happening and revealed on the ground that are really driving this situation.

More than 3,600 American personnel -- military personnel have lost their lives, 900 government contractors -- civilians -- have lost their lives. More than 66,000, by one estimate -- that's the lowest -- Iraqi civilians have lost their lives. And finally, in dollar terms, $12 billion a month being spent in Afghanistan and Iraq.

Altogether, $610 billion appropriated for these wars. It rivals what was spent in Vietnam. That's why the crescendo this week to change course in Iraq.

(BEGIN VIDEOTAPE)

SESNO (voice-over): This is one what if that everyone in Washington seems to be asking -- what if America pulls back or pulls out? What if the Iraqis are told to fix their problems themselves? Well, some warn of chaos.

MAJ. GEN. RICK LYNCH, MULTI-NATIONAL FORCE, IRAQ: You find the enemy regaining ground, reestablishing sanctuary, building more IEDs, carrying those IEDs in Baghdad, and the violence would escalate. It would be a mess.

SESNO: But others say America is bogged down and has to make changes, now.

SEN. BARBARA BOXER, (D) CALIFORNIA: There is no military solution. How many more explosive devices are going to blow up in the faces of our troops before we start bringing them home?

SESNO: The fact is no one has a clear answer.

MADELEINE ALBRIGHT, FORMER SECRETARY OF STATE: Well, there are no good options here.

SESNO: Like many, Albright wants out, sort of.

ALBRIGHT: I think it is important for us to have a number of troops there to deal with al Qaeda.

SESNO: Just exactly how would that work? The president still believes in the surge and is trying to buy time. "Give us till September," he says. Petraeus has only been on the job five months. U.S. troops only peaked two weeks ago.

So, what if they pulled back or out?

This will not go away. It's likely to get worse. And it could spread. Iran will not suddenly make nice. Al Qaeda will not call the whole thing off. No good options.

Donald Rumsfeld suddenly comes to mind -- not for his role in the war, we'll save that for another day, but because he said democracies often have a hard time fighting long wars. He got that right.

The question in Washington really isn't what if, but when?

(END VIDEOTAPE) SESNO: The question when, though, is a big one. And even Dick Durbin, the leading Democrats, says if the U.S. were to leave cold turkey, the region could descend into chaos. But I want to draw your attention to this map of the United States. See those states? You know what they have in common?

BLITZER: No.

SESNO: What they have in common is at least one Republican senator who has distanced himself, and in one cases, broken from the president of the United States. Eleven of them, at least by our count, there you see. And that's the pressure that on the president right now.

So the what if America leaves Iraq only intensifies and becomes a very real question for the White House.

BLITZER: What is the view, though, from the region, Frank?

SESNO: There's enormous concern in the region. We don't talk about that very much. But I was having a conversation last night, a fascinating one, with a senior Arab diplomat who is very worried that the United States would precipitously cut and run, not his words, but leave.

And that, he says, would leave a vacuum. And nature abhors a vacuum. And he is so worried, he says, that the conflict will spread. That Turkey, Iran, and others will get involved. And it just gets worse.

No easy answers.

BLITZER: Frank Sesno, thanks very much.

Still ahead, the battle over benchmarks. The deputy secretary of state John Negroponte joining us here in THE SITUATION ROOM to talk about progress or lack of it in Iraq. That's coming up next.

Chinese products under scrutiny. We're going to show you the surprising ingredient in these dumblings you won't find in any recipe. Stick around. You're in THE SITUATION ROOM.

(END VIDEOTAPE)

BLITZER: Let's get back to the top story now. The Bush administration giving Iraq very mixed grades in meeting goals for the war set by Congress. Is the glass half empty or half full?

(BEGIN VIDEOTAPE)

BLITZER: And joining us now from the State Department. The deputy secretary of state John Negroponte. Mr. Secretary, thanks very much for coming in.

JOHN NEGROPONTE, DEPUTY SECRETARY OF STATE: Thank you. BLITZER: You speak not only as the No. 2 man at the State Department, a former ambassador to Iraq, the former head of national intelligence. On virtually all of the political goals that were set for the Iraqi government, so far, they have failed. Do you have any confidence that the government of Prime Minister Nouri al Maliki is up to the job?

