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CNN Late Edition with Wolf Blitzer

Showdown: Iraq

Aired December 29, 2002 - 12:00   ET

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

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


WOLF BLITZER, CNN ANCHOR: It's noon in Washington, 9:00 a.m. in Los Angeles, 5:00 p.m. in London, 8:00 p.m. in Baghdad and 2:00 a.m. Monday in Pyongyang, North Korea. Wherever you're watching from around the world, thanks for joining us for this special LATE EDITION, Showdown: Iraq.
North Korea's decision to move forward with nuclear weapons development appears to have edged Iraq out of the headlines, at least for now, and has served up a fresh international challenge for the Bush administration.

The president's team is taking a relatively low-key approach, describing this latest flare-up as a situation rather than as a crisis.

A little while ago, I spoke with the Secretary of State Colin Powell.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Secretary, thanks once again for joining us.

The issue at hand right now, there seems to be a crisis between the United States, on the one hand, and its allies, and North Korea. But you're apparently refusing to say this is a crisis.

COLIN POWELL, SECRETARY OF STATE: Well, I don't like the word crisis. It suggests we're about to move forces or there's a war about to break out, and that's not the case at all. We have a very serious situation which we are treating as a serious situation. North Korea, notwithstanding its obligations under the 1994 agreed framework, started a second production system for the development of nuclear weapons, enriching uranium. We think that's very serious.

We took it to the international community. We took it to the North Koreans. They admitted it. Having admitted that they were in violation of their agreement, said, Well, so what? And then now they've decided to become -- get in violation of their obligations under the agreed framework by kicking the inspectors out of the Yongbyon plutonium facility and also removing all the seals and starting that reactor up.

So these are two acts of misbehavior on the part of the North Korean regime. And what we are doing is working with our friends and allies, who have an even greater equity in this matter than we do, and talking with the South Koreans, the Japanese, the Russians, the Chinese the European Union, the United Nations, all of us coming together to make the case to North Korea that, This will not accomplish anything that will be of benefit to your nation, and we will not be scared into making concessions to you or appeasing you in some way.

BLITZER: But this seems so frightening. This is a -- one of the members of the "axis of evil." It's a Stalinist regime, unpredictable. And you are now acknowledging they probably already have two nuclear bombs and they might be able to build a lot more.

POWELL: Don't be quite so breathless. They've had two nuclear weapons, we believe, for some time. It is not something that we have suddenly discovered. We've always attributed this capability to them. Our intelligence community believes they probably had enough material to fabricate two weapons, and they may well have these two weapons.

If they start this reactor back up, and if they go beyond what they say they're starting it for -- they say they need the electricity because we cut off the heavy fuel in response to their violation of the agreed framework. But if they go beyond that and start to reprocess the spent fuel that is at the facility, they could have another several nuclear weapons in a matter of, let's say, six months. That would take them from two to six.

We don't like that. We don't believe this is in their best interests. It's certainly not in the best interests of the region or the world. But it is not yet a crisis that requires mobilization or for us to be threatening North Korea. Quite the contrary. We have been saying to North Korea that we have no plans to invade you. We have no hostile intent towards you. You have people who are starving. We are the biggest food provider to the people of North Korea, as part of the world food program.

So we have no ill intent toward North Korea, but we are deeply concerned about some of the actions they have taken over the years to proliferate weapons of mass destruction throughout the world, to sell this kind of technology throughout the world. And I think it was quite right for the president to say that clearly when he gave his State of the Union speech.

Remember his State of the Union speech, where he called them part of the "axis of evil," was 11 months ago. They started this new program four years ago. And so we finally found out about the program and called them on it. We were in the process of negotiations with them. I went and met with the foreign minister of North Korea in Brunei at the end of July.

We sent in Assistant Secretary Kelly to let them know that there were things we could do for their country but they had to stop this kind of activity. And their response has not been an encouraging one.

And for that reason, the president is keeping all of his options on the table. And we're leading with the diplomatic option because it is important for everybody to realize this is a problem not just for the United States but for the region and for the world. BLITZER: When I hear you say that the president is leaving all of his options on the table, that normally is code word for the military option as well.

POWELL: He has a military option. We're just not -- we're not bringing it up to the front because it's not necessary to do so. Everybody knows what our military capacity is. Secretary Rumsfeld made it clear earlier this week we have the capacity to deal with any emergency or situation that might arise.

But keep in mind that, you know, we try to solve things peacefully, notwithstanding the reputation we sometimes enjoy is always reaching for a gun. What's rather interesting over the last several days is everybody is wondering, why isn't the United States reaching for a gun? And the answer is, we believe that there are still options available to us that focus on political and diplomatic tools that the international community can bring to bear on this problem.

North Korea is already paying a price for this misbehavior. Japan was on the way to normalization. It was on the way to providing a huge economic package for North Korea if they went down that normalization route. The new president-elect of South Korea wants to reach out to North Korea. President-elect Roh -- it was part of his platform. But now he has had to speak out strongly about North Korea's behavior, as a result of what the North Koreans have done.

And so there are ways to mobilize the international community. I mean, President Jiang Zemin came to Crawford and spent a lot of time with President Bush discussing this situation. This took more time than any other agenda item at Crawford. And the Chinese came out and said clearly, We will not support any nuclearization of the Korean peninsula. We don't want to see it. We don't want it. And so the North Koreans are now running in the face of that opposition from the Chinese, as well. So they're buying themselves problems, and we're going to try to find a way to get out of this situation without letting it escalate to a crisis level.

BLITZER: Is it time for the U.N. Security Council to be brought into the situation?

POWELL: I have been in close touch with all of my permanent colleagues in the Security Council, and I had a conversation with Kofi Annan day before yesterday about it. I don't know if it's time for the Security Council to do anything. The International Atomic Energy Agency will be meeting on the 6th of January, or thereabouts, to consider what North Korea has done. And the board of governors of IAEA at that time will make a judgment as to whether or not they will report these actions to the United Nations. But are not waiting for the beginning of the year to table a resolution before the Security Council.

BLITZER: This "tailored containment" that the administration has discussed -- one element...

POWELL: I've never -- I've only read about this term in the paper this morning.

BLITZER: So is there no...

POWELL: There is no plan that has the title "tailored containment" on it. It's an interesting phrase. I don't object to the phrase. But to suggest that it is some grand strategy that we have -- no. We have a strategy that we've been executing on. We have kept our friends and allies closely informed about developments. We have shared the intelligence. We have made it clear to the North Koreans that there are ways to communicate, but we will not enter a negotiation where they sit there and say, What will you pay us for our misbehavior? How will you appease our misbehavior this time?

We've made it clear to everyone that the agreed framework dealt with the facility at Yongbyon, but it was a marvelous act of misdirection while we were watching Yongbyon, they were creating an enriched uranium capability elsewhere in the country. And so they have to be held to account for this. So there are ways for them to talk to us. We know how to get in touch with them. And we are hoping that sooner or later, a way will be found, either with us or with other members of the international community, to find a solution to this -- to this situation.

BLITZER: It looks -- and correct me if I'm wrong. You were chairman of the Joint Chiefs a dozen years ago during the first Gulf war. With the deployment of all these troops and now the hospital ship Comfort, it looks like the train is leaving the station.

POWELL: Well, the train is being loaded. The president has not made a decision to go to war. But what Secretary Rumsfeld and the Joint Chiefs of Staff are doing are prudent measures to get ready for whatever might be required. And it's to make it absolutely clear to the world, and to Saddam Hussein especially, that if he does not come into compliance with this U.N. resolution, if he is not fully cooperative and if he is found to be not fully cooperative and cheating and military action is necessary and the president finds it appropriate to make that decision, we'll be ready to execute it.

BLITZER: But they already area, as you just said a few weeks ago -- they are in material breach.

POWELL: They are once again in material breach. It's another material breach on top of many previous material breaches. And the patience of the international community is -- is running thin here, it seems to me. And January will be an important month, as Dr. Blix, UNMOVIC, and Dr. El Baradei of IAEA report to the Council on their findings and how cooperative Iraq is being.

BLITZER: Will Saudi Arabia be with the United States if it comes down to another war?

POWELL: My view is that Saudi Arabia has been cooperative with us in the global war against terrorism. They're open to the proposals that we have made to them about what might be needed. But I don't want to speak for the government of Saudi Arabia as to what they have said yes to or no to or where they might be at some point in the future. They've been good friends of ours in the past, and I would expect them to be good friends in the future, as well.

BLITZER: You saw the story in "The New York Times" today that they've already...

POWELL: Well, I don't want to comment on these military (inaudible). I'll leave that to my Pentagon colleagues to say what they wish to about it.

BLITZER: As far as the Israel-Palestinian situation is concerned, there was an editorial in "The New York Times" this past week. Among other things, it said this. "By waiting to unveil the roadmap until after the new Israeli government is formed, which could be several months, Washington seems to be hoping to wrap this problem into a broader recasting of the region after regime change in Iraq. That is a dangerous gamble."

POWELL: Well, that's their opinion of what we're trying to do. What we're trying to do is put down a roadmap and put it down in the way that it will be received with some favor on both sides. And it was our judgment when the quartet met earlier this month that we were close to finishing the roadmap, and it's a pretty good way forward. But to introduce it at this stage, with the Israeli election under way -- that might not be the best environment in which to introduce this roadmap. A delay of a few weeks I don't think will be significant, will make a significant difference. And in fact, the best roadmap in the world will not produce anything if the terror doesn't stop. And so our focus still has to be on ending terror and achieving some level of security, so that both sides can operate in some sense of security and some understanding that by moving forward on the roadmap, they will not simply be opening themselves up to more acts of terror and violence.

BLITZER: And just very briefly, because I know we're running out of time -- Arafat, Yasser Arafat, the Palestinian Authority president -- does he have a role in any of this?

POWELL: He has been a failed leader, and we continue to believe he's a failed leader. That's why we hope that new leaders will emerge. We would like to see a prime minister emerge who has authority to act. And we would like to see elections of the kind that will give the Palestinian people a chance to determine whether or not new leadership might end this horrible situation that they find themselves in.

BLITZER: Finally, a new leader in Kenya elected today, ending, what, a quarter of a century or so of Daniel Arap Moi's role. Is this good for the United States?

POWELL: Well, I think it's good for Kenya, frankly, to see that they can have a successful election. And it was an open election and one that was relatively free of violence. So it was good. The democratic process worked, and I'm pleased that President Moi stepped down in accordance with the democratic process.

The president-elect has made a commitment to ending corruption, to economic development and to social advancement within the country. And if he moves forward on that agenda, it will be good for Kenya, good for the Kenyan people and, of course, good for relations with the United States. We have good relations with Kenya now, and I expect that they'll be improved in the future.

BLITZER: And good luck to you. I know you've had an incredibly busy day today. Good luck with all these so-called crises. I'm going to catch my breath.

POWELL: Well, it's interesting to remember that in the last year, the crisis was India and Pakistan. Everybody was afraid that a nuclear war was about to break out there, and the international community then came together, worked with the two parties. We still have a difficult situation in Kashmir, but at least the threat of war has receded considerably. They're both de-escalating. And I hope that in this new year, we'll find a way for the two sides to begin a dialogue on all the issues that are outstanding between India and Pakistan, to include Kashmir.

BLITZER: The whole world is looking toward you to do it.

POWELL: Thank you, Wolf. Happy New Year!

(LAUGHTER)

BLITZER: Happy New Year. Thank you.

(END VIDEOTAPE)

BLITZER: And up next, a prominent United States senator is travelling through the Middle East and the Persian Gulf. We'll find out what Senator Joe Lieberman thinks about the dual standoffs with North Korea and Iraq. And later, we'll hear from Republican Senator James Inhofe.

This special LATE EDITION, Showdown: Iraq, will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The history, the logic and the facts lead to one conclusion, Saddam Hussein's regime is a grave and gathering danger.

(END VIDEO CLIP)

BLITZER: President Bush speaking to the United Nations in September of this year. The threat of war and the demand for Iraq's disarmament are number one on the top 10 stories of the year.

Welcome back to this special LATE EDITION, Showdown: Iraq.

Earlier today I spoke with Senator Joseph Lieberman about the showdown with Iraq, North Korea and his own political ambitions. Senator Lieberman is wrapping up a 10-day trip through the Persian Gulf and the Middle East and he joined me from Tel Aviv. (BEGIN VIDEOTAPE)

BLITZER: Senator Lieberman, thanks very much for joining us.

The secretary of state, Colin Powell, says it's not a crisis, at least not a crisis yet, between the United States and North Korea. In your view, is this a crisis?

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: I believe it is a crisis, Wolf. And it's a crisis because, clearly, it's a critical part of our foreign policy in Asia and on the Korean Peninsula that North Korea not become a greater nuclear power. And the policy that the administration has followed thus far has made a difficult situation into a dangerous one, in fact, has responded to Kim Jong Il's initial irresponsible actions by cutting off the fuel shipments that we promised to give him in return for his compliance in closing that plutonium nuclear power plant, which he kept, in a way that led him to reopen the plant now and makes it much more likely, as the secretary said, that he can produce nuclear weapons from plutonium in a matter of months or within a year.

So so far, the administration policy has had exactly the opposite effect of what we all desire, which is to keep North Korea's production of nuclear weapons out, non-existent...

BLITZER: But Senator...

LIEBERMAN: We've got to change our policy. And I think it means...

BLITZER: Senator, if the U.S. intelligence community has information that the North Koreans are covertly or secretly building nuclear bombs or developing that kind of plutonium to -- enriched plutonium to build a bomb, what is the U.S. supposed to do, just pretend it doesn't have that information?

LIEBERMAN: No. I think they did right on that. Let me just set this in context. In 1994, the Clinton administration came through intelligence to see that the North Koreans were gearing up this plutonium plant at Yongbyon to make plutonium which could be used in nuclear weapons. And we said the military option is on the table. We're not going to take any options off. But we want to negotiate with you.

In fact, we negotiated an agreement about that plant which they kept until this recent discovery by the Bush administration that they were developing a uranium enrichment -- very different from plutonium, takes longer to get to nuclear weapons. Now, that's unacceptable. That was irresponsible. That was very provocative by the North Koreans.

But I think the response to it from a great nation such as ours should have been to sit right down with the North Koreans and say that, "Listen, this is serious. The military option against you was always on the table, but let's talk." A lot of experts on North Korea think that this action by Kim Jong Il is actually an attempt to get our attention and to make an agreement to stop this new nuclear program in return for more normal relations with the United States.

We don't lose anything by trying diplomacy more actively. And so far we have not done that.

BLITZER: So your bottom line as far as North Korea is concerned is this. The Bush administration dropped the ball.

LIEBERMAN: Yes, they dropped the ball by cutting off the fuel shipments, which is the agreement that the North Koreans entered. In return for the fuel, they would stop this nuclear power plant producing plutonium. We stopped the fuel. They started up the plutonium plant.

They could use that plutonium to make nuclear weapons within months, or at most a year. So so far the Bush administration has had exactly the opposite reaction that we want.

I think we're strong enough not to feel that negotiating with Kim Jung Il is a sign of weakness. And we don't lose anything by it. The military option is still on the table.

LIEBERMAN: So -- Kim Jung Il, I would guess, has moved much more rapidly than the Bush administration ever believed he would to close the monitors of the International Inspection Agency, to kick out the international inspectors at Yongbyon plutonium plant, and now to begin to start it up, along with a laboratory. This is serious stuff.

And we can stop it, I believe, by sitting down along with our allies in that region and negotiating with the leader of North Korea.

BLITZER: What about Iraq? Is there any possibility of negotiating an end to this showdown with Iraq?

LIEBERMAN: It's all up to Saddam Hussein. And it's a good comparison or an illustrative comparison. We in the last 11 years, since the end of the Gulf war, have tried every way imaginable to get Saddam Hussein to keep the promise he made to get rid of his weapons of mass destruction and longer-range ballistic missiles. We've tried diplomacy, economic sanctions, inspections and limited military action. And he just hasn't kept his word. And that's why there's this build-up to military action if he doesn't prove to us that he's disarmed.

On the other hand, the North Koreans -- we ought to give some of those steps -- diplomacy, et cetera, a chance before we get into an exchange of actions that could lead to the kind of conflict that nobody wants and that we can avoid.

BLITZER: Senator Lieberman, you were just in Saudi Arabia. Is it your assessment that the Saudis will be with the U.S., militarily speaking, if it comes down to another war?

LIEBERMAN: Well, I made a very specific request to the Saudis, to the government at the highest level there in Riyadh on behalf of the Congress of the United States and in support of the American military that I visited there over the Christmas holidays, which is that if we need to go to war against Iraq, we need their help. And if we get it, it will be greatly appreciated by the American people. If we don't, it will put the Saudi-American relationship, which is a critical alliance, into more jeopardy.

And I would say over all that I left encouraged that the Saudi government, the royal family, understands how important their help will be. And I don't think they're going to disappoint us. I didn't hear anything explicit that I can bring back, but I don't think the Saudis will disappoint us at this moment, a difficult moment in our longstanding relationship. BLITZER: You're speaking to us from Israel right now. As far as some possibility of reviving Israeli- Palestinian negotiations -- you heard the secretary of state, Colin Powell, say that Yasser Arafat has been a failed leader, and as a result, the U.S. is looking for an alternative leadership among the Palestinians. I know you refused to meet with Arafat while you were there. But is there a credible alternative to Yasser Arafat?

LIEBERMAN: I agree very much with the position that Secretary Powell stated. That's why I didn't meet with Yasser Arafat. I think there's a whole group of leaders who are potential replacements to Yasser Arafat, and yet there's a kind of deference so long as he's there. So the sooner we can get the Palestinians to elections for new leadership and for the kind of constitutional changes that they continue to work on. And the chairman of the committee on the constitution, minister of information, Yasir Abed Rabo, told me that they hope to have their new constitution ready within a matter of a month or two.

Hopefully, that will provide an opportunity to -- for the Palestinians to get new leadership because Yasser Arafat has failed to deliver to the Palestinian people statehood and a better way of life. They're living in desperate conditions now, and the main reason is that he has not given anything near 100 percent effort to stop the violent terrorist attacks against Israel. So long as that's true, there's no hope of bringing the parties back to the peace negotiations.

BLITZER: Finally, Senator Lieberman, one political question about your own presidential ambitions. The latest CNN/"TIME" magazine poll, which you probably saw, among registered Democrats, had the senator from New York, Hillary Rodham Clinton, at 30 percent, you and John Kerry of Massachusetts came in second at 13 percent. I'll ask you a pointed question and get your honest opinion. Is the American public, is America ready for a Jewish president?

LIEBERMAN: I'm convinced, certainly based on the experience I had in 2000 running for vice president, Wolf, that American people are really true to the ideals stated in the Declaration of Independence and the Constitution and every American is endowed by our creator with the rights to life, liberty and the pursuit of happiness.

So I think the American people are going to judge candidates for the nation's highest office based on their experience, their record, their values, their ideas, their hopes for America's future, not on their religion, or race, or nationality or any other adjective that comes before what is most important, the noun American. I'm very confident of that.

So as I make my decision and I'll announce it by the middle of January, I'm going to do it with full faith in the fairness, openness and acceptance of the American people.

BLITZER: Good luck to you, Senator Lieberman. Be careful over there in the Middle East. We'll see you when you get back to Washington. Have a happy and a healthy New Year.

LIEBERMAN: Thanks very much, Wolf. I'm heading out tomorrow morning, go right back to Connecticut for New Year's. I wish you and your viewers around the world a happy New Year as well.

BLITZER: Thank you very much, Senator Lieberman. Good luck.

LIEBERMAN: Thank you.

(END VIDEOTAPE)

BLITZER: And up next, how to handle the twin dangers of a nuclear North Korea and the showdown with Iraq. Senator James Inhofe of Oklahoma will join us live.

LATE EDITION will be right back.

(BEGIN VIDEO CLIP)

BUSH: Some governments will be timid in the face of terror. And make no mistake about it, if they do not act, America will.

(END VIDEO CLIP)

BLITZER: President Bush in his State of the Union address last January, one year ago almost exactly, defining one of the top stories of 2002, the war on terror.

Joining us now is Republican Senator James Inhofe of Oklahoma. He's been a member of both the Intelligence and Armed Services Committees.

Senator, thanks so much for joining us. Welcome back to LATE EDITION.

On the one hand, we heard Secretary Powell insist that it's not yet a crisis with North Korea. Then we just heard Senator Lieberman say, "Yes, indeed, this is a crisis, potentially very big-time crisis."

Where do you stand on this current tension with North Korea?

SEN. JAMES INHOFE (R), OKLAHOMA: Well, I think first of all that Senator Lieberman was -- keep in mind, he's running for president, and he's looking at this and trying to put his spin on it, and I have a great deal of respect for him.

But I really believe the president is doing the right thing. It's not going to be a policy of appeasement, but it is a serious thing that's happening in North Korea. And I hope during the course of this interview, we can get to why it is.

I'd say the greatest disservice that President Clinton did to the nation, the two greatest disservices during his eight years in the presidency, was, number one, cutting down our militaries who are right now about one-half the force strength we were during the Persian Gulf War. And the other was, through his veto power, single-handedly stopping us from having deployed today a national defense missile system. So, in the absence of that, it's a scary thing.

One of the things, in answering your question, that nobody seems to be talking about and seems to be not a prominent part of this debate but should be is not just what they have currently in North Korea but what is their delivery system?

BLITZER: All right.

INHOFE: You know, it was President Clinton's intelligence back in -- I believe it was the 24th of August, 1998, he said it would be between three and 10 years before North Korea would have a multiple stage rocket. And seven days later on August 31st, they fired one. That's the scary thing to me.

BLITZER: Well, let's get to all of those issues and let's try to pick them apart one by one. What some critics of the Bush administration are saying -- and I'll read to you a quote from Robert Einhorn, who was President Clinton's assistant secretary of state for nonproliferation.

What he says is this: "I think the Bush administration's tough rhetoric and tough policies toward North Korea have unnerved the North Koreans and, perhaps, led them to conclude that the only way for them to ensure security is to confront the world with a fait accompli by rapidly acquiring a substantial nuclear arsenal."

In other words, the tough U.S. policies over the past two years toward North Korea are, at least in part, to blame for these North Korean decisions to go back and start building bombs.

INHOFE: Well, let's keep in mind now, we keep forgetting that North Korea did not comply with that 1994 framework. Part of that was they were to destroy any nuclear weapons that they had.

Now, one of the things, the criticism I had of that when it was first set up, is there was no verification. Reagan used to say trust but verify. That's not what this administration did -- or the Clinton administration did.

So we're in a position not to know what they were doing. Now we know that they did not destroy their plutonium, the nuclear weapons that they had on hand. And then they went in a different part of the country and underground and started developing, as Senator Lieberman said, other weapons of mass destruction or nuclear weapons using enhanced uranium. So they have not complied with their end. So the question is this. Do you sit around with a policy of appeasement? I think this president is doing exactly what he should do. He's getting tough with them. He is going to bring in allies.

Sure, we want China. We want South Korea. We want Japan all in there with us. They have as much or more to lose than we do. Let's keep in mind that North Korea does, in addition to the weapons we know they have, they also have, you know, some 500 or so Scud-B missiles and that'll reach virtually every country I just mentioned.

BLITZER: Well, some of those missiles potentially, the extended versions could even reach Alaska right now. You're saying that if the U.S. had some sort of missile defense system deployed by now, and a lot of experts that's not even feasible at least in the short term, that could change the equation. Is that what you're saying? Go ahead and start deploying these missiles even more aggressively right now?

INHOFE: Yes. What I'm saying is, I was talking about Scud missiles. Now the Taepo Dong missile that they used in August of 1998, that was the one that the third stage didn't fire but it still reached Alaska and that's still part of the United States.

Now, what's happened since 1998, we have no way of knowing because we have not had any verification program. I believe that we should have gone ahead with the national missile defense system.

And let me compliment Senator Lieberman. Only four Democrats in 1998 voted with us, the Republicans, to deploy as soon as reasonable a national missile defense system.

He was one of those four, along with Hollings, Akaka and Inouye.

BLITZER: Senator Inhofe, the secretary of state said the train is being loaded right now, as far as a potential war with Iraq is concerned. And we heard earlier in the week from the defense secretary, saying that there are two crises, yes, underway, North Korea and Iraq, but the U.S. military can get the job done.

I want you to listen to precisely what Secretary of Defense Donald Rumsfeld said.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: We are capable of fighting two major regional conflicts, as the national strategy and the force-sizing construct clearly indicates. We're capable of winning decisively in one, and swiftly defeating in the case of the other. And let there be no doubt about it.

(END VIDEO CLIP)

BLITZER: I assume the defense secretary means winning decisively against Iraq and swiftly defeating in the case of North Korea.

Do you accept that assessment, given the current force-structure of the U.S. military?

INHOFE: Well, I think the second statement he made was a little bit ambiguous. Let's keep in mind, Wolf, that our strategy, our national security strategy, has been for, ever since the Second World War, to be able to defend America on two MTWs, major-theater wars.

Now, after the Clinton administration, we had to downgrade that. If you remember, a year ago, the president said we're going to have to bring that down to being able to defend America in one and being competitive in another one.

I'm not sure what that means, but I will say this. When all this is over, we're going to have to relook at our whole defense system, and start rebuilding it, so that we know, for a fact, that we can defend America on two regional fronts, keeping in mind that we're talking about conventional warfare.

My major concern right now is still getting the national missile defense system. I applaud the president for coming forth and putting this back in, so -- but we still have two years before it'll be in place. And we'll be naked for two years.

BLITZER: Which is a bigger threat to the U.S. right now, Iraq or North Korea?

INHOFE: I would say that Iraq probably would be, because they have the intentions. Iraq has demonstrated something that North Korea has not demonstrated, that is that they are capable and willing to go after, if necessary, even their own people, wiping out thousands of their own people in a matter of one day.

Now, they would not hesitate doing that to us. Now, do they have any kind of delivery system? We don't talk about that any more, but, if you'll remember, back when he kicked out the weapons inspectors, they were asked the questions, when could Iraq have both a nuclear warhead and the missile means of delivering it to the United States of America, and their answer was, within six months. That was 1998.

So I see that as the threat, and, number one, he might have that capability. He has been dealing with technology and systems with China. And he has the -- I have no doubt that he would do it.

BLITZER: Is it your assessment, as it is apparently the secretary of state's, that the Saudis are going to be with the U.S. militarily, politically aligned if it comes down to a war?

INHOFE: Well, I was listening to what Senator Lieberman said, and I wish I had the faith that he has that they are going to be with us. I certainly hope they will be. I don't think there's any way that we can know at this time.

But we do know that we have some allies in the Middle East, and we also -- I feel that the president has been very fortunate in having the time to put together the coalitions that are necessary to be of some help in Iraq. Let's keep in mind that our going after Saddam Hussein, and going in to liberate Iraq has never been something that was going to be ignited by a calendar. It was going to be by action. When the president realized that an American city was endangered, then he would do it. We have had time to start building up our supply of smart bombs, and get some other people in the coalition, and a resolution from Congress.

BLITZER: So basically what are you saying now, that there will be a war with Iraq? Is that your bottom line?

INHOFE: No, I think that it's going to have to be regime change, and I don't know any other way that that's going to happen, given what Iraq has right now, and what Saddam Hussein is doing.

But I hope the American people can look at it in the proper context, and that is, this is a liberation of those people, not just of the Iraqis, but of the surrounding countries that have been the target of Saddam Hussein for a long period of time.

I guess the best answer to your question is, yes.

BLITZER: All right. An honest and candid assessment from Senator James Inhofe, the Republican from Oklahoma.

Happy New Year to you as well, Senator Inhofe. We look forward to having you back on this program several times in the coming year.

INHOFE: Happy New Year to you and all of yours.

BLITZER: Thank you very much, Senator James Inhofe.

And just ahead, North Korea thumbs its nose at the world. We'll get some expert analysis from two international observers, key observers.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: States like these and their terrorist allies constitute an axis of evil, arming to threaten the peace of the world by seeking weapons of mass destruction.

(END VIDEO CLIP)

BLITZER: President Bush's State of the Union address almost one year ago when he first used the phrase "axis of evil."

Welcome back to LATE EDITION. Joining us now to discuss the tension with North Korea, the showdown with Iraq and the war on terror are two distinguished guests.

Here in Washington, Lee Hamilton, he's the former chairman of the House International Relations Committee and he's the director of the Woodrow Wilson Center. He was recently named vice chairman of the Presidential Commission to investigate the 9/11 terror attack.

And also here in Washington, Ken Adelman, he's the former director of the U.S. Arms Control and Disarmament Agency and a former U.S. ambassador to the U.N.

Gentlemen, welcome back to LATE EDITION.

And Congressman Hamilton, let me begin with you and play for you this excerpt of what Mohammed El-Baradei, he's the director general of the International Atomic Energy Agency, said this past week on this current crisis, and I'll use that word, "crisis," with North Korea. Listen to this.

(BEGIN VIDEO CLIP)

MOHAMMED EL-BARADEI, IAEA: I think they are trying to use their nuclear capability, which is supposed to be for peaceful ends, to achieve strategic and political objectives, which is totally unacceptable. It's basically a policy of nuclear brinkmanship, and that's what they are trying to do, that if we do not get what we think we should be getting, we are going to use our peaceful nuclear program for questionable activity.

(END VIDEO CLIP)

BLITZER: Basically what he's saying is suggesting, a lot of people have suggested, that the North Koreans simply want some respect, some understanding for their stance.

LEE HAMILTON, FORMER CHAIRMAN, HOUSE INTERNATIONAL RELATIONS CMTE: Well, that may be part of their motivation. I don't think it's very helpful to try to read North Korean intentions. We just don't know that much about North Korea.

There are all kinds of motivations they could have here. The fact of the matter is they're playing a very dangerous game. And as they crank up this nuclear program, the world has to react to that.

The United States has to react to it. I don't think the business of reading motivations helps all that much. They are clearly a threat. They have the capability. We know they have nuclear weapons. We know they have the ability to deliver those nuclear weapons.

We think their intent is hostile. We cannot assume otherwise than that this is a real threat.

BLITZER: Why not simply assume, Ken Adelman, what on the surface seems to be going on? They want desperately to have more nuclear bombs.

KEN ADELMAN, FORMER DIRECTOR, U.S. ARMS CONTROL AND DISARMAMENT AGENCY: Well, I think that's right.

BLITZER: And that's it? As simple as that? ADELMAN: Right, that's what they want.

BLITZER: So no matter what the United States and the international community do, are they going to still be going forward with that nuclear bomb program?

ADELMAN: That doesn't necessarily follow. I think it's clear that they want nuclear weapons for a variety of reasons, but what is also clear is that while this is a big threat to us, as Lee Hamilton says, it's an even bigger threat to China, to Japan and to Russia.

As much as we are worried, I would think they would be scared out of their minds.

BLITZER: South Korea, too?

ADELMAN: South Korea, too. But when you look over the long-run you are going to realize that South and North Korea are going to be unified someday, and I don't think it's going to be that long before North Korea collapses in some form and the Koreans are unified.

If that's the case, then a nuclear Korea, with the weaponry from the north, really does endanger China, Russia and Japan. And I would say that these three countries have a far greater stake than we do in this, and these are the three countries that should really be front- and-center.

BLITZER: Do you want to follow up on that, Congressman? HAMILTON: Well, I think that's correct. They're closer to North Korea, but we have a large stake here, too. We've got 37, I think it's 37,000 troops there.

BLITZER: Thirty-seven thousand U.S. troops along the DMZ.

HAMILTON: South Korea has been one of our finest allies over a period of years. So, the United States has very large interests here, too. But Ken is correct, the other countries are right in the neighborhood.

BLITZER: The deputy prime minister of Iraq, Tariq Aziz, spoke out about North Korea, the way the United States is dealing with North Korea and the way the United States is dealing with Iraq.

And I'll let you respond to Tariq Aziz, Ken. He said this, he said, "North Korea has admitted to having a secret nuclear program. The United States is not asking that North Korea be inspected in the way they are asking for Iraq to be inspected. Why? Because there are two things absent in North Korea, oil and Israel. The reason for this war-mongering policy twoard Iraq is oil and Israel."

ADELMAN: No, he's wrong on one big respect. The reason that we are limited in North Korea is because North Korea has nuclear weapons and it is a gigantic military threat.

If we let that situation happen in Iraq and do not take action against Iraq, namely military action against Iraq relatively soon, we will find the situation that Iraq is as difficult to handle as North Korea is right now.

So North Korea is the kind of the case study of what not to let happen in the world: a totally lawless country with irresponsible leadership that gets nuclear weapons while the international community knows it's going on but doesn't want to address it. And then when it gets nuclear weapons, everybody else is deterred from taking action.

It is a wonderful argument to support the administration going into Iraq forcibly in a war.

BLITZER: Do you accept his logic?

HAMILTON: Well, not completely. But look, a threat is made up of two things. One is capability and the other is intent.

In the North Korean case, you have more capability than in the Iraqi situation. The intent is not all that clear with North Korea. With regard to Iraq, they have less capability, but the intent is clear. They have been more hostile. They have been more aggressive.

So I think the threat is probably greater at this moment from Iraq than it is from North Korea.

ADELMAN: Even though the North Koreans already have...

BLITZER: Hold on one second, Ken, we're going to take a quick break, but we're going to just pick up on this thought when we come back. Even though the North Koreans already have at least one or two. We heard the secretary of state confirm it on this show. They have two nuclear bombs already and have had them for some time. Stand by, we're going to take a quick break.

We'll be right back with Lee Hamilton and Ken Adelman. They'll be taking your phone calls as well.

LATE EDITION will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We are continuing our conversation our conversation with Lee Hamilton and Ken Adelman.

Ken, the whole notion of defectors being interviewed by the U.N. outside of Iraq, is that likely to happen? And if it does happen, is it likely to produce any results?

ADELMAN: It is essential to happen. I mean, what the U.N. team has done is backwards. They have gone after buildings and then a month or six weeks later, people. You can run around buildings all day long. I mean, think of how long it would take Lee Hamilton and myself to go through the CNN building right here to find some chemical weapons or biological weapons. We'd be at it for months, OK? Just one building.

This is a country, 23 million people, the size of France, OK. What you have to find are people willing to take their families out, defect themselves and to say, oh, my, God, there's this program going on, that program going on and the other. We didn't even know that there was a biological weapons program in Iraq till Saddam Hussein's son-in-law defected to Jordan, spilled the beans in the intelligence community and then said, we have this biological...

BLITZER: Any of that likely to happen, though? Do you foresee people being taken with their families, their extended families abroad for questioning.

HAMILTON: I don't know how that's going to play out. The U.N. inspector, Dr. Blix says he has reservations about taking them outside the country. We think they're going to be much more willing to speak freely if they are outside the country. It's to our interest to get them outside the country in a neutral environment. How that plays out, I don't know.

I don't have any doubt at all about the importance of what they have to say. After all, they're the people with the brain power to make these weapons and make them happen.

BLITZER: In the end, though, you heard the secretary of state say, the train is being loaded right now. It looks like they're getting very close, end of January, early February for some sort of critical decision.

HAMILTON: Oh, I think that's right. But a lot depends on whether or not we're able to bring the world with us in our judgment that Saddam Hussein has these weapons. I agree with the statement often made by the administration that the burden is on Iraq. But that doesn't relieve us of some responsibility. The president has said over and over again, the secretary of defense has said over and again that they have weapons of mass destruction. The inspectors have now gone through hundreds of buildings and haven't found anything.

As Ken said, it is exceedingly difficult to find anything. But we have some responsibility, it seems to me, to come forward with some information with regard to those weapons of mass destruction.

ADELMAN: Well, we have. We declared a material breach.

BLITZER: But he wants hard evidence, intelligence evidence that the Iraqis are lying.

ADELMAN: OK. Well, we declared a material breach because they are lying. What we had was a requirement that -- the U.N. had the requirement that they document how they destroyed the facilities for weapons of mass destruction and their stockpiles of weapons of mass destruction.

BLITZER: But the U.S. has intelligence information...

ADELMAN: And they have not -- they have not...

(CROSSTALK)

BLITZER: Shouldn't it go to the Security Council and release this information to the world?

ADELMAN: Yes, yes.

HAMILTON: Yes.

ADELMAN: And I think that we have that information. I think the British have that information. I think the British contained a lot of that information in their white paper a few months ago. I think the Americans have that.

What you say about Hans Blix, Lee, is absolutely right. But that's my trouble with Hans Blix. I mean -- no, seriously, why not start vigorously telling these people, get out of the country, tell where these facilities are, let them -- let us inspect them.

BLITZER: You can't force them to leave if they don't want to.

ADELMAN: No, but you can avoid saying, I'm not very convinced this is an effective means or I don't believe very much in this power. This is the main power that Hans Blix has given.

BLITZER: We have less than a minute. But I want to get both of your assessments very quickly on Saudi Arabia. Will the Saudis be with the U.S. militarily?

HAMILTON: Yes.

ADELMAN: I think they will. I think Saudi Arabia has been more an adversary of the United States over the years than a friend of the United States. And I think that when you look at the war on terrorism, Saudi Arabia is part of the problem, it's not part of the solution.

HAMILTON: They will be with us to the extent we need them.

BLITZER: All right, good assessment from both of you. Good analysis. Thanks to both of you. Happy New Year. Congressman Hamilton, Ken Adelman, we'll have you back. Thank you very much.

HAMILTON: Thank you.

BLITZER: Coming up in the next hour of LATE EDITION, we'll have a special conversation with an American icon. Former New York City Mayor Rudy Giuliani shares his thoughts on a host of issues, including the possibility of a return to political life.

All that, plus the economic roller coaster of 2002. What's in store for the new year? We'll ask the experts. Plus, they'll be taking your phone calls.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We'll hear from former New York City Mayor Rudy Giuliani in just a few moments, but first, here's CNN's Fredricka Whitfield in Atlanta, with a news alert.

(NEWSBREAK)

BLITZER: Now my conversation with the former New York City mayor, Rudy Giuliani, and his views on homeland security, the plans for the World Trade Center site, and the possibility of coming back into politics.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Mayor, thanks so much, as usual, for joining us for this year-end look back, look ahead as well. Always good to have you on the program. Congratulations on your new book "Leadership," the number one best-seller, a good read. Thanks very much for spending some time with us.

(CROSSTALK)

BLITZER: Let's look back on this year. How has your city, New York City, changed over the past year as we get further away from 9/11?

RUDY GIULIANI, FORMER NYC MAYOR: Well, I think, if I look back at the entire year, the city has become more and more confident. I think that, having faced the horrific attacks of September 11 of last year, then having lived through anthrax and some of the other things that happened, the people of the city, I think, are convinced that they can handle, you know, the worst attack that's ever occurred in the history of this country. And that ultimately gives them more strength.

I remember on September 11, maybe the second or third press conference that I did -- I can't exactly remember the order of them -- I said that I wanted the city to emerge from this stronger than it was before September 11. And all that I've seen this year, that's precisely what has happened. The people of the city are dealing realistically with the grief that they have, with the loss that we all share in common, but, at the same time, you know, their spirit is so strong that I think they've actually gathered, you know, great support for themselves from what's happened.

BLITZER: But as we go further away from 9/11, the weeks become months, the months become years, is there a fear, do you have a fear that people are going to forget what happened and sort of look back on it as ancient history?

GIULIANI: No. I do have a concern. It isn't so much that people will lose the sense of feeling and emotion and loss, because so many of us lost so many friends there.

I think what can happen is a complacency about preparedness and about what we're facing with regard to terrorism, which even over the course of the year may have lessened a little. And that we have to keep reminding ourselves that we're still at risk, there are still tremendous threats, that we have a war going on, and that we have to do a lot more to prepare ourselves for all the possible things that terrorists can do to us.

Government needs to do that. Private business needs to do it. Institutions. And as we get further away, there may be a tendency to lessen the intensity of that.

BLITZER: So you're obviously still concerned that it could obviously happen again?

GIULIANI: I am. You know, Wolf, sometimes I think it's a little bit like when someone deals with a disease or an illness. And when you're sick and the doctor gives you medicine, you take it and then when you start feeling better a lot of people stop taking their medicine and never complete it.

And right after September 11 happened and for a long, long period we were very, very intense in all of our preparations with regard to preparing for a possible other terrorist attack. Now as we get further away from it, maybe not even now but maybe as we go into next year, we have to be really careful that we don't lose the intensity of all the preparation that needs to be done, all of the work that needs to be done to, you know, make certain that we eliminate global terrorism.

BLITZER: So you obviously don't think, but correct me if I'm wrong, that local, state, and federal law enforcement preparedness, that they're at the level where they should be to deal with the threats that still remain out there?

GIULIANI: No, they're not at the level they should be. It would be actually unrealistic if they were, because a year and a couple months is not enough time to prepare. I think we're a lot better off than we were a year and a couple of months ago and a lot better prepared than we were then.

But I think -- I guess what I'm saying is I think this year was a year in which we did prepare effectively. I'm afraid as we go into next year and the year after and we move further away that we can lose some of that intensity. And we can't, because a lot more needs to be done.

BLITZER: As you know, some of the critics of a possible war with Iraq say that all this focus on Iraq is detracting from the real threat out there, al Qaeda, which still exists, the war on terrorism. Are you among those who express that fear?

GIULIANI: No. I think that Iraq is part of the picture. I mean, when the president made his speech back in September of last year and he said that the war against terrorism would be in a number of different places over a three- to five-year period, I assumed that one of those places the president was referring to as a critical player in world terrorism was Saddam Hussein and Iraq.

So I see Iraq as part, you know, as part of the overall effort to remove, you know, the capacity for biological, chemical warfare and the possibility of using weapons of mass destruction. So I don't think in that sense it's either/or. Iraq is part of it. BLITZER: Mr. Mayor, what goes through your mind when you know the fact, the fundamental fact, that as of this moment, Osama bin Laden is still alive and well, presumably somewhere along the Afghan- Pakistan border?

GIULIANI: I think it'll be a mission of the United States to bring him to justice for however long it takes. You know, I was involved in law enforcement for, you know, more of my life than probably anything else, even politics.

And the idea that sometimes it takes a long time to bring somebody to justice is not totally foreign to me. And I think that has to be a major focus of America, you know, for as long as is necessary to bring him and the people responsible for what happened on September 11th of last year to justice.