NEGOPONTE: Well, I think that this is work in progress. It's not easy. I think it's not only up to Prime Minister Maliki but all of the different elements of the Iraqi body politick. They have to work together both in the government and in the Counsel of Representatives. And I think they are making their best efforts. And we have seen some progress, although not perhaps as much as we would have liked on all fronts.

BLITZER: The president said he's sending the Secretary of State Condoleezza Rice, the Secretary of Defense Robert Gates to the region in August to try to maintain some support -- to get support for this strategy.

What is disconcerted to a lot of people, especially on Capitol Hill, that the Iraqi parliament planning on taking vacation in the month of August. I spoke with Muwafik al Rubai (ph), the Iraqi National Security Adviser on Sunday. He said they're going to work through July, but then they're going to take off in August.

Is that acceptable while American troops are dying?

NEGROPONTE: Well, I think what is important is that they keep working on the different aspects of legislation that is before them, whether it has to do with national reconciliation, oil revenue, provincial governance and so forth.

And as the report -- the interim report, I would want to stress, that was issued today indicates, the results are mixed. On about eight fronts, they're making progress. On eight others, they have not made satisfactory progress. And on a couple of them, it's just too early to assess.

But again, I just want to stress this is an interim report. It's work in progress. And I think we have to give the Baghdad surge and the other elements of the policy at work a chance to show results.

BLITZER: But the Iraqi Parliament, the members of the parliament, they very often don't have enough members showing up to have a quorum. Is it acceptable to the U.S. government that they take vacation in the month of August?

NEGROPONTE: Well, we have, of course, kept the pressure on both the government and on the Counsel of Representatives to deal with the urgent issues that are before them. As I indicated earlier, the results so far are mixed.

But our message is going to continue to be that they have got to work as hard as they can and to the best of their ability, to achieve the various benchmarks that have been established and to achieve a more secure, peaceful and politically stable Iraq.

BLITZER: Has the war in Iraq, Mr. Secretary, strengthened or weakened al Qaeda?

NEGROPONTE: Well, I think it certainly weakened -- al Qaeda has taken some real hits inside of Iraq during the past year. If you just look at the western part of Iraq, al Anbar Province, the cities of Ramadi and Fallujah, towns I visited last November -- I visited Fallujah during that period in November of '06. Ramadi was forbidden territory. It was pretty much under the control and influence of al Qaeda.

Fallujah had made substantial progress from the time that we liberated it in 2004. I returned, I had the opportunity since last talking to you, Wolf, to returning to Iraq in the month of June. And I visited Ramadi, which has now been freed from al Qaeda influence and control. And it's a real success story.

So, I think some real inroads have been made against al Qaeda in Iraq.

BLITZER: Well, what about big picture, though? The overall worldwide al Qaeda threat facing America? Has the war on Iraq made that a more formidable, dangerous threat, or reduced the threat to the United States?

NEGROPONTE: Well, what I would say is first of all, and this is an issue, as you correctly point out, that I follow not only in my present position, but previously, as director of National Intelligence, al Qaeda does not have the sanctuary that it had prior to 2001, when it had an entire country to use as a platform to conduct terrorist activities against the rest of the world. And that, of course, as we know, resulted in the 9/11 attacks. There's no such platform available to al Qaeda at this time.

But what we know is in the hinter land between Afghanistan and Pakistan, there has been some regrouping. And I think the important point to make, here, is there is continued plotting by the al Qaeda elements in the Waziristan area against the west, against the west in general -- both western Europe, the United States, and other parts of the world.

But I don't think one could say that al Qaeda has anywhere near recouped the strength and the capability to strike that it had when it controlled Afghanistan.

One other point, if I may make, is that of course, if for some reason we were to precipitously depart in Iraq and for some reason, al Qaeda were there to come under greater control of territory in that country, I think that would be the replication of the very same danger we confronted and faced with respect to al Qaeda and Afghanistan. And we must not allow that to happen.

BLITZER: John Negroponte, the deputy secretary of State. Mr. Secretary, thanks for coming in.

NEGRONPONTE: I appreciate it.