BLITZER: Let's talk a little bit about your city, New York City, and the World Trade Center site. You saw those recently released drawings, those renderings, of some possible new buildings to go up there, a couple of them very, very huge, just like the World Trade Center. You don't like that idea, do you?

GIULIANI: Well, I like the idea of something big and beautiful and very, very imposing that will add to the skyline of the city. But I also think that it has to be primarily focused on a memorial, and it has to be primarily focused on people being able to recreate, relive, you know, what happened on September 11th, for very much of the reasons that we were talking about.

You know, the idea that you can't forget. You can't forget two, three and four and five years from now. So, I'm not sure that any of those designs accomplish that for me. And, you know, I know this is very difficult, and I think everyone has a lot of very, very strong emotions about this.

But I think there should be something very big, something very soaring, something very dramatic and something very beautiful.

But then the primary focus should be a living memorial, library, museum, interactive exhibits, things that allow you to recreate what happened, the horror of it, the effect of terrorism, and then the heroic response and the brave way in which people dealt with it, because it really adds to how you can understand the human spirit.

BLITZER: But what if you could do that, what you want to see, but at the same time have a retail complex, a hotel, office building, a residential area, something that would bring back what once was?

GIULIANI: If you could do that, the answer would be yes. But the primary focus has to be on the significance of the place. And I guess the fear that I have is if you don't devote enough space to that then you minimize the event.

And future generations aren't going to forgive us for that. Future generations are not going to forgive us for covering over what is a national shrine, a place of national significance, a place of historical importance. Suppose somebody, you know, had covered over Normandy or Gettysburg?

So I think that that has to be the primary focus. And then if you can accomplish what you just said, if you can accomplish a very substantial memorial, museum, library, interactive exhibits, soaring, grand structure that points out the importance of this place, and at the same time add office space and retail establishments, I think that would work.

BLITZER: It's been a year since you actually were the mayor of New York City. First question, how's your successor, Mayor Bloomberg, doing?

GIULIANI: I think he's doing fine. I think he's doing exactly what I would want him to do, which is to run New York City as a business, which may be the simplest way to describe it. In other words, try to make the right decisions, try to make it as efficient as possible.

I think he's had to get through, you know, a difficult year, not only in the aftermath of September 11, but the economy has been, has been hard-hit, and particularly in New York because of the dependency on the financial community.

But I think he's done a good job. And I think he's, you know, made the decisions with the right kind of process in mind, which is to think of the city as a business and try to run it as efficiently as possible because ultimately that's going to help the most people.

BLITZER: A year ago at this time you had just been named Time Magazine's Man of the Year. Your life has changed, I assume, over the past year. What are some of the changes that have happened?

GIULIANI: My life has changed. I started a private business, Giuliani Partners, with a number of my colleagues, which means my life has changed, but it hasn't changed as much. A lot of the people that I work with every day, a lot of the people that I'm in contact with on a regular basis in my business are the same people that I worked with at City Hall -- the former police commissioner, the fire commissioner, the head of the mayor's Office of Emergency Management.

I mean, a number of the people that were my colleagues are still my colleagues, and we've developed a growing and, I think, very good consulting business in which we help people on security problems and we help people in crisis management.

I put out a book. That was a real sense of completion when I was able to finally get it done and finally, you know, share it with people, because, you know, writing a book is much more difficult than I think people think when they first go into it. Certainly, there were more ups and downs than I thought, but then finally getting it out was a real sense of completion for me.

But my life has changed a lot, and then in some ways it's very much, it's very much remained the same, particularly because I have a very close group of friends that are like family that I work with every day. BLITZER: So what you're saying is you're still the same Rudy Giuliani, even though you're no longer a public servant, you're out in the private sector. You're making money now. For the first time, I think, probably in your life you're making significant sums of money. Has that changed you at all?

GIULIANI: It hasn't. I mean, it is true it's different being in the private sector, but it hasn't changed me, hasn't changed me all that much. It's meant that I've been able to take care of responsibilities that I have to take care of and other things.

But it hasn't changed, it hasn't changed me, you know, in terms of my personality or who I am. I think going through prostate cancer and going through September 11th are probably the things that had, you know, a real significant impact on me.

My life now has certain, you know, differences about it. Compensation is very different in the private sector. It means you can take care of responsibilities that maybe you weren't able to before.

But essentially, you know, the core of my life is very, very much the same because of the people that I'm with.

BLITZER: Speaking of prostate cancer, hopefully you're doing fine. I just want to reassure our viewers out there around the world. How are you doing?

GIULIANI: I'm doing fine. I get tested on a regular basis. It's something that anybody that's had cancer lives with for the rest of your life.

But I'm free of cancer. I'm very grateful for the treatments that I went through.

And I -- I mean, one of the things that I also get to do is, I get to counsel people who have to deal -- mostly people will call me and contact me who are dealing with prostate cancer, but sometimes other forms of cancer. And, I mean, I wrote about that in my book, but I also get a chance to help people sometimes on a personal basis, and you feel like you're giving back to all the people that helped you.

BLITZER: It's a powerful section of the book, which I've read, the advice that you have for people who have to endure, have to go through what you obviously went through. And it's a useful section of the book, which I recommend.

(END VIDEOTAPE)

BLITZER: We have to take a quick break. More of my interview with the former New York City mayor, Rudy Giuliani, in just a moment. Will he be making a political comeback any time soon? Stay with us.

(COMMERCIAL BREAK) BLITZER: You're looking at a picture of Rudy Giuliani participating in one event marking the anniversary of the 9/11 attacks, another one of the stories that this year makes our CNN top 10 list of the most important stories of the year.

Welcome back to LATE EDITION. Now more of my interview with the former mayor of New York.

(BEGIN VIDEOTAPE)

BLITZER: Let's talk a little bit about politics while I have you. Do you miss being in the political arena directly?

GIULIANI: Well, you know, Wolf, I spent a lot of time in politics over the course of this year. You know, not as much, obviously as I did when I was the mayor. Although, if I think about it in terms of just politics itself, you know, when you're mayor, you don't get the chance to be in politics all that much, you have to run the city.

So all the campaigning I did this year, traveling around the country, which started really I think in the spring of this year, I spent a lot of time in politics. It was a different kind of role, supporting other people, helping other people, repaying debts that I had to people. And so I don't feel like I'm completely removed from politics. And, you know, it's a different kind of role, but it's a very fulfilling one in many ways.

BLITZER: Did -- you probably saw the speculation that was out there over these past several months that President Bush might ask you to replace Harvey Pitt as the Securities and Exchange Commission chairman. Or that he would ask you to be the Homeland Security secretary. Was there ever any possibility that that was a serious consideration?

GIULIANI: No. I'm committed over the next couple of years to, you know, to remaining with my business, developing it. I have a lot of partners I have responsibilities to. I have my own individual responsibilities that I have to take care of. So that is not something that I could really consider right now.

I would like to think about the idea of, you know, being back in politics, you know, three, four years from now, in the future. But right now that isn't -- that's not something I'd actually be able to do.

BLITZER: Is there a specific race, Senate race, a governor's race, something you have in mind three, four years from now?

GIULIANI: No. Just very vague, very general. You know, I know that at some point I'm going to want to get back into being involved, let's call it directly in politics. Because I feel right now that I'm indirectly involved by helping the president, helping other people.

BLITZER: One of the things that has hurt the Republican Party, I assume at least, in the short term, is the Trent Lott affair, the comments he made about Strom Thurmond, the 1948 segregation -- pro segregation run that he made for the White House. How badly has this hurt your party? You're a good Republican.

GIULIANI: Yes, I think the way in which the president, you know, reacted to it and then a number of the other leaders in the party, from what you might call different wings of the party, including the -- what we would call the conservative wing of the party, showed that those were comments that didn't reflect in any way the thinking of the Republican Party.

In fact, it showed I think, a very, very strong and healthy reaction against what appeared to be the attitude. So I think there was some maybe temporary damage done in terms of speculation and discussion. But the long term, given the decisive way in which it was handled, I think it's not going to have any kind of permanent impact on the party.

BLITZER: Did it surprise you the way it sort of fell out? That after nobody was really paying much attention, at least in the media, to what Senator Lott said all of a sudden it snowballed and resulted the way it did?

GIULIANI: Yes, it did because, you know, the story came up after a couple of days, when the comments had been made earlier. But I think, I mean, I think a lot of it had to do with the president's strong reaction to it. I think that -- otherwise, it might have gone on for, you know, quite a bit more time, and who knows what the outcome was? But I think when the president made his first comments, you could -- you could almost see the resolution of this happening pretty quickly, and it did happen pretty quickly.

BLITZER: Let's talk briefly, because I know you have a limited amount of time. The president, President Bush, what must he do, what must he avoid doing in order to get reelected in 2004?

GIULIANI: Well, I think he has to keep going in the direction that he has been going. I think he's had, you know, about as successful a year for a midterm president in his first term ever.

Politically, with taking back the Senate and the gains made in the House, and in terms of foreign policy, the war on terrorism, the support that he's been able to get for the efforts in Iraq. I can't think of how he could have had a more successful year.

I think like any president, the economy plays a very, very big part in, you know, what kind of problems he's going to face for re- election. And that's a year, year and a half from now. So there's no way to know where the economy is going to be at that point.

I think that the president's approach of trying to reduce the size of government, return more money to the private sector so that people get more discretion over their own money through tax reductions, is the right answer to the economy. But sometimes that right answer takes three months, six months, a year, and that's going to determine, I think, a lot of the political landscape for, you know, the year in which he faces re-election. BLITZER: Did you see that latest CNN/Time magazine poll that had among registered Democrats Senator Clinton, Hillary Rodham Clinton, atop the list now that Al Gore has dropped out? She has 30 percent. And then way down, John Kerry and Joe Lieberman are at 13 percent. Everybody else sort of is at single digits. Did that surprise you?

GIULIANI: No. I don't think it would surprise anyone who understands politics. I mean, Hillary Clinton has tremendous name recognition. She's someone who gets connected among Democrats in particular, you know, to President Clinton, where, you know, he's very popular among Democrats.

So when you think about it as Democratic voters and the kind of feeling and the kind of sense the Democratic voters had about President Clinton, and I assume about, you know, Senator Clinton, that isn't so surprising. I mean, she has the strongest name recognition of any of that group. So once Al Gore drops -- I think Al Gore, even at the time he dropped out, was still preferred by like 50 or 51 percent of the Democrats.

So, the idea that Hillary Clinton would be second, you know, would be at 30 percent, isn't so unusual.

BLITZER: Do you take her at her word when she says she is not going to run in 2004?

GIULIANI: I think that's right. I mean, I think that probably -- yes. Yes, I think it's her first term in the Senate. Unless things change dramatically, it's going to be an election against a very difficult incumbent to defeat. I think President Bush is going to be, you know, very difficult for any Democrat to defeat.

I hope, of course, no one defeats him and that he wins. But in politics, you can't take that for granted. But I think right now, it looks like a very difficult race for a Democrat.

BLITZER: How's she doing right now, the senator, the junior senator from New York?

GIULIANI: A very different voting record than I would have.

(LAUGHTER)

And a very different set of positions.

BLITZER: You would have been a different kind of senator, representing...

GIULIANI: Sure. But, you know, we represent very different philosophies and a very different approach to government.

BLITZER: I know you're about to get remarried. I want to congratulate you on that. I want to thank you very much for...

GIULIANI: Thank you very, very much.

BLITZER: ... spending some time reflecting on a wide range of issues with us.

GIULIANI: Happy Holidays and Happy New Year.

BLITZER: Happy New Year to you, as well, and to the whole family.

GIULIANI: Thank you, Wolf. You, too.

(END VIDEOTAPE)

BLITZER: And coming up, the wartime economy's wild ride in 2002. President Bush says the economy is growing again. Is it? And what does that mean for your bottom line?

And how will the corporate corruption of the past year affect future Wall Street deals? We'll ask the outgoing House majority leader, Dick Armey of Texas, and the former Clinton labor secretary, Robert Reich.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

DAVID DUNCAN, ARTHUR ANDERSEN: On the advice of my counsel, I respectfully decline to answer the question based on the protection afforded me under the Constitution of the United States.

KEN LAY, ENRON: I am deeply troubled about asserting these rights, because it may be perceived by some that I have something to hide.

(END VIDEO CLIPS)

BLITZER: Two of the main players in the Enron accounting scandal refusing to testify earlier this year. David Duncan of Arthur Andersen mishandled Enron's books, and Ken Lay, the former chairman and CEO of Enron.

The corporate corruption of 2002 is one of the top 10 stories of the year. Joining us now to discuss that and the overall state of the economy are two special guests. In Dallas, Congressman -- the outgoing majority leader -- Dick Armey, who's retiring from the U.S. Congress. And in our Boston bureau, the former labor secretary under President Clinton, Robert Reich.

Gentlemen, welcome back to LATE EDITION.

Congressman, let me begin with you on the whole notion of the economic comeback. All of us want to see the economy come back, but how concerned are you that a war with Iraq potentially could cost a lot of money and derail the economic turnaround?

REP. DICK ARMEY (R), TEXAS: Well, obviously, that would have serious budget consequences for the government. But more importantly, it would have a continuing atmosphere of uncertainty, fear, and concern for the American people. And of course, uncertainty breeds caution, caution means people sit out the stock market, they're slow to get involved in it, they're reluctant, they're cautious, and of course now, with so much of the nation invested in that, the depressed stocks feed back into consumer confidence in an adverse way, and it just maintains a slow economy.

So it would be far better for the performance of the economy to see American people's attitudes lifted by an understanding that no war was necessary.

BLITZER: A lot of people are nervous out there, Robert Reich, about a potential war with Iraq, certainly the tensions with North Korea right now. How will that play in your assessment on this effort to have the economy come back to life?

ROBERT REICH, FORMER LABOR SECRETARY: Wolf, investors hate uncertainty. So I doubt very much that we're going to see much action in the stock market. Perhaps 2004 the economy will rebound. In terms of stocks, I don't think we're going to see a tremendous rebound in 2003. Again, with that overhang of uncertainty.

But we also saw that this past Christmas season has been very, very disappointing for retailers. We have a drop in the consumer durable purchases in November.

The economy is not really in anything resembling a vigorous recovery right now. In fact, many people would say that this is the most anemic recovery on record. Consumers are barely holding on. Consumers are the only thing that has basically kept the economy going over the past two years, and that's the big question mark: consumer confidence.

BLITZER: What about that, Congressman?

ARMEY: I agree. I agree with that. We have to address the whole question of security, and that is the underlying -- what should I say, psychology of this depressed economy.

When people feel more secure and more secure about their future, more secure about jobs, more secure about tenure at the job, more secure about future promotions, more secure about their retirement security -- it's an amazing pall over people's current consumption behavior, how they worry about what their retirement will look like.

BLITZER: And the cost of oil, Robert Reich, clearly could have a significant effect, at least in the short term, on the economy.

I want to put some numbers up on our screen, tell our viewers what they're looking at. If you take a look at U.S. dependence on imported oil, Canada of course provides the most oil to the United States, at around 21 percent of U.S. oil needs. Saudi Arabia second, almost 17 percent. Mexico, Venezuela, going down.

But even Iraq is providing, if you show the next screen up there, Iraq provides almost 6 percent of U.S. oil imports, an unusually high number.

If you have to take a look at all of this oil uncertainty, and the impact, the ripple effect that a higher price per barrel could have on the U.S. economy, what does that say to you and the viewers out there, who are already a little bit jittery about an economic recovery?

REICH: Wolf, it means that 19 -- that the year 2003 is going to be even more uncertain. Oil prices are already above $30 a barrel. Venezuela, the strike down there, it looks like it's going to be settled, but that uncertainty has added to the overall uncertainty.

OPEC, the Organization of Petroleum-Exporting Countries, has been controlling the exports of oil and taking advantage of the current uncertainty.

REICH: I think oil prices, if they go anywhere, given uncertainty in the Middle East, they are going to continue to go upward, and that is going to have certainly a downward effect on the U.S. economy.

So we're not looking at a vigorous recovery, unfortunately, in 2003. I wish I could be more buoyant and upbeat. I wish I could be a cheerleader, like many business economists are, for the economy. But as a matter of fact, as a practical matter, 2003 could be a very slow year.

BLITZER: Congressman Armey, you're from Texas. You know something about oil. You're an economist, among other things. What's going to be the impact of oil, assuming that there will be a war with Iraq and there could be a disruption of the flow of oil, at least a short-term disruption?

ARMEY: We've seen that before. As long as America remains so heavily dependent on foreign oil supplies America is always going to be, what should I say, open to depressive effects from interruptions.

That's why I personally find it so regretable that the environmental extremists prevented us from having instituted even last year a solid energy policy that would have given us access to some of the greatest oil reserves that are available in the world, but particularly to the United States.

It's time we really get beyond that and get on with a decent energy policy that will lend an air of future stability to our energy supplies.

BLITZER: How is it possible, Congressman Armey...

REICH: Well, Wolf...

BLITZER: Bob Reich, hold on one second. I just want Congressman Armey to respond to this.

How is it possible that after the oil embargoes of, what, 20, 30 years ago and all the cries over the years of the still-significant dependence of the United States on foreign imported oil, that the U.S. still remains as dependent as it is?

ARMEY: Because the U.S. has not developed its own domestic supplies of petroleum that are there and available to us. We haven't used all that is available to us in energy sources alternative to fossil fuel energy. We have the coal reserves that lay out there that could be developed with clean coal.

What we have in America is an energy crisis over an ideological conflict. And it is time for the practical business of life to beat the romance of environmental extremism if we're going to have any stability in our energy system.

BLITZER: All right. Robert Reich, go ahead.

REICH: Well, I just wanted to say that as long as we're getting into politics and policy right now, let me put a very strong plug in for renewable energy resources. This is something that we certainly have the technological competence to explore. We ought to be the world leader in renewable energy.

And there's no reason we have to do a lot more drilling. There's no reason we have to pollute the air as much as we do. It is, in my terms, a disgrace that we're not doing more with renewable energy. And I hope this crisis teaches us that we cannot have a foreign policy that is based on oil politics.

BLITZER: Well, what do you mean precisely by renewable energy resources, Bob Reich?

REICH: We're talking about wind and solar, all sorts of ways in which we have already the embryonic technologies to develop the ability to produce energy that is non-polluting.

These are not environmental extremists who are pushing this. These are people who are very deeply involved in technology, who know that we can do it. There's no place around the world who has the technological competence that we do in these renewable, non-polluting energy technologies. And that's what we ought to be investing in right now, Wolf.

BLITZER: All right, we're going to take a quick break, but I want Congressman Armey to respond on that point.

We heard a lot about wind and solar in the 1970s after the Arab oil embargo against the United States, but all that seemed to have petered out rather quickly. Is Secretary Reich on to something, though, here, Congressman?

ARMEY: Well, I appreciate the appeal he has to what he's talking about here. But these are, frankly, I think, in terms of the practical application in large amounts of energy generated, they're the romantic alternatives. They don't get down to the real brass tacks of taking the real energy supplies that are available to us and getting on with developing those supplies. And I'm talking ANWR here as my first best example. BLITZER: ANWR being the oil up in Alaska, the oil reserves up there, a subject that has been hotly debated, of course, over the past several months.

We're going to take a quick, short break. More of our discussion on the wartime economy with Congressman Armey and Bob Reich. Plus, they'll be taking your phone calls. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We're continuing our conversation with Congressman Dick Armey of Texas -- he's retiring from the U.S. Congress -- and the former labor secretary under Bill Clinton, Robert Reich.

Bob Reich, if you had to make one or two specific proposals to try to stimulate the economy, get the economic recovery going early in the new year, what would they be?

REICH: Well, I think the best proposal is to eliminate the payroll tax on the first $10,000 to $20,000 of income. The advantage here is that it puts money directly in people's pockets, money that they're likely to spend and thereby stimulate the economy.

Four out of five Americans spend -- or actually pay more in payroll taxes than they do in income taxes. So, this is a fair way of doing it. It's also one that is guaranteed, almost guaranteed to get the economy going again.

I understand that the Bush White House is now considering this. A lot of Democrats support it. I hope this is part of the White House's plan.

BLITZER: All right. What do you think about that, Congressman?

ARMEY: Well, I would consider that a fairly ineffective alternative. What you have to do is reduce the cost of investment or of savings and increase the return on investment. You need to have a smart set of tax cuts that focus on savings and investment to gin up that activity.

And you need to address retirement security. It's the underlying psychological hurdle that we've got to overcome. A comprehensive plan to give people a greater sense of confidence that they will control a more secure retirement.

And unfortunately, cutting the payroll tax, which is devoted to social security, in the face of its already existing liquidity problems for the next generation, would, I think, undermine people's confidence about the security of their future in retirement years.

BLITZER: Go ahead, Bob Reich.

REICH: Well, what we need right now is to, first of all, acknowledge the problem, the immediate problem, is overcapacity, underutilization. There are too many factories, too much equipment, too many people who are idled right now. We've got to push the economy forward by pumping up demand.

The Federal Reserve Board can't do it alone. The Fed has lowered interest rates, short-term interest rates, 12 times. They're now 1.25 percent. That's the lowest it's been in decades, and that's like pushing on a wet noodle.