(END VIDEOTAPE)

BLITZER: And still ahead, a chaplain shouted down while praying in the United States Senate. Our Internet reporter will show us the situation online.

And coming up in the 7:00 p.m. Eastern hour, a beauty pageant photo scandal with a twist. Jeanne Moos takes a most unusual look. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're just getting this disturbing report in from the Associated Press, al Qaeda, according to the A.P., stepping up its efforts to sneak terror operatives into the United States, has acquired most of the capabilities it needs to strike here. That according to a new U.S. intelligence assessment.

The draft NIE, National Intelligence Estimate, according to the Associate Press, is expected to paint an increasingly worrisome portrait of al Qaeda's ability to use its base along the Pakistani/Afghan border to launch and inspire attacks even as the Bush administration continues to insist the U.S. is safer nearly six years into this war on terror.

We're going to continue to watch this story. A lot more coming up.

Let's check in, though, with Lou Dobbs to see what is coming up at the top of the hour. I assume you're going to have more on this as well, Lou.

LOU DOBBS, CNN ANCHOR: You better believe it. All of the days news, Wolf. Thank you.

Coming up at the top of the hour, we'll be reporting on a huge cut in federal homeland security grants to one of the country's most vulnerable states, Arizona. The state has the highest number of illegal alien border crossings, the largest amount of illegal drug smuggling across the border with Mexico.

Also, a disturbing new warning about the export of middle class American jobs to cheap overseas labor markets. Tens of millions more U.S. jobs at risk. We'll have that report.

And the Senate preparing for the first hearings on imprisoned border patrol agents Ramos and Capion (ph), the agents given harsh prison sentences for shooting and wounding an illegal alien drug smuggler given immunity by the Justice Department to testify against those agents. One of those agent's top supporters, Congressman Dana Rohrbacher will be here.

We'll be examining, as well, the plunging approval ratings for the Democratic-led Congress and the future of the Democratic Party as 2008 approaches. I'll be talking with former New York governor with Mario Cuomo, former Senator George Mitchell. We hope you'll be with us at the top of the hour.

Wolf, back to you.

BLITZER: Sounds like a strong show. Thanks very much, Lou, for that.

Growing concern over what's going on in products made in China. Now there's word of a stunning new example. CNN's Jason Carroll is joining us from New York. What it is this time, Jason?

JASON CARROLL, CNN CORRESPONDENT: Well Wolf, once again, it involves a problem with food, an undercover television crew discovered an ingredient that belongs in a factory, not on a dinner plate.

(BEGIN VIDEOTAPE)

CARROLL (voice-over): An undercover investigation in a Beijing neighborhood reveals yet another problem with a Chinese product. This time, dumblings, called Bal Xi (ph). Listen as the Chinese television reporter asked the dumpling maker about his ingredients. .

UNIDENTIFIED FEMALE (through translator): These Bal Xi (ph) are kind of tough, not much taste.

UNIDENTIFIED MALE (through translator): That is from the cardboard made in the big pot.

UNIDENTIFIED FEMALE (through translator): This stuff, after you cook it, can they taste the difference?

UNIDENTIFIED MALE (through translator): Generally no, they can't taste it.

CARROLL: The dumpling maker admits 60 percent of the filling is made of cardboard.

UNIDENTIFIED MALE (through translator): Most people can't taste the difference.

CARROLL: Once again, this brings into serious question the credibility of some Chinese products, especially their experts.

Intense scrutiny began in March after hundreds of dogs and cats in the United States died after eating pet food containing toxic ingredients traced to China. Earlier this month, Chinese seafood was found to be contaminated with unsafe antibiotics. Certain toothpastes, exported from the country, were also tainted with dangerous chemicals. Defective tires and toys were recalled in the United States when manufacturers discovered safety violations.

The U.S. government warned Chinese officials to improve their inspection system or risk losing the United States as an export market. CARLOS GUTIERREZ, COMMERCE SECRETARY: This is a watershed moment for China. And I believe that what they do now will determine whether they continue to be a growing exporting country, a country with future growth viability, or they stop their growth. But this is probably the single biggest challenge they have had to their economic growth.