The only way you're going to actually get this economy going is to give consumers more money, more money in their pockets, temporarily. Now, I'm not talking about a permanent cut in the payroll tax. I agree with Dick Armey, if you did that, you might jeopardize social security. We're talking about a one-year tax holiday.

Now, that can easily be paid back, for example, in future years after 2004, after the economy is back in good shape, just freeze taxes on the very wealthy. Don't give them a big tax cut; they don't need it. That would more than make up for any loss right now in the social security trust fund.

BLITZER: On that last point, Congressman, the Bush administration seems to be backing away from speeding up, accelerating some of those tax cuts for the wealthiest Americans that were passed this past year. Is that a good idea?

ARMEY: No, it's not a good idea, and I'm frankly a little disappointed here again. One of the things you have to make policy calculations that are designed to say what are the real economic consequences of what you do and try to keep the politics out of it.

I think the Bush administration right now seems to be too responsive to political background noise. The fact is, if you cut the marginal rates -- we've seen it too many times before beginning with Kennedy in '62 -- you will, in fact, increase discretionary work, discretionary consumption more quickly than anything else.

You also, and I want to build on something Bob Reich said, he's exactly right about, greater demand for American product in overseas market. We need to develop our international export side of our economy. We've taken steps in the last Congress to do that, but aggressive trade and export opportunities ought to be pursued and are available to us if we pursue them properly.

BLITZER: What do you think, Bob Reich, of this new economic team the president is putting in place? They have to be confirmed by the Senate. But let's go through one, the new secretary-designate of the Treasury, John Snow. What do you think of him?

REICH: Well, he's had a very good record, a very good employer. I dealt with him a little bit over the last 10, 15 years. But this new team, let's keep in mind, they are going to be a sales team. They are not developing the new economic package.

That new economic package, as Dick Armey just suggested, is being developed largely by Karl Rove, the president's political adviser, other people in the White House. It's already pre-packaged. That new team is going to have to go out and, whether they like it or not, whether they agree with it or not, they're going to have to sell it. That's their job.

BLITZER: Congressman, John Snow will be joined by Stephen Friedman who will be the chief economic adviser in the White House. Is this new team going to get the job done?

ARMEY: Well, I think they will. And quite frankly, I think particularly John Snow, who I know a little better, has a PhD in Economics from Virginia. This is a big deal and shows his qualifications are quite capable.

I think both Snow and Friedman will be assertive. They're not going to have accepted these positions with the notion that they would let politics define the economics of the administration. I think they will assert themselves.

And there are some very smart and capable people in this White House. If they can just get beyond politics and focus on true economic policy, we can develop some very good economic policies with this White House. They have some very bright people in there.

BLITZER: Finally, what did both of you think about the new chairman designate for the Securities and Exchange Commission, William Donaldson? I'll let Bob Reich respond first.

REICH: The SEC's big problem is lack of money to enforce the laws right now. You might have a chairman in there who is less cozy with the industry than Harvey Pitt. I think everything I know about the chairman designate has been positive. But unless the Congress appropriates and the president puts into the budget more money for effective enforcement of the securities laws, that SEC is going to be just absolutely ineffective.

BLITZER: Congressman, you'll have the last word.

ARMEY: Well, I think we do have a good chairman now. And obviously, if you have a good person who you find reliable, give him the resources to do his job. I think that part of what has been our concern in the past few years is going to be corrected, probably is corrected.

BLITZER: All right, on that note, I want to wish both of you a Happy New Year. Thanks to both of you for joining us many times this past year and in the coming year as well.

Good luck, especially to you, Congressman, as you begin many, many years ahead of you outside of Washington. It feels pretty good, I guess, doesn't it?

ARMEY: Well, it's an exciting time to go on and see what other adventures I can find. I've been fortunate to have two exciting careers, and I've got just enough time in my life for a third one, so I'm looking forward to it.

BLITZER: Bob Reich can tell you there is life after Washington.

(LAUGHTER) REICH: There certainly is. Not much of it, but it is. It's very pleasant out here.

(LAUGHTER)

Happy New Year to you both.

BLITZER: All right, good luck to both of you.

ARMEY: Happy New Year.

BLITZER: Happy New Year of course.

And up next, public and private, a White House photographer shares the photos that captured five U.S. presidencies. Diana Walker's fascinating book, when LATE EDITION returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

UNIDENTIFIED MALE: We now have a Republican administration, a Republican House and a Republican Senate.

UNIDENTIFIED MALE: I've got to tell you, when you see the energy in this room, you know that the future is in and with the Republican Party.

UNIDENTIFIED MALE: Our time in the desert is over.

(APPLAUSE)

(END VIDEO CLIPS)

BLITZER: Three Republican winners on Election Night 2002. Defying predictions, the Republicans rode President Bush's popularity to a very strong performance, recapturing the Senate, and gaining seats in the House of Representatives, making it one of our top ten stories of the year.

Welcome back to LATE EDITION.

Joining us now, a guest who has had special access to presidents for over two decades. The photographer Diana Walker's new book is called "Public and Private," and it includes pictures of presidents, both Republican and Democrat.

Diana Walker is joining us now live from our London bureau.

Diana, thanks for joining us. Welcome to LATE EDITION.

And I want our viewers to see some of these remarkable pictures. You've taken pictures of presidents going back to the 1970s.

The first one I want to put up on our screen for our viewers in the United States and around the world to see is that remarkable peace treaty signing ceremony at the White House involving the late president of Egypt, Anwar Sadat, the late prime minister of Israel, Menachem Begin, and Jimmy Carter, who was then president. It was a glorious day at the White House, on March 26, 1979, wasn't it?

DIANA WALKER, PHOTOGRAPHER: Oh, Wolf, it was the first really big event I'd ever witnessed at the White House. And President Carter reminded me, when I saw him about the book, that this peace treaty has never been broken, which is quite extraordinary.

BLITZER: It was an amazing picture. I was there that day as well.

There's another picture I want to put up showing Ronald Reagan and Queen Elizabeth. Tell us about this picture.

(LAUGHTER)

WALKER: Queen Elizabeth had visited the Reagans and done a tour of California, and it had never stopped raining in the 10 days she was there. And at a state dinner held in San Francisco for her, she made this very funny toast, in which she said that she knew that the Puritans had brought many customs from her country, but she had no idea they brought the terrible weather, too. And President Reagan just broke up. It was very funny.

BLITZER: He was laughing robustly.

(LAUGHTER)

Let's put up another picture. This one showing Nancy Reagan and the wife of President Gorbachev of the then Soviet Union. It's 1985. And Raisa Gorbachev is there as well. Talk a little bit about this picture.

WALKER: Well, this was the first behind-the-scenes picture that I really took during the Reagan administration. And Mrs. Reagan was meeting with Mrs. Gorbachev in the home of the Aga Khan in Geneva. And there I was witnessing this. And it looked to me then, Wolf, that this was not going to be the warmest relationship that ever happened. It was a little stiff.

(LAUGHTER)

BLITZER: It was a little stiff. There may be -- in fairness, there could have been a language barrier as well.

WALKER: Oh, I think so.

BLITZER: There's another picture that's relevant very much today, when President Bush, on Thanksgiving, a dozen years ago, went out to meet with U.S. troops in Saudi Arabia. That was to Operation Desert Shield, getting ready for Desert Storm. You remember, obviously, that picture.

WALKER: Yes, and this was at the end of the day, and the president had been surrounded by congressmen and a whole delegation that had gone with him out into the desert. And at this point we were just about to leave, and the sun was going, and the troops were all around him, and suddenly the president stood up by himself, and he started throwing souvenirs to the troops, like key-rings and tie-clips and things like that, and suddenly there was this really magnificent and wonderful moment. And I just knew, if I could hold tight, and technically I had it all right, we really had a picture there.

BLITZER: Now, there was another picture...

WALKER: It was beautiful, a beautiful moment.

BLITZER: ... you took of the Bush family in the summer of 1992, obviously, before the election. Talk about this picture, because we see the then president, but a future president there as well.

WALKER: I know, isn't that amazing? It was the whole family, and they were having a -- they were posing for a family portrait for the White House staff photographer, David Valdez (ph), and I was there behind the scenes. And it was just this wonderful sort of chaotic, typical family thing with the Bushes, where there were children, grandchildren, dogs, everything all around. And there's the president George W. Bush just left of center.

BLITZER: Fast forward now to 1997. This next picture is a remarkable picture of Bill Clinton and Al Gore praying in the White House. Well, let's go back to the one about them praying in the White House.

WALKER: Yes, the one praying is so obviously a behind-the-scenes picture that never could have been taken in a normal photo op. And I was there, and I was very happy to have the opportunity to make that picture because somehow it told me, and I hope it told those who saw that picture or see it now, something about the president and the vice president that they might not have known before, and that was their practice -- how they practiced their religion.

BLITZER: And the final picture that I want to show our viewers, we glimpsed at it briefly, is on the day that he left office, Bill Clinton getting ready to get into the limo. This was not a happy day for him.

WALKER: No. And I had followed the president for the last week. He was in the presidency behind the scenes. And he had just finished this huge rally out at Andrews Air Force Base, and he was heading for the plane to take him back to New York, no longer the president of the United States. And he decided not to get into the limousine there. Instead, he started walking in the rain toward the plane to leave.

And it seems to me that even though the weather is terrible and it was cold and windy, you can really see more about what it's like to be leaving the presidency. I think it's written all over his face at that very moment.

BLITZER: Diana Walker is a photographer from Time magazine, a great photographer. She's done a marvelous book. I hope it's on a lot of people's coffee tables very, very soon. If you haven't seen it, you should go take a look at these pictures. There are more than, I think, 200 of them, public and private.

Diana Walker, congratulations, by the way, on the birth of a grandson, Jack (ph). She'll be taking a lot of pictures of Jack (ph) as well. Thanks, Happy New Year to you, Diana.

WALKER: Happy New Year to you, Wolf.

BLITZER: Up next, Bruce Morton's essay. Bruce remembers the lives lost in 2002.

(COMMERCIAL BREAK)

BLITZER: Time now for Bruce Morton's essay. He looks back at the lives we lost in 2002.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): We lost Cyrus Vance, Jimmy Carter's secretary of state, who resigned in protest, something secretaries of states don't often do, over his president's unsuccessful effort to rescue the American hostages in Tehran by force.

We lost Stephen Ambrose, a historian who specialized in writing about World War II from the point of view of the men who fought it, and who, asked do you want to be called Professor or Doctor, told a reporter, "Steve will do."

Peggy Lee died at 81, a woman who could sing everything, jazz, pop, standard, extremely well, and who taught other singers that the words, the phrasing of a song do matter.

We lost Rosemary Clooney, who invited 1950's America to "come on to my house." Many did.

Britain's Princess Margaret died, a troubled royal, and the queen mother, a truly beloved one, died at 101. Of course they loved her. When the Germans bombed Buckingham Palace, she said "Now we can hold our heads up in the East End," a working-class neighborhood which had been hit hard.

Lost Richard Harris, an Irish actor who loved acting and life and last played Alder Stumbledelore (ph), the head wizard in the Harry Potter movies.

Lost Milton Berle, whose vaudeville act made millions go out and buy their first TV sets. Lost Katy Jurado, the memorable Mexican actress who starred in "High Noon."

Lost Linda Boreman, who as Linda Lovelace was a porno star in the 1972 movie Deep Throat. She was 53.

Lost Lionel Hampton, age 94, for 60 years a jazz master. Dee Dee Ramone, the bass player for that famous punk band, died of heroin, age 50. J. Carter Brown died at 67; headed Washington's National Gallery for 23 years and brought in treasures from China, from Egypt, a whole show of Vermeers.

And we lost Roon Arledge, who revolutionized TV sports, Monday Night Football, the Olympics, and who made ABC News a powerhouse with shows like Nightline.

Jonas Savimbi died, a turbulent leader who kept the Angolan civil war going for a generation. And a man we don't know, General Van Tien Dung (ph), who led the communist troops that captured Saigon and ended the Vietnam War.

We lost Canadian photographer Yusef Karsh (ph), who got his famous picture of Winston Churchill, they say, by snatching the great man's cigar from his mouth and shooting the scowl that followed.

Lost "Slammin'" Sammy Snead, one of the three or four best golfers ever. And Los Angeles Lakers play-by-play man Chick Hearn (ph), who gave the language phrases like "Slam-dunk and airball."

HEARN: Slam dunk.

MORTON: Lost Ann Landers, who advised a couple of generations on how to live their lives. Lost Mildred Wort Benson (ph), who wrote the Nancy Drew stories girls read for decades, and who when she died at 96 was working on her newspaper column for that week.

We lost Joseph Bonanno, the gangster knicknamed Joe Bananas. He was 97.

And we lost Daniel Pearl, age 38, a gifted "Wall Street Journal" reporter killed by Islamic extremists in Pakistan, who proved in his short life that outstanding reporting still exists and that it can be dangerous.

Lots of memories as the old year ends. I'm Bruce Morton.

(END VIDEOTAPE)

BLITZER: Thank you very much, Bruce.

Coming up in our next hour of LATE EDITION, Congressmen David Dreier and Charlie Rangel give their take on the year that was, plus our Final Round. Don't miss their resolutions for the new year. LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We'll get to our discussion and the top 10 stories of the year with Congressman David Dreier and Congressman Charlie Rangel in just a moment. But first, here's CNN's Fredricka Whitfield in Atlanta with a news alert.

(NEWSBREAK) BLITZER: Events this year profoundly changed the way we live. Our colleagues at cnn.com have compiled a list of the top 10 most influential stories of the year. These events affected our faith, our safety, our beliefs, and our pocketbooks.

An emotional pull from last year's story is at number 10 on cnn.com's list for 2002. A year of grief culminated in some moving tributes at the sites where those four hijacked planes crashed on September 11th, 2001. On the one-year anniversary, silence and solitude prevailed at those moments when chaos had unfolded the year before.

At number nine, a direct result of September 11th. The biggest reorganization of the U.S. government in more than half a century. President Bush signed a Homeland Security Bill, a 170,000- person department was created, all to protect American soil from another September 11th-style attack.

From parishes throughout the U.S. to the Vatican. The sex scandal that brutalized the image of the Catholic Church makes number eight on cnn.com's list. Top church officials were accused of covering for priests who had molested children and teenagers by discreetly moving them around to different parishes. The scandal led to criminal charges for some well-known priests and the downfall of Boston's archbishop, Cardinal Bernard Law.

A post-September 11th recession, the prospect of more terrorist attacks and a rash of devastating corporate scandals pushed the U.S. economy through a roller coaster year, the seventh biggest story of 2002. The battered markets reflected in many CNN polls, which showed Americans more worried about the economy than the confrontation with Iraq.

The making of political history made its way into the top 10 at number six. The Republicans took control of the Senate and strengthened their hold on the House, marking the first time in nearly 70 years that a sitting president's party made gains in off-year elections of his first term.

The list reads like a who's who of corporate America. And their collective downfall makes our list at number five. Charges of mismanagement and corruption brought down giants like Enron, Arthur Andersen, and WorldCom. Decorating guru Martha Stewart faced an investigation of insider trading. And Congress moved to rein them all in with tougher regulation.

A war that began in 2001 got into the trenches and caves in 2002. At number four, the U.S.-led war in Afghanistan, still being fought as coalition troops try to rout out pockets of Taliban and al Qaeda while they pursue the world's most wanted man, Osama bin Laden. Bin Laden's al Qaeda remained effective in 2002.

And at number three on cnn.com's list, the collective reign of terror that swept through the Middle East and elsewhere. The year's bloodiest incident, October 12th in Bali, Indonesia. More than 180 people died when two bombs exploded in a crowded nightclub district. A different brand of terrorism captured our attention in October and comes in as the year's second biggest story. Sniper attacks in the Washington metropolitan area killed 10 people, wounded three others, and crippled the region before suspects John Allen Muhammad and his 17-year-old counterpart, John Lee Malvo, were captured.

Rated at this year's top story by cnn.com, the showdown with Iraq. The Bush White House accuses Saddam Hussein of developing chemical, biological, and nuclear weapons. Baghdad counters with charges of war mongering by the U.S. American pressure intensifies. Iraq is warned of serious consequences if it does not cooperate with U.N. weapons inspectors. The tension is palpable as we end the year, and the showdown leaves us as possibly the biggest story of 2003 as well.

And joining us now to talk about these stories and what the future holds in 2003 are two congressmen we always love to have here on LATE EDITION. In New York, the Democrat, Charlie Rangel. He's the ranking member of the powerful Ways and Means Committee. And in Los Angeles, the Republican, David Dreier. He's the chairman of the Rules Committee.

BLITZER: Congressmen, always a pleasure to have you on the show.

REP. CHARLES RANGEL (D), NEW YORK: Happy New Year.

REP. DAVID DREIER (R), CALIFORNIA: Great to be with you both. Happy New Year. And welcome home, Wolf.

BLITZER: Thank you very much. It's become an end-of-year tradition here on LATE EDITION to have both of you on.

And let me begin with you, Congressman Rangel, get your assessment. Iraq was by our cnn.com estimate, the top story of 2002. Going into 2003, does it look like that will be the top story of the year as well?

RANGEL: I hope that it is the top story that we avoided war, that there was more outrage. It doesn't surprise me that CNN would come up with this as being the top story. What surprises me is that there's not any outrage in our country.

I think the president ought to be complimented for going to the U.N., the way he's handling North Korea in a diplomatic way, but I think it's outrageous to say that we would go it alone in Iraq if we don't get the support of our friends throughout the world.

BLITZER What about that, David Dreier?

DREIER: Well, for starters, you know full well that there is no way in the world that we will go it alone. And I think I've said to you all in this program before, unilateral is a term that should be taken out of the mix here. Why? Because we know that even if we don't have the full support of every one of the 193 nations on the face of the earth in our attempt to deal with Iraq, we clearly are going to have allies like Great Britain and I think that we're working now with Turkey, Saudi Arabia. There are loads of other allies who are going to be with us.

We, of course, want very much to pursue, as the president did at the encouragement of Democrats and Republicans last summer, the multilateral approach by getting the United Nations support there. This is obviously a top story.

The whole international situation -- and I think that Rudy Giuliani said it very well in your interview, that coupling the war on terror with Iraq and obviously dealing with the situation now that exists on the Korean Peninsula is going to be the greatest challenge that we're going to be facing. And it's obviously a very, very serious one.

BLITZER: All right. Congressman Rangel, is it your sense that fighting a potential war against Iraq is not, as Rudy Giuliani and David Dreier say, part of the bigger war on terror altogether?

RANGEL: Well, there's been absolutely no evidence. The president may know something, but he's not sharing it with the Congress or the intelligence committee, to connect the 9/11 act of terrorism with Saddam Hussein. Truly...

DREIER: Charlie?

RANGEL: Saddam Hussein is a person we've been wanting to get rid of for a long time. But he's not just a threat to us and his neighbors, he's a threat to the international community.

There is no reason why we've got to treat North Korea diplomatically when they already have nuclear weapons, with the exception of oil, of course, and the way we're treating Iraq and saying that we'll go it alone. No, not alone. We'll go alone with Great Britain, because the only friends we have in the Middle East is Israel. You can't trust those other countries because it's based on our relationship to their reservoirs of oil.

DREIER: Well, let me just say that -- I mean, it's very clear to me that we're going to have a broader coalition in dealing with this challenge. And I think we'll...

RANGEL: Why is it so clear to you? Why is it so secret?

DREIER: There's nothing secret, and I will tell...

RANGEL: Who are the people?

DREIER: Charlie, let me tell you one of the reasons, as we look at this, there is in fact a direct nexus between the two. And that is, at the very beginning Sarin and VX, two of the most deadly chemical weapons around, word has come out and the Washington Post did a story on this, of the transfer of that capability from Iraq to al Qaeda.

Similarly, if you look at a guy called Haqmid Shakir (ph), he is one of the top operatives of Osama bin Laden. He's been based in Baghdad. Now, I'm not saying at all that Saddam Hussein was involved in the September 11th attacks. Make that very clear.

But I do believe that there is a very serious threat posed to the future of the greatest nation on the face of the earth and our interests around the world.

RANGEL: And that would warrant...

DREIER: And that threat comes from Iraq, it comes from al Qaeda and the war on terror, and, obviously, we have real challenges here in North Korea.

And I think Colin Powell was absolutely right in his interview with Wolf today when he talked about the fact that we need to diplomatically pursue a resolution there on the Korean Peninsula.

But I will tell you that our former ambassador there, Don Gregg, I visited him with Senator Lugar 12 years ago when he was the ambassador to South Korea, he said that's the most dangerous spot in the world, and we need to be very, very vigilant in dealing with that threat.

RANGEL: You're an outstanding member of the Congress, and your concerns about the connection between Saddam Hussein and terrorism certainly is not shared by the Intelligence Committee.

Having said that, and having given all the respect I can to your subjective concerns, is this enough to have a preemptive strike against a country?

Rather, we should find out the potential enemies of the country of Iraq and bring them together and to bring some support...

DREIER: Charlie, we're not considering a preemptive strike. We're not considering a preemptive strike. If you look at the attacks that have taken place just in the last several weeks, I was about a month ago at Incirlik, at our base dealing with Operation Northern Watch.

We are seeing Saddam Hussein's forces attack, shoot at British and American planes. And so they are provoking this kind of...

RANGEL: But they're being shot at...

DREIER: This is all done in compliance with the U.N. resolution following the war in Kuwait, Charlie.

RANGEL: Well, I don't have any problem, if you go into some Republican conference and tell me now that the United States is going to abide by the rulings of the United Nations and the international community, then heck, you should invite me to these Republican conferences.

Unless you're making this up as you go along. But I understood that no matter what the United Nations says, if we decide that we're not pleased with it we'll go it, strike going it alone, we'll go with Great Britain and whatever countries you have on your secret list.

BLITZER: David Dreier, let me interrupt for a moment and ask you this. We end this year, most U.S. intelligence analysts firmly convinced that Osama bin Laden is, indeed, alive.

How well that's another matter, but is, indeed, alive, probably somewhere along the border in some cave between Pakistan and Afghanistan.

Is it your sense that in the coming year, 2003, the U.S. and its coalition partners are going to be able to find this guy?

DREIER: Well, Wolf, of course we hope so. But I think the president made it very clear from the beginning on September 11th, this is not about one man. We know that there are al Qaeda networks around, their network extends around the world, with terrorist cells that exist there.

And so it's not simply Osama bin Laden, but we hope very much that this madman, who's responsible for the loss of the lives of so many of Charlie's constituents, and obviously in Washington and the flight in Pennsylvania, that this does come to an end, and we're hoping very much that we'll be able to do it.

But who knows whether we will or not. But it shouldn't be centered on one man. It's the war on terror, and it's going to be an ongoing one.

BLITZER: Are you concerned, Congressman Rangel, as many of your Democratic colleagues say they are, that this focus on Iraq is detracting from the overall war on terrorism?

RANGEL: I think sooner or later the numbness of this initial attack, this initial historic attack on our country, that more Americans will feel more comfortable in asking questions as to why are we just putting all of these resources directed toward mobilizing our military towards Iraq?

Why is it that we've changed and shifted from Osama bin Laden being the person, he makes more video and public appearances and yet with all of the resources we have we haven't the slightest clue where he is?

DREIER: Charlie, you've got to understand, this is not a shift. This is part of the overall war on terror that we are fighting, and the threat to our very existence.

RANGEL: This -- this is...

DREIER: There are many people out there who want to do us in. You're a very courageous veteran of the Korean War. And you know I have the greatest regard for you. You understand the seriousness of our national security concerns, Charlie. And that's why we've got to come together and work very hard, as a lot of Democrats are with the president on this. RANGEL: Well, we can't -- just because we have a volunteer army that is recruited from the lower and more moderate income people in our country, we should not just be so anxious to allow them to go in harm's way unless America feels more confident that they are in danger. And...

DREIER: Charlie...

RANGEL: ... notwithstanding your eloquent concerns about Osama bin Laden and Hussein, it would seem to me that America is not ready to go to war at this time.

(CROSSTALK)

RANGEL: And I think we need more assurances from the administration that we have some type of danger that we're facing.

DREIER: Charlie, one of my staff members, who's a recent Princeton alumnus, is in two weeks going to be joining the United States Marine Corps. The brother of my press secretary, a very bright, capable guy, going into the United States Marine Corps.

We have a lot of patriotic young individuals from across the economic spectrum who are stepping up to the plate and helping us deal with this very serious threat to our existence.

RANGEL: Yes, but, you know, realistically, when you talk about a war, you're talking about ground troops, you're talking about enlisted people, and they don't come from the kids and members of Congress. You know that, and I know it.

And as a matter of fact, I'm going to introduce legislation to have universal military service to let everyone have an opportunity to defend the free world against the threats that is coming to us from the Middle East.

DREIER: Everybody does have the opportunity to do it.

RANGEL: Oh, no, no. I'm talking about mandatory.

(CROSSTALK)

RANGEL: I'm talking about mandatory service.

BLITZER: So you want to reinstate the draft? Is that what you're saying, Congressman Rangel?

RANGEL: Exactly.

I think that we've been too cavalier in talking about who we're going to teach lessons. We've got 35,000 troops in South Korea that's exposed to the North Koreans. We've got troops in the Middle East. We've got troops all over Europe.

And we've got older people in the Congress like myself, just talking about what we're not going to tolerate, that we have to teach them a lesson.

I think, if we went home and found out that there were families concerned about their kids going off to war, there would be more cautiousness and a more willingness to work with the international community than to say, our way or the highway.

(CROSSTALK)

DREIER: There is no one enthusiastically approaching the prospect of war. This is being taken very seriously by the president and his top advisers. You know that.

RANGEL: I don't know that.

(CROSSTALK)

BLITZER: Congressmen, stand by, we're going to take a quick break.

Congressman Charlie Rangel, I think you made some news on this program about reinstating the draft. We'll see how far that proposal goes.

We have a lot more to talk about, including a lot of domestic issues during this past year, what we can expect in the year to come. We'll also be taking your phone calls for Charlie Rangel and David Dreier.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We're continuing our conversation and taking your phone calls for Congressman Charlie Rangel and Congressman David Dreier.

We have a caller from Texas. Go ahead, please.

CALLER: Thank you so much, Wolf. Just wanted to pose a question to Mr. Rangel. I feel that the American sentiment very much is that we are ready for this and that we have to be and the war on terrorism is very real. And wanted to ask you why, in fact, the Democrats feel it's so difficult to get behind the president on this.

RANGEL: I don't think I'm talking for all Democrats. There were a substantial number of Democrats that have supported the president right from the very beginning. But I just don't believe that America is prepared to get involved in this war unless there's a shared sacrifice.

And it just seems to me that that case hasn't been made. The case hasn't been made that the United States of America is in imminent danger from the government of Iraq.

BLITZER: David Dreier, I want to ask you about the whole Trent Lott debacle, what happened there, and I want to specifically refer to some comments that President Bush made, which many think set the stage for Trent Lott's decision to retire as the majority leader. Listen to these words from the president.

(BEGIN VIDEO CLIP)

BUSH: Any suggestion that the segregated past was acceptable or positive is offensive, and it is wrong. Recent comments by Senator Lott do not reflect the spirit of our country.

(END VIDEO CLIP)

BLITZER: The president speaking firmly on that issue. But does the Republican Party, David Dreier, have a problem as far as the issue of race is concerned?

DREIER: The answer is absolutely not. The Republican Party is a party which is strongly committed to expanding civil rights. If you listen to President Bush's radio address yesterday, his focus on the faith-based initiative, which is designed to deal with those in the urban areas who are struggling through religious-based operations is very important.

In the area of education, we as Republicans have been the strongest supporters of educational choice, taking those with substandard public education in the inner city and allowing them to have the opportunity to improve their education, their schools, and to have that kind of choice.

So we have, on a wide range of issues, stepped up, and it is our party which is strongly committed to this. And we do have -- and I know Charlie's going to talk about the fact that we no longer have any African-Americans in the United States House of Representatives...

RANGEL: You've got that right.

DREIER: I know. But if you look at the fact that we have a great new Lieutenant Governor, Mike Steele, in the state of Maryland. A terrific guy.

RANGEL: Fantastic.

DREIER: And we have a lot of other African-Americans...

RANGEL: You must have one or two others.

(CROSSTALK)

BLITZER: All right. Let's let Congressman Rangel respond. But I want to focus it directly on this, on the president of the United States. He did take the initiative and many think, Congressman Rangel, that the decision by Trent Lott to step down was the direct result of what President Bush said in Philadelphia that day.

RANGEL: I agree with you, Wolf, that the president joined in and whatever Lott had done to upset the administration, they certainly threw him overboard. He said he put his foot in his mouth, and he had to pay the political price for it.

But you know, David, and I love you, the truth of the matter is that when you have a problem and you don't face up to it, you can never resolve it. We have these underlying feelings of racism within parts of the Democratic Party.

DREIER: Absolutely.

RANGEL: After all, it was our Dixiecrats that you guys inherited and took advantage of and made a strong part of your Southern strategy.

The truth is that is should be embarrassing to you, as it is to me, to walk into the House of Representatives and to see no people of color on the Republican side. It's embarrassing to me to walk into the Senate and to see no people of color on the Republican or the Democratic side.

RANGEL: So don't tell me about you know a black lieutenant governor in some state.

DREIER: Charlie, I agree with you.

RANGEL: That's just like saying that you have a black -- that you've had dinner with. That's not fair.

DREIER: Charlie, Charlie, I agree with you that racism is a problem in this country.

RANGEL: And it's a problem for your party. Your party.

DREIER: But the way Wolf posed that question is, is this a Republican Party problem? And the answer is no, because we've seen strong leadership from the president. We saw Trent Lott deal with a difficult situation extremely well, and I think that our party has stepped forward.

There's a great article in today's New York Times...

RANGEL: But why is it that African -- but why is it that African-Americans feel so uncomfortable at your party? Why did J.C. Watts leave? I mean, why -- you're not there.

DREIER: That's not true. Charlie, you know, you can't paint it with a broad brush like that. You're obviously a Democrat. But remember, I like to remind you, you won the Republican nomination in one of your races. So you're part of our party too. But the fact is...

RANGEL: I like that.

DREIER: But the fact is, we're all in this issue together. And there are problems in both political parties on it. And I believe that we as Republicans have stepped up and made it clear that we are going to offer a very positive solution.

RANGEL: Maybe. If the president can go on BET and do what Lott did, we've come a long way.

BLITZER: All right, we'll see if he does do that.

Charlie Rangel, I want to wrap this up. A lot of people say that you are probably more responsible than anyone for Hillary Rodham Clinton's being elected the Democratic senator from New York State. In our most recent CNN/Time magazine poll, among registered Democrats, she comes in number one now that Al Gore has dropped out, for contention. Thirty percent say she should be the Democratic presidential nominee in 2004. Everybody else way down.

Do you think it's time for the junior senator from New York to rethink her commitment not to run for president in 2004?

RANGEL: No, I really don't, even though there's no question that she's an outstanding senator to the country, the Congress, and our great state is lucky to have her. But I think we do have other candidates that have been out there, that have (inaudible) their political concerns longer than she has that should be considered.

BLITZER: All right. I guess you're breathing a little...

DREIER: We've got our candidate. We're going to work in a bipartisan way.

BLITZER: Are you breathing a little bit easier now, David Dreier, hearing that Charlie Rangel is not recommending that Hillary Rodham Clinton run for president?

DREIER: Well, we know that Charlie is one of the most prescient guys around. And he's made that decision for Mrs. Clinton and I think that's fine.

George Bush is going to be the nominee of my party. I'm going to strongly support him. I'm convinced he's doing a great job, enjoying bipartisan support.

And as we begin this new year, it's important to note that, yes, we've won Republican majorities in both houses of Congress. We have an opportunity, an opportunity to address a lot of these very serious problems. And I plan to continue to work with Charlie and other Democrats, as the president plans to, in a bipartisan way to try and address these things.

On that happy note...

RANGEL: I'd like to join with you and hope that the president takes advantage of this great political majority. And I'll be anxious to work with him on those issues.

DREIER: Thank you very much, Charlie. Look forward to that. And Happy New Year to you both.

BLITZER: Happy New Year to both of you.

RANGEL: Happy New Year. BLITZER: We look forward to having both of you on LATE EDITION many times in the coming year and wrapping up 2003 as you so nicely did 2002. Thanks to both of you very much.

Coming up on LATE EDITION, our Final Round. We'll debate the big stories of the week. Our Final Round, right after a CNN news alert.

(COMMERCIAL BREAK)

(NEWSBREAK)

(COMMERCIAL BREAK)

BLITZER: Welcome back. Time now for our Final Round.

Joining me, Julianne Malveaux, the syndicated columnist, Joshua Marshall of the Washington Monthly, Jonah Goldberg of the National Review Online, and Robert George of the New York Post.

The former soldier, Colin Powell, was, as they say, walking point for the administration today, carefully picking his way across the treacherous terrain of this North Korea story. The orders of the day: Keep calm, and call it a situation, not a crisis.

(BEGIN VIDEO CLIP)

POWELL: We have kept our friends and allies closely informed about developments. We have shared the intelligence. We have made it clear to the North Koreans that there are ways to communicate, but we will not enter a negotiation where they sit there and say, what will you pay us for our misbehavior, how will you appease our misbehavior this time?

(END VIDEO CLIP)

BLITZER: Jonah, is this style of diplomacy, as practiced by the secretary of state, going to work?

JONAH GOLDBERG, NATIONAL REVIEW ONLINE: I don't know if it's going to work yet. I hope it's going to work. I don't really see how the administration has any other choice right now.

The North Koreans have a habit -- what they want is for everyone to call this a crisis, because that's their strategy in times past, is to create a crisis and then basically blackmail the world to get it solved.

You know, the Bush administration has been beaten up for being unilateralist and gun crazy in the past, and right now it's trying to work through the U.N., take the multilateral approach. It may not work, but I don't see how they have any other choice right now.

BLITZER: Julianne.

JULIANNE MALVEAUX, SYNDICATED COLUMNIST: Jonah Goldberg has discovered the U.N. I love it. The fact is that it is something of a crisis. It's been 10 days since they said -- between the time that they said they have a nuclear capability and the time that they've opened up this plant. So I see it as something of a crisis. You can spin it however you want.

And they seem to be pretty irrational. I don't think that any kind of diplomacy is necessarily going to work with them. I'm not sure what the next steps are. I certainly think the U.N. needs to play a role. But I don't think that you cover this up or paper this over by saying, oh, gee, it's not a crisis, it's just a situation.

BLITZER: Am I crazy, Robert, but the fact that they're sort of cavalierly almost saying, the secretary of state on this program earlier, that yes, the North Koreans have had two bombs for some time now, and they're going to be able to build a lot more within a few months, is that not a big deal?

ROBERT GEORGE, NEW YORK POST: Well, you may be crazy, but it is also a big deal.

(LAUGHTER)

These are not mutually exclusive terms here.

No, it is -- it's a serious problem. But I think just the administration trying to say, well, you know, there's a crisis going on here, as Jonah says, it really plays into the hands of Pyongyang, which they obviously want money, and other kind of resources from the United States and from the West. So it's in their best interests to say there's a crisis here and you have to keep us calm.

Whereas I think the administration is dealing with this with the best hand that they've got, they're dealing with this the best way they can.

BLITZER: Josh?

JOSHUA MARSHALL, WASHINGTON MONTHLY: The best hand they've got, but they don't have much of any hand at all.

And I think the bigger story here is that the administration has been making a lot of threats over months and even last year that now it's becoming clear, they can't really follow through on. They've been basically telling the world, "If anybody, you know, kind of steps up to the nuclear line, that's it, we're taking you out." And here clearly we can't. So I think the -- this is an administration...

BLITZER: To its credit, though, the secretary of state did point out when he told me to take a deep breath, that last year all of us were going crazy because of India and Pakistan over Kashmir. And his diplomacy, in part, working with a lot of others, calmed that situation down.

MARSHALL: I think the difference is, is that our ability to deal with Pervez Musharraf is slightly better than it is to deal with Kim Jong Il. I mean, this is a vastly less predictable regime than either Pakistan or India.

BLITZER: While the secretary of state was speaking softly, the defense secretary earlier in the week appeared to be pumping up the rhetoric over at the Pentagon, making it clear that the United States was willing and able to fight simultaneous wars with both Iraq and North Korea.

(BEGIN VIDEO CLIP)

RUMSFELD: We are capable of fighting two major regional conflicts, as the national strategy and the force-sizing construct clearly indicates. We're capable of winning decisively in one and swiftly defeating in the case of the other. And let there be no doubt about it.

(END VIDEO CLIP)

BLITZER: Josh, is this a good cop, bad cop routine? Or is everyone in the administration, as far as North Korea is concerned, on the same page?

MARSHALL: Oh, I don't think they are at all. This has been brewing for a long time. When the administration came in, Colin Powell basically tried to keep the U.S. policy about where it was under President Clinton with maybe some revisions. You have hawks at the Pentagon, other parts of the administration, who wanted to ratchet it up.

And I think a lot of people in the administration, certainly outside the administration, think that now we're seeing the comeuppance of that shift in policy. So I don't think it is.

BLITZER: Jonah, if they already do have two nuclear bombs, it would be hard to just militarily go out and strike them and take out their reactors or what other military capabilities may be a threat.

GOLDBERG: That's right. And for example, when Josh said earlier that the United States has been saying, "If anyone comes up to the nuclear line they're in trouble," the reality is we now know that North Korea passed the nuclear line quite a while ago and that they probably had nuclear weapons in 1994.

And I think one of the things that this highlights -- this situation highlights is is that once a country does have nuclear weapons, it becomes much, much more difficult to deal with them in any way except through diplomacy and often just paying blackmail.

GOLDBERG: And that is one of the reasons why going after Iraq before it finds -- before it's able to become another North Korea and then we cannot negotiate with it and it can blackmail the entire region, is still a good foreign policy goal.

BLITZER: Go ahead, Julianne.

MALVEAUX: You know, I think, Jonah, when you throw Iraq into the equation, what you're really saying here is we're playing one kind of game -- there's no concept of foreign policy justice. We're playing one kind of game with Iraq, another kind of game with North Korea.

When you look at Rumsfeld talking about fighting a war on two fronts, being able to fight a war on two fronts, I think that's really irresponsible talk under the circumstances.

They probably did have nuclear weapons in 1994, and we're willing to play blackmail with them then. And so we've set a precedent about doing blackmail. And unless we do economic sanctions...

(CROSSTALK)

GOLDBERG: Are you saying that we can't fight two wars at one time?

MALVEAUX: No, that's what I'm saying. It's irresponsible to talk about it.

GEORGE: You have to keep in mind two things. First of all, in '94, we ended up having, as you say, blackmail, giving in to blackmail, and that was the Jimmy Carter-Bill Clinton agreement, which we're now trying to resolve.

Secondly, as Jonah said, you've got two separate situations with Iraq. You've got North Korea, which is a nuclear power, Iraq, which isn't yet and we're trying to prevent them from doing it, and that's why you've got two different strategies approaching them.

MALVEAUX: Robert, you know, it isn't that I don't understand the difference between the two. It's that I feel that the United States has been irresponsible.

And I think that when Mr. Bush sells wolf tickets in his State of the Union address as he did last time, when he talked about North Korea being a threat, basically he turned up the pressure on them.

BLITZER: Let's let Josh weigh in.

MARSHALL: Well, I think, you know, going back to what was said before, I don't think we owe justice to either Iraq or North Korea. But I think, as you say, the real issue is why we have pursued such a stupid policy toward North Korea over the last year and a half that's gotten us into this position.

I mean, there was a recent election in South Korea. A lot of the South Koreans think that we got us here, not that the North Koreans, not that anybody thinks the North Koreans are great, but that it's the Keystone Cops policy that the Bush administration has been pursuing in Korea that's gotten us here.

BLITZER: We're going to take a quick break. But I have to ask Julianne, wolf tickets?

(LAUGHTER)

MALVEAUX: It's street parlance for...

BLITZER: What does that mean?

MALVEAUX: Overtalking. Overtalking. You know, you say I'm going to, you know, kick your butt, I'm going to do this. Well, you're not going to do it.

BLITZER: Wolf tickets?

MALVEAUX: Wolf tickets.

BLITZER: Nothing to do with Wolf Blitzer?

MALVEAUX: Nothing to do with Wolf Blitzer. Sorry about that, Wolf.

BLITZER: OK. All right. I'm just wondering.

GEORGE: We will be selling tickets to this show at a later date.

(LAUGHTER)

BLITZER: Maybe that's -- Wolf Blitzer tickets.

(LAUGHTER)

Straight ahead on the Final Round, is the the human clone announcement science or flim flam? We'll be back in a moment.

(COMMERCIAL BREAK)

BLITZER: Welcome back to our Final Round. Was this really the week of the birth of the first cloned human being? The colorful people at the center of the story made their pitch.

(BEGIN VIDEO CLIPS)

BRIGITTE BOISSELIER, CLONAID: I'm very, very pleased to announce that the first baby clone is born.

(UNKNOWN): We believe that life was created on earth by a very advanced civilization from space using DNA and genetic engineering.

(END VIDEO CLIPS)

(LAUGHTER)

BLITZER: Jonah, they came out with this dramatic announcement, Eve, the first cloned human baby born, but they showed absolutely no proof of it whatsoever. No scientific data, no pictures, no nothing. Yet a lot of us made a big deal about this.

GOLDBERG: Yes, and you shouldn't have. I mean, "you" collectively, not necessarily you, Wolf. The shame here is that the National Enquirer didn't break this story, because if it did then all the snooty, elite press would have ignored it, which they should have.

You talk to any scientist, any journalist who covers this regularly, there's no way that these people really cloned a kid.

And they shouldn't have because basically that amounts to child abuse, because the first human clones are going to be horribly disformed and disfigured and born into agony, and you shouldn't be doing it.

BLITZER: The scientists do say, though, Julianne, that it's not that far off, in the not-too-distant future they will be able to clone human beings.

MALVEAUX: The technology is there, but Jonah's right, it hasn't been perfected. And so it could conceivably happen, but it would not be -- you don't know if the child would be able to grow up.