CARROLL: The Chinese government has cautioned U.S. importers not to overreact and say they are working to improve their inspection system. But consumer watchdog groups say with the growing number of problems with exports from China and other countries, government agencies like the FDA need to keep an even closer eye on what's allowed into the United States.

URVASHI RANGAN, CONSUMER REPORTS: Well, I think our government needs to step up the number of inspections that we do as well, with only testing one or 1.3 percent of all of the imported products that come into this country, we're really not taking a close enough look at what is coming in in order to insure the safety of those products for the American public.

(END VIDEOTAPE)

CARROLL: And the FDA says there's no evidence the dumblings were shipped to the United States. Therefore, Wolf, no need for them to take any action -- Wolf.

BLITZER: A serious issue. Thanks very much, Jason, for that.

Today, for the first time, a Hindu chaplain gave the opening prayer before the Senate. But the Hindu prayer didn't come without some controversy. Let's go to our Internet reporter, Abbi Tatton. She's watching this.

So what happened today, Abbi?

ABBI TATTON, CNN INTERNET REPORTER: Wolf, as Rajan Said (ph), began the prayer today, that he was interrupted by protesters.

(BEGIN VIDEO CLIP)

RAJAN SAID (ph): Let us pray. We meditate on the glory of the deity supreme...

UNIDENTIFIED MALE: Sergeant at arms will restore order in the senate -- in the chamber.

SAID: Let us pray, we meditate.

(END VIDEO CLIP)

TATTON: A man's voice was also heard shouting, "Lord, Jesus, forgive us for allowing the prayer of the wicked."

The announcement that a Hindu clergyman would be leading the prayer had been met with criticism from conservative Christian groups, Capitol Police today arrested three activists from the Christian anti- abortion group, Operation Save America. The three were cited with disruption of Congress and will face a later court date -- Wolf.

BLITZER: Thanks you, for that, Abbi Tatton.

Up next, remember that bipartisan blue ribbon panel on Iraq? Jack Cafferty does. He's wondering why the White House wouldn't want to revive the Iraq study group. We'll be right back.

(END VIDEOTAPE)

BLITZER: Let's check back with Jack Cafferty for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, the question is this hour is why would the White House not want to revive the Iraq study group?

Stephen in Greensboro, North Carolina, "the president has shown over and over an inability to admit errors or make adjustments or changes to his policies no matter the quantity or quality of the opposition. He simply cannot change course."

Art in West Virginia, "I'm beginning to think that elements in this administration don't want to see the Iraqi problem resolved. With no-bid contracts and skyrocketing oil revenues, the longer we persist in this quagmire, the more their stock is up."

Dave writes, "let's get something straight, this is a surrender plan, not a study. As far as benchmarks go, Iraq is doing better than our own Congress!"

Heather in New York writes, "no, he won't restart the Study Group. He doesn't intend to be tested on Iraq, so why study for it?"

Bill in Lubbock, Texas, "getting Bush and his crew to pay attention to anything that might suggest they are doing something wrong would be like getting Captain Ahab to listen to anyone who would suggest abandoning his unrelenting for Moby Dick."

Peter writes from Little Rock, Arkansas, "would you fund the investigation that would find evidence to impeach you?"

And Bob in Parkersburg, West Virginia, "maybe they're worried that Rudy Giuliani will skip most of the meetings again, thus further damaging his chances at continuing Bush's policies of attacking civil liberties and invading sovereign countries."

Oh, and ignoring the will of the people at home, too.

If you didn't see your e-mail here, you can go to CNN.com/caffertyfile. We post more of them online along with video clips of the Cafferty File for your viewing pleasure -- Dr. Blitzer.

BLITZER: You know, a lot of people forget that Iraq study group had five Republicans, five Democrats, a former secretary of state James Baker who was secretary of state for the presidents father -- Larry Eagleberger.

CAFFERTY: Lee Hamilton.

BLITZER: These weren't exactly, you know, flaming liberals up there.

CAFFERTY: No, no. It was a pretty -- a pretty bipartisan blue ribbon panel who brings a lot of gray matter to bear on this subject and came up with some arguably pretty good suggestions, but to no avail.

BLITZER: See you in an hour. Let's go to Lou in New York in the meantime -- Lou.

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