And these people are totally crazy. I really, I just said slow news week when I saw it. I said, obviously, you know, people want a little relief from North Korea, and so they decided to jump on this one. But it seemed hardly credible at this point.

Something, however, that the Senate and the House have been looking at, and with Frist now as a majority leader we expect probably to see legislation about, you know, this kind of science.

GEORGE: That's right, I mean, they managed to clone a sheep, but I don't think they're going to be cloning a Wolf any time soon.

(LAUGHTER)

But the fact is, though, in the last Congress, the House passed a bill banning human cloning and it got bottled up at the Senate. With a Republican Senate in there now, with Frist running things, I wouldn't be surprised if we really will see some legislation that officially bans it. Because, as Jonah said, the kind of experimentation would create these awful, awful, awful beings.

BLITZER: As far as we know, no group has been able to clone any primate, whether a monkey or anything else, let alone a human being.

GOLDBERG: Only 2 percent of the mammals cloned in laboratories, we're talking about including the sheeps, are even born healthy. Most of them are born horribly disfigured too. It's very difficult science.

BLITZER: But, Josh, tell our viewers why there are plenty of doctors out there, including at Stanford University, who think there is a role in science for cloning, not necessarily human beings, but cloning cells.

MARSHALL: Well, this is the major point, because the word cloning conflates two issues -- one, reproductive cloning, what we think of as cloning, making one person copied from an existing one; and the other is therapeutic cloning. And that's how you get into all sorts of, you know, coming up with new organs for people who have a faulty liver or faulty kidneys or something like that.

So there are definitely good scientific and ethical reasons to proceed with therapeutic cloning, even though I think everybody agrees that there are ethical and just basic scientific problems...

BLITZER: Not everyone. The two people who we just had that clip from, they don't.

(CROSSTALK)

(LAUGHTER)

MALVEAUX: Those people actually just wanted their 15 minutes of fame.

GOLDBERG: Yes, and that guy thinks his ponytail is an antenna to hear aliens. So we shouldn't take his opinion too seriously.

MALVEAUX: You know, and he went on a spaceship but didn't bring his camera.

(LAUGHTER)

BLITZER: Let's get back to some serious news over here. Preparations for the possibility of war between the United States and Iraq. CNN has reported, and today a front page story in the New York Times has repeated, that the U.S. military does believe, in fact they expect, Saudi Arabia will make its bases available if it comes down to another war. The Prince Sultan Air Base, among other sites, would be important. I was just there only 10 days or so ago.

Today Senator Joe Lieberman, the Democratic senator from Connecticut, said his talks with Saudi officials during his recent visit there were productive.

(BEGIN VIDEO CLIP)

U.S. SENATOR JOSEPH LIEBERMAN (D-CT): I left encouraged that the Saudi government, the royal family, understands how important their help will be. And I don't think they're going to disappoint us. But I didn't hear anything explicit that I can bring back.

(END VIDEO CLIP)

BLITZER: Robert, can the U.S. count on Saudi Arabia?

GEORGE: I think for the coming conflict with Iraq, yes, I think they can. I think the Saudis see the handwriting on the wall. And just, I think, more for their own PR purposes, they will be helpful.

The question is, though, what happens after Iraq? If they continue to fund these schools which spew their anti-American hatred and, in a sense, create this entire culture that is anti-Western, we'll be basically back to where we were before.

BLITZER: Julianne.

MALVEAUX: They're allies, but they're very reluctant allies. And it doesn't do them any good that the majority of the September 11th terrorists were Saudi. And so I think that they will be counted on in the short run. I think in the longer run, there are some issues that we've papered over with them. They are one of our weakest allies, weakest in terms of the connection.

BLITZER: You talk to any U.S. military planner planning for the possibility of war, they want that Prince Sultan Air Base, which is -- I was there, it's huge, and it's got some of the most sophisticated U.S. technology available.

GOLDBERG: I have no doubt it's very helpful, and I -- you know, part of the problem with the Saudis is that they are a closed monarchy with absolute rulers. And so they have this sort of clubhousey kind of attitude when it comes to international relations, where they can shake hands and wink and nod and cut deals and all that kind of stuff.

But I think Robert and Julianne are both right, that in the long term the larger problem is that the United States just isn't a good ally or friend to countries that aren't democracies. And eventually -- this is what happened with South Africa, this is what happened with various right-wing dictators in South America and some left-wing dictators, is that eventually, if you're not a democracy, then you're going to have a real problem being friends with the United States in the long run.

BLITZER: He was referring to the apartheid regime in South Africa.

(LAUGHTER)

Just wanted to make that clear.

Go ahead. Button this up, Saudi Arabia.

MARSHALL: Well, I think one point that really should be mentioned is that the U.S. policy has changed a lot from what it was six months ago, nine months ago. And that's one of the reasons that I think the Saudis' position has changed. The Bush administration went to the U.N. It's pursuing the inspectors, you know, giving that one last try. So I think that's another part of the equation. We've changed our policy.

BLITZER: All right. We have our Lightning Round. That's coming up just ahead. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to our Final Round. Now time for our Lightning Round.

Only a few minutes ago here on LATE EDITION, the Democratic Congressman from New York, Charlie Rangel, surprised a lot of us by saying he's going to introduce legislation to reinstate the draft.

(BEGIN VIDEO CLIP) RANGEL: I'm going to introduce legislation to have universal military service, to let everyone have an opportunity to defend the free world against the threats of...

DREIER: Everybody does have the opportunity to do it. Everybody does have the opportunity to do it.

RANGEL: Oh, no, no. I'm talking about mandatory. I'm talking about mandatory service.

(END VIDEO CLIP)

BLITZER: What about that, Robert George? You might be eligible for the draft. You're young enough to serve.

GEORGE: I don't think so.

I think it's a kind of a foolish notion that Rangel's, you know, running up the pole here. But, I mean, the fact -- what I think is interesting is that these are the kind of foolish notions that, you know, you never know exactly where they're going to end up.

I don't think he seriously wants to have a draft passed. I think he's doing it for a PR stunt.

BLITZER: Well, I think -- I don't necessarily agree. But let me ask Josh this point.

Charlie Rangel is concerned that if you look at the rank and file of the military, there's a lot of poor people, a lot of minorities, not enough sons and daughters, if you will, from members of Congress and the elite. And that's why he thinks that the U.S. may be rushing into a war, because the leadership doesn't have enough personal issues at stake. MARSHALL: It's possible. I mean, the last time we had a draft, though, it was pretty much the same thing. During the Vietnam War, that was certainly the perception and to a great degree the reality, that it was a heavily minority, heavily poor army, and if you were rich or well-connected, you could find some way out.

So I think that's possible. I think that the problem is, though, if he thinks he's going to, you know, worry baby-boomers that their kids are going to get sent off to war or worry the Iraqis, the people he's really going to worry are the generals that are going to get deluged by all these untrained teenagers.

(LAUGHTER)

BLITZER: Let's continue with our Lightning Round and talk about the economy. The Wall Street Journal reported this week that the Bush team is tinkering with the centerpiece of its economic stimulus package and may ease back tax breaks for some of the richest Americans.

Cold feet or political reality getting into the minds and hearts of the Republican Party? Jonah. GOLDBERG: Can't it be both? I think this is the first sign that the 2004 presidential election cycle has begun. That's what it boils down to. And that the Bush administration has been hurt on these class warfare things and is trying to dull the edge of it.

BLITZER: So you welcome this news?

MALVEAUX: I welcome it, but I think that he's going to try to cover it up by doing other kinds of -- they're talking about a tax break for dividends. That's focused on the wealthy as well, when only half of all Americans own stock and have dividends.

So he hasn't stopped his class bias just yet.

BLITZER: All right. Go ahead.

GEORGE: If cutting down the tax cut was a tax increase when Democrats were suggesting it, I don't know how Republicans get out of it.

BLITZER: All right. You want to wrap that up?

MARSHALL: You know, the article that this was reported and said overture to Democrats, it's just an overture to reality. It was never going to fly anyway.

BLITZER: One family with a whopping big tax bill is in West Virginia. Andrew Jack Whittaker was the biggest lottery winner ever. Get this. $315 million. Taken as a lump sum, that drops to $170 million. And taxes pare it back to close to only $112 million.

Is Whittaker a good poster boy for the legalized gambling that these kinds of lotteries represent?

GEORGE: Well, yeah, I mean, it's kind of funny. The millionaire who wins a million lottery.

I think lotteries are legalized gambling. I think they're immoral for states to run them.

BLITZER: Do you agree?

MALVEAUX: I agree. I don't think there's any such thing as a good poster boy for legalized gambling. I mean, basically, it's an extra tax on the poor, because the poor are more likely to play. Look at the wealth transfer there. You know, poor people pay their two bucks so a millionaire can get another $100 million. But it's focused on the poor, and it's used for tax purposes.

BLITZER: They both sound like William Safire, who's been opposed to this kind of legalized gambling for a long time. (LAUGHTER)

(CROSSTALK)

GOLDBERG: I have problems with some of the legalized gambling in the country as well, although, you know, when you ask is he a good poster boy, there was someone from West Virginia quoted in The Washington Post who said how relieved they were that it wasn't some guy up there with no teeth who couldn't speak English, and all of that kind of thing.

MALVEAUX: Oh my.

GOLDBERG: And I do think that, you know, this guy does make the lottery seem a little more mainstream.

BLITZER: And he gave a tenth, a tithe, of his winnings to his church, which was pretty impressive.

MARSHALL: You know, a few years from now we're probably going to be seeing the VH1 behind the music documentary about this guy's life...

(LAUGHTER)

... and how the $100 million was washed away in debauchery.

(LAUGHTER)

So I'll wait to give my verdict.

BLITZER: Public opinion finds people admire their president. President George W. Bush tops the CNN-USA Today Gallup poll, trailed by former President Jimmy Carter and Secretary of State Colin Powell.

A former first lady and the present first lady top the most admired woman poll, along with Oprah Winfrey.

Do we have heroes that we need right now, Julianne?

MALVEAUX: Name recognition and heroism are not the same thing. And clearly they did not call me when they were trying to figure out who admired George W. Bush.

But I think that you find your heroes in your backyard. You don't necessarily find them in the headlines.

BLITZER: Robert?

GEORGE: The same thing. The president is always usually the number one person. And it's basically name recognition.

BLITZER: Bill Clinton used to get that even during his weakest moments.

GEORGE: And they didn't poll me when that happened, I assure you.

(LAUGHTER)

BLITZER: Any New Year's resolutions? Any of you have a quick one?

MARSHALL: Next time I promise someone that Al Gore is definitely going to run for president, I'm going to get a third source.

BLITZER: What about you?

GEORGE: I'm going to give up puns.

(LAUGHTER)

BLITZER: I don't think so.

MALVEAUX: Why don't you give up lying, Robert?

BLITZER: Go ahead.

MALVEAUX: Don't sweat the small stuff.

GOLDBERG: I have a baby due in February. Be as good a dad as I can be.

(UNKNOWN): Aw, that's sweet.

BLITZER: That's a good one. Very nice. Congratulations.

GOLDBERG: Thank you.

BLITZER: Julianne's been with us for a while. You're going to be still with us during the week. Thanks for joining us on our Final Round.

MALVEAUX: Good to be here.

BLITZER: Appreciate it very much.

That's your LATE EDITION for Sunday, December 29th. Please be sure to join us again next Sunday and every Sunday at noon Eastern for the last word in Sunday talk.

Please join me Monday through Fridays, as well, noon Eastern, for Showdown: Iraq. Later in the day, 5:00 p.m. Eastern for Wolf Blitzer Reports.

Until then, thanks very much for watching. To all our viewers out there, don't only enjoy the rest of your weekend but have a happy and a healthy New Year.

I'm Wolf Blitzer in Washington.

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Aired December 29, 2002 - 12:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
WOLF BLITZER, CNN ANCHOR: It's noon in Washington, 9:00 a.m. in Los Angeles, 5:00 p.m. in London, 8:00 p.m. in Baghdad and 2:00 a.m. Monday in Pyongyang, North Korea. Wherever you're watching from around the world, thanks for joining us for this special LATE EDITION, Showdown: Iraq.
North Korea's decision to move forward with nuclear weapons development appears to have edged Iraq out of the headlines, at least for now, and has served up a fresh international challenge for the Bush administration.

The president's team is taking a relatively low-key approach, describing this latest flare-up as a situation rather than as a crisis.

A little while ago, I spoke with the Secretary of State Colin Powell.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Secretary, thanks once again for joining us.

The issue at hand right now, there seems to be a crisis between the United States, on the one hand, and its allies, and North Korea. But you're apparently refusing to say this is a crisis.

COLIN POWELL, SECRETARY OF STATE: Well, I don't like the word crisis. It suggests we're about to move forces or there's a war about to break out, and that's not the case at all. We have a very serious situation which we are treating as a serious situation. North Korea, notwithstanding its obligations under the 1994 agreed framework, started a second production system for the development of nuclear weapons, enriching uranium. We think that's very serious.

We took it to the international community. We took it to the North Koreans. They admitted it. Having admitted that they were in violation of their agreement, said, Well, so what? And then now they've decided to become -- get in violation of their obligations under the agreed framework by kicking the inspectors out of the Yongbyon plutonium facility and also removing all the seals and starting that reactor up.

So these are two acts of misbehavior on the part of the North Korean regime. And what we are doing is working with our friends and allies, who have an even greater equity in this matter than we do, and talking with the South Koreans, the Japanese, the Russians, the Chinese the European Union, the United Nations, all of us coming together to make the case to North Korea that, This will not accomplish anything that will be of benefit to your nation, and we will not be scared into making concessions to you or appeasing you in some way.

BLITZER: But this seems so frightening. This is a -- one of the members of the "axis of evil." It's a Stalinist regime, unpredictable. And you are now acknowledging they probably already have two nuclear bombs and they might be able to build a lot more.

POWELL: Don't be quite so breathless. They've had two nuclear weapons, we believe, for some time. It is not something that we have suddenly discovered. We've always attributed this capability to them. Our intelligence community believes they probably had enough material to fabricate two weapons, and they may well have these two weapons.

If they start this reactor back up, and if they go beyond what they say they're starting it for -- they say they need the electricity because we cut off the heavy fuel in response to their violation of the agreed framework. But if they go beyond that and start to reprocess the spent fuel that is at the facility, they could have another several nuclear weapons in a matter of, let's say, six months. That would take them from two to six.

We don't like that. We don't believe this is in their best interests. It's certainly not in the best interests of the region or the world. But it is not yet a crisis that requires mobilization or for us to be threatening North Korea. Quite the contrary. We have been saying to North Korea that we have no plans to invade you. We have no hostile intent towards you. You have people who are starving. We are the biggest food provider to the people of North Korea, as part of the world food program.

So we have no ill intent toward North Korea, but we are deeply concerned about some of the actions they have taken over the years to proliferate weapons of mass destruction throughout the world, to sell this kind of technology throughout the world. And I think it was quite right for the president to say that clearly when he gave his State of the Union speech.

Remember his State of the Union speech, where he called them part of the "axis of evil," was 11 months ago. They started this new program four years ago. And so we finally found out about the program and called them on it. We were in the process of negotiations with them. I went and met with the foreign minister of North Korea in Brunei at the end of July.

We sent in Assistant Secretary Kelly to let them know that there were things we could do for their country but they had to stop this kind of activity. And their response has not been an encouraging one.

And for that reason, the president is keeping all of his options on the table. And we're leading with the diplomatic option because it is important for everybody to realize this is a problem not just for the United States but for the region and for the world. BLITZER: When I hear you say that the president is leaving all of his options on the table, that normally is code word for the military option as well.

POWELL: He has a military option. We're just not -- we're not bringing it up to the front because it's not necessary to do so. Everybody knows what our military capacity is. Secretary Rumsfeld made it clear earlier this week we have the capacity to deal with any emergency or situation that might arise.

But keep in mind that, you know, we try to solve things peacefully, notwithstanding the reputation we sometimes enjoy is always reaching for a gun. What's rather interesting over the last several days is everybody is wondering, why isn't the United States reaching for a gun? And the answer is, we believe that there are still options available to us that focus on political and diplomatic tools that the international community can bring to bear on this problem.

North Korea is already paying a price for this misbehavior. Japan was on the way to normalization. It was on the way to providing a huge economic package for North Korea if they went down that normalization route. The new president-elect of South Korea wants to reach out to North Korea. President-elect Roh -- it was part of his platform. But now he has had to speak out strongly about North Korea's behavior, as a result of what the North Koreans have done.

And so there are ways to mobilize the international community. I mean, President Jiang Zemin came to Crawford and spent a lot of time with President Bush discussing this situation. This took more time than any other agenda item at Crawford. And the Chinese came out and said clearly, We will not support any nuclearization of the Korean peninsula. We don't want to see it. We don't want it. And so the North Koreans are now running in the face of that opposition from the Chinese, as well. So they're buying themselves problems, and we're going to try to find a way to get out of this situation without letting it escalate to a crisis level.

BLITZER: Is it time for the U.N. Security Council to be brought into the situation?

POWELL: I have been in close touch with all of my permanent colleagues in the Security Council, and I had a conversation with Kofi Annan day before yesterday about it. I don't know if it's time for the Security Council to do anything. The International Atomic Energy Agency will be meeting on the 6th of January, or thereabouts, to consider what North Korea has done. And the board of governors of IAEA at that time will make a judgment as to whether or not they will report these actions to the United Nations. But are not waiting for the beginning of the year to table a resolution before the Security Council.

BLITZER: This "tailored containment" that the administration has discussed -- one element...

POWELL: I've never -- I've only read about this term in the paper this morning.

BLITZER: So is there no...

POWELL: There is no plan that has the title "tailored containment" on it. It's an interesting phrase. I don't object to the phrase. But to suggest that it is some grand strategy that we have -- no. We have a strategy that we've been executing on. We have kept our friends and allies closely informed about developments. We have shared the intelligence. We have made it clear to the North Koreans that there are ways to communicate, but we will not enter a negotiation where they sit there and say, What will you pay us for our misbehavior? How will you appease our misbehavior this time?

We've made it clear to everyone that the agreed framework dealt with the facility at Yongbyon, but it was a marvelous act of misdirection while we were watching Yongbyon, they were creating an enriched uranium capability elsewhere in the country. And so they have to be held to account for this. So there are ways for them to talk to us. We know how to get in touch with them. And we are hoping that sooner or later, a way will be found, either with us or with other members of the international community, to find a solution to this -- to this situation.

BLITZER: It looks -- and correct me if I'm wrong. You were chairman of the Joint Chiefs a dozen years ago during the first Gulf war. With the deployment of all these troops and now the hospital ship Comfort, it looks like the train is leaving the station.

POWELL: Well, the train is being loaded. The president has not made a decision to go to war. But what Secretary Rumsfeld and the Joint Chiefs of Staff are doing are prudent measures to get ready for whatever might be required. And it's to make it absolutely clear to the world, and to Saddam Hussein especially, that if he does not come into compliance with this U.N. resolution, if he is not fully cooperative and if he is found to be not fully cooperative and cheating and military action is necessary and the president finds it appropriate to make that decision, we'll be ready to execute it.

BLITZER: But they already area, as you just said a few weeks ago -- they are in material breach.

POWELL: They are once again in material breach. It's another material breach on top of many previous material breaches. And the patience of the international community is -- is running thin here, it seems to me. And January will be an important month, as Dr. Blix, UNMOVIC, and Dr. El Baradei of IAEA report to the Council on their findings and how cooperative Iraq is being.

BLITZER: Will Saudi Arabia be with the United States if it comes down to another war?

POWELL: My view is that Saudi Arabia has been cooperative with us in the global war against terrorism. They're open to the proposals that we have made to them about what might be needed. But I don't want to speak for the government of Saudi Arabia as to what they have said yes to or no to or where they might be at some point in the future. They've been good friends of ours in the past, and I would expect them to be good friends in the future, as well.

BLITZER: You saw the story in "The New York Times" today that they've already...

POWELL: Well, I don't want to comment on these military (inaudible). I'll leave that to my Pentagon colleagues to say what they wish to about it.

BLITZER: As far as the Israel-Palestinian situation is concerned, there was an editorial in "The New York Times" this past week. Among other things, it said this. "By waiting to unveil the roadmap until after the new Israeli government is formed, which could be several months, Washington seems to be hoping to wrap this problem into a broader recasting of the region after regime change in Iraq. That is a dangerous gamble."

POWELL: Well, that's their opinion of what we're trying to do. What we're trying to do is put down a roadmap and put it down in the way that it will be received with some favor on both sides. And it was our judgment when the quartet met earlier this month that we were close to finishing the roadmap, and it's a pretty good way forward. But to introduce it at this stage, with the Israeli election under way -- that might not be the best environment in which to introduce this roadmap. A delay of a few weeks I don't think will be significant, will make a significant difference. And in fact, the best roadmap in the world will not produce anything if the terror doesn't stop. And so our focus still has to be on ending terror and achieving some level of security, so that both sides can operate in some sense of security and some understanding that by moving forward on the roadmap, they will not simply be opening themselves up to more acts of terror and violence.

BLITZER: And just very briefly, because I know we're running out of time -- Arafat, Yasser Arafat, the Palestinian Authority president -- does he have a role in any of this?

POWELL: He has been a failed leader, and we continue to believe he's a failed leader. That's why we hope that new leaders will emerge. We would like to see a prime minister emerge who has authority to act. And we would like to see elections of the kind that will give the Palestinian people a chance to determine whether or not new leadership might end this horrible situation that they find themselves in.

BLITZER: Finally, a new leader in Kenya elected today, ending, what, a quarter of a century or so of Daniel Arap Moi's role. Is this good for the United States?

POWELL: Well, I think it's good for Kenya, frankly, to see that they can have a successful election. And it was an open election and one that was relatively free of violence. So it was good. The democratic process worked, and I'm pleased that President Moi stepped down in accordance with the democratic process.

The president-elect has made a commitment to ending corruption, to economic development and to social advancement within the country. And if he moves forward on that agenda, it will be good for Kenya, good for the Kenyan people and, of course, good for relations with the United States. We have good relations with Kenya now, and I expect that they'll be improved in the future.

BLITZER: And good luck to you. I know you've had an incredibly busy day today. Good luck with all these so-called crises. I'm going to catch my breath.

POWELL: Well, it's interesting to remember that in the last year, the crisis was India and Pakistan. Everybody was afraid that a nuclear war was about to break out there, and the international community then came together, worked with the two parties. We still have a difficult situation in Kashmir, but at least the threat of war has receded considerably. They're both de-escalating. And I hope that in this new year, we'll find a way for the two sides to begin a dialogue on all the issues that are outstanding between India and Pakistan, to include Kashmir.

BLITZER: The whole world is looking toward you to do it.

POWELL: Thank you, Wolf. Happy New Year!

(LAUGHTER)

BLITZER: Happy New Year. Thank you.

(END VIDEOTAPE)

BLITZER: And up next, a prominent United States senator is travelling through the Middle East and the Persian Gulf. We'll find out what Senator Joe Lieberman thinks about the dual standoffs with North Korea and Iraq. And later, we'll hear from Republican Senator James Inhofe.

This special LATE EDITION, Showdown: Iraq, will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The history, the logic and the facts lead to one conclusion, Saddam Hussein's regime is a grave and gathering danger.

(END VIDEO CLIP)

BLITZER: President Bush speaking to the United Nations in September of this year. The threat of war and the demand for Iraq's disarmament are number one on the top 10 stories of the year.

Welcome back to this special LATE EDITION, Showdown: Iraq.

Earlier today I spoke with Senator Joseph Lieberman about the showdown with Iraq, North Korea and his own political ambitions. Senator Lieberman is wrapping up a 10-day trip through the Persian Gulf and the Middle East and he joined me from Tel Aviv. (BEGIN VIDEOTAPE)

BLITZER: Senator Lieberman, thanks very much for joining us.

The secretary of state, Colin Powell, says it's not a crisis, at least not a crisis yet, between the United States and North Korea. In your view, is this a crisis?

SEN. JOSEPH LIEBERMAN (D), CONNECTICUT: I believe it is a crisis, Wolf. And it's a crisis because, clearly, it's a critical part of our foreign policy in Asia and on the Korean Peninsula that North Korea not become a greater nuclear power. And the policy that the administration has followed thus far has made a difficult situation into a dangerous one, in fact, has responded to Kim Jong Il's initial irresponsible actions by cutting off the fuel shipments that we promised to give him in return for his compliance in closing that plutonium nuclear power plant, which he kept, in a way that led him to reopen the plant now and makes it much more likely, as the secretary said, that he can produce nuclear weapons from plutonium in a matter of months or within a year.

So so far, the administration policy has had exactly the opposite effect of what we all desire, which is to keep North Korea's production of nuclear weapons out, non-existent...

BLITZER: But Senator...

LIEBERMAN: We've got to change our policy. And I think it means...

BLITZER: Senator, if the U.S. intelligence community has information that the North Koreans are covertly or secretly building nuclear bombs or developing that kind of plutonium to -- enriched plutonium to build a bomb, what is the U.S. supposed to do, just pretend it doesn't have that information?

LIEBERMAN: No. I think they did right on that. Let me just set this in context. In 1994, the Clinton administration came through intelligence to see that the North Koreans were gearing up this plutonium plant at Yongbyon to make plutonium which could be used in nuclear weapons. And we said the military option is on the table. We're not going to take any options off. But we want to negotiate with you.

In fact, we negotiated an agreement about that plant which they kept until this recent discovery by the Bush administration that they were developing a uranium enrichment -- very different from plutonium, takes longer to get to nuclear weapons. Now, that's unacceptable. That was irresponsible. That was very provocative by the North Koreans.

But I think the response to it from a great nation such as ours should have been to sit right down with the North Koreans and say that, "Listen, this is serious. The military option against you was always on the table, but let's talk." A lot of experts on North Korea think that this action by Kim Jong Il is actually an attempt to get our attention and to make an agreement to stop this new nuclear program in return for more normal relations with the United States.

We don't lose anything by trying diplomacy more actively. And so far we have not done that.

BLITZER: So your bottom line as far as North Korea is concerned is this. The Bush administration dropped the ball.

LIEBERMAN: Yes, they dropped the ball by cutting off the fuel shipments, which is the agreement that the North Koreans entered. In return for the fuel, they would stop this nuclear power plant producing plutonium. We stopped the fuel. They started up the plutonium plant.

They could use that plutonium to make nuclear weapons within months, or at most a year. So so far the Bush administration has had exactly the opposite reaction that we want.

I think we're strong enough not to feel that negotiating with Kim Jung Il is a sign of weakness. And we don't lose anything by it. The military option is still on the table.

LIEBERMAN: So -- Kim Jung Il, I would guess, has moved much more rapidly than the Bush administration ever believed he would to close the monitors of the International Inspection Agency, to kick out the international inspectors at Yongbyon plutonium plant, and now to begin to start it up, along with a laboratory. This is serious stuff.

And we can stop it, I believe, by sitting down along with our allies in that region and negotiating with the leader of North Korea.

BLITZER: What about Iraq? Is there any possibility of negotiating an end to this showdown with Iraq?

LIEBERMAN: It's all up to Saddam Hussein. And it's a good comparison or an illustrative comparison. We in the last 11 years, since the end of the Gulf war, have tried every way imaginable to get Saddam Hussein to keep the promise he made to get rid of his weapons of mass destruction and longer-range ballistic missiles. We've tried diplomacy, economic sanctions, inspections and limited military action. And he just hasn't kept his word. And that's why there's this build-up to military action if he doesn't prove to us that he's disarmed.

On the other hand, the North Koreans -- we ought to give some of those steps -- diplomacy, et cetera, a chance before we get into an exchange of actions that could lead to the kind of conflict that nobody wants and that we can avoid.

BLITZER: Senator Lieberman, you were just in Saudi Arabia. Is it your assessment that the Saudis will be with the U.S., militarily speaking, if it comes down to another war?

LIEBERMAN: Well, I made a very specific request to the Saudis, to the government at the highest level there in Riyadh on behalf of the Congress of the United States and in support of the American military that I visited there over the Christmas holidays, which is that if we need to go to war against Iraq, we need their help. And if we get it, it will be greatly appreciated by the American people. If we don't, it will put the Saudi-American relationship, which is a critical alliance, into more jeopardy.

And I would say over all that I left encouraged that the Saudi government, the royal family, understands how important their help will be. And I don't think they're going to disappoint us. I didn't hear anything explicit that I can bring back, but I don't think the Saudis will disappoint us at this moment, a difficult moment in our longstanding relationship. BLITZER: You're speaking to us from Israel right now. As far as some possibility of reviving Israeli- Palestinian negotiations -- you heard the secretary of state, Colin Powell, say that Yasser Arafat has been a failed leader, and as a result, the U.S. is looking for an alternative leadership among the Palestinians. I know you refused to meet with Arafat while you were there. But is there a credible alternative to Yasser Arafat?

LIEBERMAN: I agree very much with the position that Secretary Powell stated. That's why I didn't meet with Yasser Arafat. I think there's a whole group of leaders who are potential replacements to Yasser Arafat, and yet there's a kind of deference so long as he's there. So the sooner we can get the Palestinians to elections for new leadership and for the kind of constitutional changes that they continue to work on. And the chairman of the committee on the constitution, minister of information, Yasir Abed Rabo, told me that they hope to have their new constitution ready within a matter of a month or two.

Hopefully, that will provide an opportunity to -- for the Palestinians to get new leadership because Yasser Arafat has failed to deliver to the Palestinian people statehood and a better way of life. They're living in desperate conditions now, and the main reason is that he has not given anything near 100 percent effort to stop the violent terrorist attacks against Israel. So long as that's true, there's no hope of bringing the parties back to the peace negotiations.

BLITZER: Finally, Senator Lieberman, one political question about your own presidential ambitions. The latest CNN/"TIME" magazine poll, which you probably saw, among registered Democrats, had the senator from New York, Hillary Rodham Clinton, at 30 percent, you and John Kerry of Massachusetts came in second at 13 percent. I'll ask you a pointed question and get your honest opinion. Is the American public, is America ready for a Jewish president?

LIEBERMAN: I'm convinced, certainly based on the experience I had in 2000 running for vice president, Wolf, that American people are really true to the ideals stated in the Declaration of Independence and the Constitution and every American is endowed by our creator with the rights to life, liberty and the pursuit of happiness.

So I think the American people are going to judge candidates for the nation's highest office based on their experience, their record, their values, their ideas, their hopes for America's future, not on their religion, or race, or nationality or any other adjective that comes before what is most important, the noun American. I'm very confident of that.

So as I make my decision and I'll announce it by the middle of January, I'm going to do it with full faith in the fairness, openness and acceptance of the American people.

BLITZER: Good luck to you, Senator Lieberman. Be careful over there in the Middle East. We'll see you when you get back to Washington. Have a happy and a healthy New Year.

LIEBERMAN: Thanks very much, Wolf. I'm heading out tomorrow morning, go right back to Connecticut for New Year's. I wish you and your viewers around the world a happy New Year as well.

BLITZER: Thank you very much, Senator Lieberman. Good luck.

LIEBERMAN: Thank you.

(END VIDEOTAPE)

BLITZER: And up next, how to handle the twin dangers of a nuclear North Korea and the showdown with Iraq. Senator James Inhofe of Oklahoma will join us live.

LATE EDITION will be right back.

(BEGIN VIDEO CLIP)

BUSH: Some governments will be timid in the face of terror. And make no mistake about it, if they do not act, America will.

(END VIDEO CLIP)

BLITZER: President Bush in his State of the Union address last January, one year ago almost exactly, defining one of the top stories of 2002, the war on terror.

Joining us now is Republican Senator James Inhofe of Oklahoma. He's been a member of both the Intelligence and Armed Services Committees.

Senator, thanks so much for joining us. Welcome back to LATE EDITION.

On the one hand, we heard Secretary Powell insist that it's not yet a crisis with North Korea. Then we just heard Senator Lieberman say, "Yes, indeed, this is a crisis, potentially very big-time crisis."

Where do you stand on this current tension with North Korea?

SEN. JAMES INHOFE (R), OKLAHOMA: Well, I think first of all that Senator Lieberman was -- keep in mind, he's running for president, and he's looking at this and trying to put his spin on it, and I have a great deal of respect for him.

But I really believe the president is doing the right thing. It's not going to be a policy of appeasement, but it is a serious thing that's happening in North Korea. And I hope during the course of this interview, we can get to why it is.

I'd say the greatest disservice that President Clinton did to the nation, the two greatest disservices during his eight years in the presidency, was, number one, cutting down our militaries who are right now about one-half the force strength we were during the Persian Gulf War. And the other was, through his veto power, single-handedly stopping us from having deployed today a national defense missile system. So, in the absence of that, it's a scary thing.

One of the things, in answering your question, that nobody seems to be talking about and seems to be not a prominent part of this debate but should be is not just what they have currently in North Korea but what is their delivery system?

BLITZER: All right.

INHOFE: You know, it was President Clinton's intelligence back in -- I believe it was the 24th of August, 1998, he said it would be between three and 10 years before North Korea would have a multiple stage rocket. And seven days later on August 31st, they fired one. That's the scary thing to me.

BLITZER: Well, let's get to all of those issues and let's try to pick them apart one by one. What some critics of the Bush administration are saying -- and I'll read to you a quote from Robert Einhorn, who was President Clinton's assistant secretary of state for nonproliferation.

What he says is this: "I think the Bush administration's tough rhetoric and tough policies toward North Korea have unnerved the North Koreans and, perhaps, led them to conclude that the only way for them to ensure security is to confront the world with a fait accompli by rapidly acquiring a substantial nuclear arsenal."

In other words, the tough U.S. policies over the past two years toward North Korea are, at least in part, to blame for these North Korean decisions to go back and start building bombs.

INHOFE: Well, let's keep in mind now, we keep forgetting that North Korea did not comply with that 1994 framework. Part of that was they were to destroy any nuclear weapons that they had.

Now, one of the things, the criticism I had of that when it was first set up, is there was no verification. Reagan used to say trust but verify. That's not what this administration did -- or the Clinton administration did.

So we're in a position not to know what they were doing. Now we know that they did not destroy their plutonium, the nuclear weapons that they had on hand. And then they went in a different part of the country and underground and started developing, as Senator Lieberman said, other weapons of mass destruction or nuclear weapons using enhanced uranium. So they have not complied with their end. So the question is this. Do you sit around with a policy of appeasement? I think this president is doing exactly what he should do. He's getting tough with them. He is going to bring in allies.

Sure, we want China. We want South Korea. We want Japan all in there with us. They have as much or more to lose than we do. Let's keep in mind that North Korea does, in addition to the weapons we know they have, they also have, you know, some 500 or so Scud-B missiles and that'll reach virtually every country I just mentioned.

BLITZER: Well, some of those missiles potentially, the extended versions could even reach Alaska right now. You're saying that if the U.S. had some sort of missile defense system deployed by now, and a lot of experts that's not even feasible at least in the short term, that could change the equation. Is that what you're saying? Go ahead and start deploying these missiles even more aggressively right now?

INHOFE: Yes. What I'm saying is, I was talking about Scud missiles. Now the Taepo Dong missile that they used in August of 1998, that was the one that the third stage didn't fire but it still reached Alaska and that's still part of the United States.

Now, what's happened since 1998, we have no way of knowing because we have not had any verification program. I believe that we should have gone ahead with the national missile defense system.

And let me compliment Senator Lieberman. Only four Democrats in 1998 voted with us, the Republicans, to deploy as soon as reasonable a national missile defense system.

He was one of those four, along with Hollings, Akaka and Inouye.

BLITZER: Senator Inhofe, the secretary of state said the train is being loaded right now, as far as a potential war with Iraq is concerned. And we heard earlier in the week from the defense secretary, saying that there are two crises, yes, underway, North Korea and Iraq, but the U.S. military can get the job done.

I want you to listen to precisely what Secretary of Defense Donald Rumsfeld said.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: We are capable of fighting two major regional conflicts, as the national strategy and the force-sizing construct clearly indicates. We're capable of winning decisively in one, and swiftly defeating in the case of the other. And let there be no doubt about it.

(END VIDEO CLIP)

BLITZER: I assume the defense secretary means winning decisively against Iraq and swiftly defeating in the case of North Korea.

Do you accept that assessment, given the current force-structure of the U.S. military?

INHOFE: Well, I think the second statement he made was a little bit ambiguous. Let's keep in mind, Wolf, that our strategy, our national security strategy, has been for, ever since the Second World War, to be able to defend America on two MTWs, major-theater wars.

Now, after the Clinton administration, we had to downgrade that. If you remember, a year ago, the president said we're going to have to bring that down to being able to defend America in one and being competitive in another one.

I'm not sure what that means, but I will say this. When all this is over, we're going to have to relook at our whole defense system, and start rebuilding it, so that we know, for a fact, that we can defend America on two regional fronts, keeping in mind that we're talking about conventional warfare.

My major concern right now is still getting the national missile defense system. I applaud the president for coming forth and putting this back in, so -- but we still have two years before it'll be in place. And we'll be naked for two years.

BLITZER: Which is a bigger threat to the U.S. right now, Iraq or North Korea?

INHOFE: I would say that Iraq probably would be, because they have the intentions. Iraq has demonstrated something that North Korea has not demonstrated, that is that they are capable and willing to go after, if necessary, even their own people, wiping out thousands of their own people in a matter of one day.

Now, they would not hesitate doing that to us. Now, do they have any kind of delivery system? We don't talk about that any more, but, if you'll remember, back when he kicked out the weapons inspectors, they were asked the questions, when could Iraq have both a nuclear warhead and the missile means of delivering it to the United States of America, and their answer was, within six months. That was 1998.

So I see that as the threat, and, number one, he might have that capability. He has been dealing with technology and systems with China. And he has the -- I have no doubt that he would do it.

BLITZER: Is it your assessment, as it is apparently the secretary of state's, that the Saudis are going to be with the U.S. militarily, politically aligned if it comes down to a war?

INHOFE: Well, I was listening to what Senator Lieberman said, and I wish I had the faith that he has that they are going to be with us. I certainly hope they will be. I don't think there's any way that we can know at this time.

But we do know that we have some allies in the Middle East, and we also -- I feel that the president has been very fortunate in having the time to put together the coalitions that are necessary to be of some help in Iraq. Let's keep in mind that our going after Saddam Hussein, and going in to liberate Iraq has never been something that was going to be ignited by a calendar. It was going to be by action. When the president realized that an American city was endangered, then he would do it. We have had time to start building up our supply of smart bombs, and get some other people in the coalition, and a resolution from Congress.

BLITZER: So basically what are you saying now, that there will be a war with Iraq? Is that your bottom line?

INHOFE: No, I think that it's going to have to be regime change, and I don't know any other way that that's going to happen, given what Iraq has right now, and what Saddam Hussein is doing.

But I hope the American people can look at it in the proper context, and that is, this is a liberation of those people, not just of the Iraqis, but of the surrounding countries that have been the target of Saddam Hussein for a long period of time.

I guess the best answer to your question is, yes.

BLITZER: All right. An honest and candid assessment from Senator James Inhofe, the Republican from Oklahoma.

Happy New Year to you as well, Senator Inhofe. We look forward to having you back on this program several times in the coming year.

INHOFE: Happy New Year to you and all of yours.

BLITZER: Thank you very much, Senator James Inhofe.

And just ahead, North Korea thumbs its nose at the world. We'll get some expert analysis from two international observers, key observers.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BUSH: States like these and their terrorist allies constitute an axis of evil, arming to threaten the peace of the world by seeking weapons of mass destruction.

(END VIDEO CLIP)

BLITZER: President Bush's State of the Union address almost one year ago when he first used the phrase "axis of evil."

Welcome back to LATE EDITION. Joining us now to discuss the tension with North Korea, the showdown with Iraq and the war on terror are two distinguished guests.

Here in Washington, Lee Hamilton, he's the former chairman of the House International Relations Committee and he's the director of the Woodrow Wilson Center. He was recently named vice chairman of the Presidential Commission to investigate the 9/11 terror attack.

And also here in Washington, Ken Adelman, he's the former director of the U.S. Arms Control and Disarmament Agency and a former U.S. ambassador to the U.N.

Gentlemen, welcome back to LATE EDITION.

And Congressman Hamilton, let me begin with you and play for you this excerpt of what Mohammed El-Baradei, he's the director general of the International Atomic Energy Agency, said this past week on this current crisis, and I'll use that word, "crisis," with North Korea. Listen to this.

(BEGIN VIDEO CLIP)

MOHAMMED EL-BARADEI, IAEA: I think they are trying to use their nuclear capability, which is supposed to be for peaceful ends, to achieve strategic and political objectives, which is totally unacceptable. It's basically a policy of nuclear brinkmanship, and that's what they are trying to do, that if we do not get what we think we should be getting, we are going to use our peaceful nuclear program for questionable activity.

(END VIDEO CLIP)

BLITZER: Basically what he's saying is suggesting, a lot of people have suggested, that the North Koreans simply want some respect, some understanding for their stance.

LEE HAMILTON, FORMER CHAIRMAN, HOUSE INTERNATIONAL RELATIONS CMTE: Well, that may be part of their motivation. I don't think it's very helpful to try to read North Korean intentions. We just don't know that much about North Korea.

There are all kinds of motivations they could have here. The fact of the matter is they're playing a very dangerous game. And as they crank up this nuclear program, the world has to react to that.

The United States has to react to it. I don't think the business of reading motivations helps all that much. They are clearly a threat. They have the capability. We know they have nuclear weapons. We know they have the ability to deliver those nuclear weapons.

We think their intent is hostile. We cannot assume otherwise than that this is a real threat.

BLITZER: Why not simply assume, Ken Adelman, what on the surface seems to be going on? They want desperately to have more nuclear bombs.

KEN ADELMAN, FORMER DIRECTOR, U.S. ARMS CONTROL AND DISARMAMENT AGENCY: Well, I think that's right.

BLITZER: And that's it? As simple as that? ADELMAN: Right, that's what they want.

BLITZER: So no matter what the United States and the international community do, are they going to still be going forward with that nuclear bomb program?

ADELMAN: That doesn't necessarily follow. I think it's clear that they want nuclear weapons for a variety of reasons, but what is also clear is that while this is a big threat to us, as Lee Hamilton says, it's an even bigger threat to China, to Japan and to Russia.

As much as we are worried, I would think they would be scared out of their minds.

BLITZER: South Korea, too?

ADELMAN: South Korea, too. But when you look over the long-run you are going to realize that South and North Korea are going to be unified someday, and I don't think it's going to be that long before North Korea collapses in some form and the Koreans are unified.

If that's the case, then a nuclear Korea, with the weaponry from the north, really does endanger China, Russia and Japan. And I would say that these three countries have a far greater stake than we do in this, and these are the three countries that should really be front- and-center.

BLITZER: Do you want to follow up on that, Congressman? HAMILTON: Well, I think that's correct. They're closer to North Korea, but we have a large stake here, too. We've got 37, I think it's 37,000 troops there.

BLITZER: Thirty-seven thousand U.S. troops along the DMZ.

HAMILTON: South Korea has been one of our finest allies over a period of years. So, the United States has very large interests here, too. But Ken is correct, the other countries are right in the neighborhood.

BLITZER: The deputy prime minister of Iraq, Tariq Aziz, spoke out about North Korea, the way the United States is dealing with North Korea and the way the United States is dealing with Iraq.

And I'll let you respond to Tariq Aziz, Ken. He said this, he said, "North Korea has admitted to having a secret nuclear program. The United States is not asking that North Korea be inspected in the way they are asking for Iraq to be inspected. Why? Because there are two things absent in North Korea, oil and Israel. The reason for this war-mongering policy twoard Iraq is oil and Israel."

ADELMAN: No, he's wrong on one big respect. The reason that we are limited in North Korea is because North Korea has nuclear weapons and it is a gigantic military threat.

If we let that situation happen in Iraq and do not take action against Iraq, namely military action against Iraq relatively soon, we will find the situation that Iraq is as difficult to handle as North Korea is right now.

So North Korea is the kind of the case study of what not to let happen in the world: a totally lawless country with irresponsible leadership that gets nuclear weapons while the international community knows it's going on but doesn't want to address it. And then when it gets nuclear weapons, everybody else is deterred from taking action.

It is a wonderful argument to support the administration going into Iraq forcibly in a war.

BLITZER: Do you accept his logic?

HAMILTON: Well, not completely. But look, a threat is made up of two things. One is capability and the other is intent.

In the North Korean case, you have more capability than in the Iraqi situation. The intent is not all that clear with North Korea. With regard to Iraq, they have less capability, but the intent is clear. They have been more hostile. They have been more aggressive.

So I think the threat is probably greater at this moment from Iraq than it is from North Korea.

ADELMAN: Even though the North Koreans already have...

BLITZER: Hold on one second, Ken, we're going to take a quick break, but we're going to just pick up on this thought when we come back. Even though the North Koreans already have at least one or two. We heard the secretary of state confirm it on this show. They have two nuclear bombs already and have had them for some time. Stand by, we're going to take a quick break.

We'll be right back with Lee Hamilton and Ken Adelman. They'll be taking your phone calls as well.

LATE EDITION will continue right after this.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We are continuing our conversation our conversation with Lee Hamilton and Ken Adelman.

Ken, the whole notion of defectors being interviewed by the U.N. outside of Iraq, is that likely to happen? And if it does happen, is it likely to produce any results?

ADELMAN: It is essential to happen. I mean, what the U.N. team has done is backwards. They have gone after buildings and then a month or six weeks later, people. You can run around buildings all day long. I mean, think of how long it would take Lee Hamilton and myself to go through the CNN building right here to find some chemical weapons or biological weapons. We'd be at it for months, OK? Just one building.

This is a country, 23 million people, the size of France, OK. What you have to find are people willing to take their families out, defect themselves and to say, oh, my, God, there's this program going on, that program going on and the other. We didn't even know that there was a biological weapons program in Iraq till Saddam Hussein's son-in-law defected to Jordan, spilled the beans in the intelligence community and then said, we have this biological...

BLITZER: Any of that likely to happen, though? Do you foresee people being taken with their families, their extended families abroad for questioning.

HAMILTON: I don't know how that's going to play out. The U.N. inspector, Dr. Blix says he has reservations about taking them outside the country. We think they're going to be much more willing to speak freely if they are outside the country. It's to our interest to get them outside the country in a neutral environment. How that plays out, I don't know.

I don't have any doubt at all about the importance of what they have to say. After all, they're the people with the brain power to make these weapons and make them happen.

BLITZER: In the end, though, you heard the secretary of state say, the train is being loaded right now. It looks like they're getting very close, end of January, early February for some sort of critical decision.

HAMILTON: Oh, I think that's right. But a lot depends on whether or not we're able to bring the world with us in our judgment that Saddam Hussein has these weapons. I agree with the statement often made by the administration that the burden is on Iraq. But that doesn't relieve us of some responsibility. The president has said over and over again, the secretary of defense has said over and again that they have weapons of mass destruction. The inspectors have now gone through hundreds of buildings and haven't found anything.

As Ken said, it is exceedingly difficult to find anything. But we have some responsibility, it seems to me, to come forward with some information with regard to those weapons of mass destruction.

ADELMAN: Well, we have. We declared a material breach.

BLITZER: But he wants hard evidence, intelligence evidence that the Iraqis are lying.

ADELMAN: OK. Well, we declared a material breach because they are lying. What we had was a requirement that -- the U.N. had the requirement that they document how they destroyed the facilities for weapons of mass destruction and their stockpiles of weapons of mass destruction.

BLITZER: But the U.S. has intelligence information...

ADELMAN: And they have not -- they have not...

(CROSSTALK)

BLITZER: Shouldn't it go to the Security Council and release this information to the world?

ADELMAN: Yes, yes.

HAMILTON: Yes.

ADELMAN: And I think that we have that information. I think the British have that information. I think the British contained a lot of that information in their white paper a few months ago. I think the Americans have that.

What you say about Hans Blix, Lee, is absolutely right. But that's my trouble with Hans Blix. I mean -- no, seriously, why not start vigorously telling these people, get out of the country, tell where these facilities are, let them -- let us inspect them.

BLITZER: You can't force them to leave if they don't want to.

ADELMAN: No, but you can avoid saying, I'm not very convinced this is an effective means or I don't believe very much in this power. This is the main power that Hans Blix has given.

BLITZER: We have less than a minute. But I want to get both of your assessments very quickly on Saudi Arabia. Will the Saudis be with the U.S. militarily?

HAMILTON: Yes.

ADELMAN: I think they will. I think Saudi Arabia has been more an adversary of the United States over the years than a friend of the United States. And I think that when you look at the war on terrorism, Saudi Arabia is part of the problem, it's not part of the solution.

HAMILTON: They will be with us to the extent we need them.

BLITZER: All right, good assessment from both of you. Good analysis. Thanks to both of you. Happy New Year. Congressman Hamilton, Ken Adelman, we'll have you back. Thank you very much.

HAMILTON: Thank you.

BLITZER: Coming up in the next hour of LATE EDITION, we'll have a special conversation with an American icon. Former New York City Mayor Rudy Giuliani shares his thoughts on a host of issues, including the possibility of a return to political life.

All that, plus the economic roller coaster of 2002. What's in store for the new year? We'll ask the experts. Plus, they'll be taking your phone calls.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We'll hear from former New York City Mayor Rudy Giuliani in just a few moments, but first, here's CNN's Fredricka Whitfield in Atlanta, with a news alert.

(NEWSBREAK)

BLITZER: Now my conversation with the former New York City mayor, Rudy Giuliani, and his views on homeland security, the plans for the World Trade Center site, and the possibility of coming back into politics.

(BEGIN VIDEOTAPE)

BLITZER: Mr. Mayor, thanks so much, as usual, for joining us for this year-end look back, look ahead as well. Always good to have you on the program. Congratulations on your new book "Leadership," the number one best-seller, a good read. Thanks very much for spending some time with us.

(CROSSTALK)

BLITZER: Let's look back on this year. How has your city, New York City, changed over the past year as we get further away from 9/11?

RUDY GIULIANI, FORMER NYC MAYOR: Well, I think, if I look back at the entire year, the city has become more and more confident. I think that, having faced the horrific attacks of September 11 of last year, then having lived through anthrax and some of the other things that happened, the people of the city, I think, are convinced that they can handle, you know, the worst attack that's ever occurred in the history of this country. And that ultimately gives them more strength.

I remember on September 11, maybe the second or third press conference that I did -- I can't exactly remember the order of them -- I said that I wanted the city to emerge from this stronger than it was before September 11. And all that I've seen this year, that's precisely what has happened. The people of the city are dealing realistically with the grief that they have, with the loss that we all share in common, but, at the same time, you know, their spirit is so strong that I think they've actually gathered, you know, great support for themselves from what's happened.

BLITZER: But as we go further away from 9/11, the weeks become months, the months become years, is there a fear, do you have a fear that people are going to forget what happened and sort of look back on it as ancient history?

GIULIANI: No. I do have a concern. It isn't so much that people will lose the sense of feeling and emotion and loss, because so many of us lost so many friends there.

I think what can happen is a complacency about preparedness and about what we're facing with regard to terrorism, which even over the course of the year may have lessened a little. And that we have to keep reminding ourselves that we're still at risk, there are still tremendous threats, that we have a war going on, and that we have to do a lot more to prepare ourselves for all the possible things that terrorists can do to us.

Government needs to do that. Private business needs to do it. Institutions. And as we get further away, there may be a tendency to lessen the intensity of that.

BLITZER: So you're obviously still concerned that it could obviously happen again?

GIULIANI: I am. You know, Wolf, sometimes I think it's a little bit like when someone deals with a disease or an illness. And when you're sick and the doctor gives you medicine, you take it and then when you start feeling better a lot of people stop taking their medicine and never complete it.

And right after September 11 happened and for a long, long period we were very, very intense in all of our preparations with regard to preparing for a possible other terrorist attack. Now as we get further away from it, maybe not even now but maybe as we go into next year, we have to be really careful that we don't lose the intensity of all the preparation that needs to be done, all of the work that needs to be done to, you know, make certain that we eliminate global terrorism.

BLITZER: So you obviously don't think, but correct me if I'm wrong, that local, state, and federal law enforcement preparedness, that they're at the level where they should be to deal with the threats that still remain out there?

GIULIANI: No, they're not at the level they should be. It would be actually unrealistic if they were, because a year and a couple months is not enough time to prepare. I think we're a lot better off than we were a year and a couple of months ago and a lot better prepared than we were then.

But I think -- I guess what I'm saying is I think this year was a year in which we did prepare effectively. I'm afraid as we go into next year and the year after and we move further away that we can lose some of that intensity. And we can't, because a lot more needs to be done.

BLITZER: As you know, some of the critics of a possible war with Iraq say that all this focus on Iraq is detracting from the real threat out there, al Qaeda, which still exists, the war on terrorism. Are you among those who express that fear?

GIULIANI: No. I think that Iraq is part of the picture. I mean, when the president made his speech back in September of last year and he said that the war against terrorism would be in a number of different places over a three- to five-year period, I assumed that one of those places the president was referring to as a critical player in world terrorism was Saddam Hussein and Iraq.

So I see Iraq as part, you know, as part of the overall effort to remove, you know, the capacity for biological, chemical warfare and the possibility of using weapons of mass destruction. So I don't think in that sense it's either/or. Iraq is part of it. BLITZER: Mr. Mayor, what goes through your mind when you know the fact, the fundamental fact, that as of this moment, Osama bin Laden is still alive and well, presumably somewhere along the Afghan- Pakistan border?

GIULIANI: I think it'll be a mission of the United States to bring him to justice for however long it takes. You know, I was involved in law enforcement for, you know, more of my life than probably anything else, even politics.

And the idea that sometimes it takes a long time to bring somebody to justice is not totally foreign to me. And I think that has to be a major focus of America, you know, for as long as is necessary to bring him and the people responsible for what happened on September 11th of last year to justice.

BLITZER: Let's talk a little bit about your city, New York City, and the World Trade Center site. You saw those recently released drawings, those renderings, of some possible new buildings to go up there, a couple of them very, very huge, just like the World Trade Center. You don't like that idea, do you?

GIULIANI: Well, I like the idea of something big and beautiful and very, very imposing that will add to the skyline of the city. But I also think that it has to be primarily focused on a memorial, and it has to be primarily focused on people being able to recreate, relive, you know, what happened on September 11th, for very much of the reasons that we were talking about.

You know, the idea that you can't forget. You can't forget two, three and four and five years from now. So, I'm not sure that any of those designs accomplish that for me. And, you know, I know this is very difficult, and I think everyone has a lot of very, very strong emotions about this.

But I think there should be something very big, something very soaring, something very dramatic and something very beautiful.

But then the primary focus should be a living memorial, library, museum, interactive exhibits, things that allow you to recreate what happened, the horror of it, the effect of terrorism, and then the heroic response and the brave way in which people dealt with it, because it really adds to how you can understand the human spirit.

BLITZER: But what if you could do that, what you want to see, but at the same time have a retail complex, a hotel, office building, a residential area, something that would bring back what once was?

GIULIANI: If you could do that, the answer would be yes. But the primary focus has to be on the significance of the place. And I guess the fear that I have is if you don't devote enough space to that then you minimize the event.

And future generations aren't going to forgive us for that. Future generations are not going to forgive us for covering over what is a national shrine, a place of national significance, a place of historical importance. Suppose somebody, you know, had covered over Normandy or Gettysburg?

So I think that that has to be the primary focus. And then if you can accomplish what you just said, if you can accomplish a very substantial memorial, museum, library, interactive exhibits, soaring, grand structure that points out the importance of this place, and at the same time add office space and retail establishments, I think that would work.

BLITZER: It's been a year since you actually were the mayor of New York City. First question, how's your successor, Mayor Bloomberg, doing?

GIULIANI: I think he's doing fine. I think he's doing exactly what I would want him to do, which is to run New York City as a business, which may be the simplest way to describe it. In other words, try to make the right decisions, try to make it as efficient as possible.

I think he's had to get through, you know, a difficult year, not only in the aftermath of September 11, but the economy has been, has been hard-hit, and particularly in New York because of the dependency on the financial community.

But I think he's done a good job. And I think he's, you know, made the decisions with the right kind of process in mind, which is to think of the city as a business and try to run it as efficiently as possible because ultimately that's going to help the most people.

BLITZER: A year ago at this time you had just been named Time Magazine's Man of the Year. Your life has changed, I assume, over the past year. What are some of the changes that have happened?

GIULIANI: My life has changed. I started a private business, Giuliani Partners, with a number of my colleagues, which means my life has changed, but it hasn't changed as much. A lot of the people that I work with every day, a lot of the people that I'm in contact with on a regular basis in my business are the same people that I worked with at City Hall -- the former police commissioner, the fire commissioner, the head of the mayor's Office of Emergency Management.

I mean, a number of the people that were my colleagues are still my colleagues, and we've developed a growing and, I think, very good consulting business in which we help people on security problems and we help people in crisis management.

I put out a book. That was a real sense of completion when I was able to finally get it done and finally, you know, share it with people, because, you know, writing a book is much more difficult than I think people think when they first go into it. Certainly, there were more ups and downs than I thought, but then finally getting it out was a real sense of completion for me.

But my life has changed a lot, and then in some ways it's very much, it's very much remained the same, particularly because I have a very close group of friends that are like family that I work with every day. BLITZER: So what you're saying is you're still the same Rudy Giuliani, even though you're no longer a public servant, you're out in the private sector. You're making money now. For the first time, I think, probably in your life you're making significant sums of money. Has that changed you at all?

GIULIANI: It hasn't. I mean, it is true it's different being in the private sector, but it hasn't changed me, hasn't changed me all that much. It's meant that I've been able to take care of responsibilities that I have to take care of and other things.

But it hasn't changed, it hasn't changed me, you know, in terms of my personality or who I am. I think going through prostate cancer and going through September 11th are probably the things that had, you know, a real significant impact on me.

My life now has certain, you know, differences about it. Compensation is very different in the private sector. It means you can take care of responsibilities that maybe you weren't able to before.

But essentially, you know, the core of my life is very, very much the same because of the people that I'm with.

BLITZER: Speaking of prostate cancer, hopefully you're doing fine. I just want to reassure our viewers out there around the world. How are you doing?

GIULIANI: I'm doing fine. I get tested on a regular basis. It's something that anybody that's had cancer lives with for the rest of your life.

But I'm free of cancer. I'm very grateful for the treatments that I went through.

And I -- I mean, one of the things that I also get to do is, I get to counsel people who have to deal -- mostly people will call me and contact me who are dealing with prostate cancer, but sometimes other forms of cancer. And, I mean, I wrote about that in my book, but I also get a chance to help people sometimes on a personal basis, and you feel like you're giving back to all the people that helped you.

BLITZER: It's a powerful section of the book, which I've read, the advice that you have for people who have to endure, have to go through what you obviously went through. And it's a useful section of the book, which I recommend.

(END VIDEOTAPE)

BLITZER: We have to take a quick break. More of my interview with the former New York City mayor, Rudy Giuliani, in just a moment. Will he be making a political comeback any time soon? Stay with us.

(COMMERCIAL BREAK) BLITZER: You're looking at a picture of Rudy Giuliani participating in one event marking the anniversary of the 9/11 attacks, another one of the stories that this year makes our CNN top 10 list of the most important stories of the year.

Welcome back to LATE EDITION. Now more of my interview with the former mayor of New York.

(BEGIN VIDEOTAPE)

BLITZER: Let's talk a little bit about politics while I have you. Do you miss being in the political arena directly?

GIULIANI: Well, you know, Wolf, I spent a lot of time in politics over the course of this year. You know, not as much, obviously as I did when I was the mayor. Although, if I think about it in terms of just politics itself, you know, when you're mayor, you don't get the chance to be in politics all that much, you have to run the city.

So all the campaigning I did this year, traveling around the country, which started really I think in the spring of this year, I spent a lot of time in politics. It was a different kind of role, supporting other people, helping other people, repaying debts that I had to people. And so I don't feel like I'm completely removed from politics. And, you know, it's a different kind of role, but it's a very fulfilling one in many ways.

BLITZER: Did -- you probably saw the speculation that was out there over these past several months that President Bush might ask you to replace Harvey Pitt as the Securities and Exchange Commission chairman. Or that he would ask you to be the Homeland Security secretary. Was there ever any possibility that that was a serious consideration?

GIULIANI: No. I'm committed over the next couple of years to, you know, to remaining with my business, developing it. I have a lot of partners I have responsibilities to. I have my own individual responsibilities that I have to take care of. So that is not something that I could really consider right now.

I would like to think about the idea of, you know, being back in politics, you know, three, four years from now, in the future. But right now that isn't -- that's not something I'd actually be able to do.

BLITZER: Is there a specific race, Senate race, a governor's race, something you have in mind three, four years from now?

GIULIANI: No. Just very vague, very general. You know, I know that at some point I'm going to want to get back into being involved, let's call it directly in politics. Because I feel right now that I'm indirectly involved by helping the president, helping other people.

BLITZER: One of the things that has hurt the Republican Party, I assume at least, in the short term, is the Trent Lott affair, the comments he made about Strom Thurmond, the 1948 segregation -- pro segregation run that he made for the White House. How badly has this hurt your party? You're a good Republican.

GIULIANI: Yes, I think the way in which the president, you know, reacted to it and then a number of the other leaders in the party, from what you might call different wings of the party, including the -- what we would call the conservative wing of the party, showed that those were comments that didn't reflect in any way the thinking of the Republican Party.

In fact, it showed I think, a very, very strong and healthy reaction against what appeared to be the attitude. So I think there was some maybe temporary damage done in terms of speculation and discussion. But the long term, given the decisive way in which it was handled, I think it's not going to have any kind of permanent impact on the party.

BLITZER: Did it surprise you the way it sort of fell out? That after nobody was really paying much attention, at least in the media, to what Senator Lott said all of a sudden it snowballed and resulted the way it did?

GIULIANI: Yes, it did because, you know, the story came up after a couple of days, when the comments had been made earlier. But I think, I mean, I think a lot of it had to do with the president's strong reaction to it. I think that -- otherwise, it might have gone on for, you know, quite a bit more time, and who knows what the outcome was? But I think when the president made his first comments, you could -- you could almost see the resolution of this happening pretty quickly, and it did happen pretty quickly.

BLITZER: Let's talk briefly, because I know you have a limited amount of time. The president, President Bush, what must he do, what must he avoid doing in order to get reelected in 2004?

GIULIANI: Well, I think he has to keep going in the direction that he has been going. I think he's had, you know, about as successful a year for a midterm president in his first term ever.

Politically, with taking back the Senate and the gains made in the House, and in terms of foreign policy, the war on terrorism, the support that he's been able to get for the efforts in Iraq. I can't think of how he could have had a more successful year.

I think like any president, the economy plays a very, very big part in, you know, what kind of problems he's going to face for re- election. And that's a year, year and a half from now. So there's no way to know where the economy is going to be at that point.

I think that the president's approach of trying to reduce the size of government, return more money to the private sector so that people get more discretion over their own money through tax reductions, is the right answer to the economy. But sometimes that right answer takes three months, six months, a year, and that's going to determine, I think, a lot of the political landscape for, you know, the year in which he faces re-election. BLITZER: Did you see that latest CNN/Time magazine poll that had among registered Democrats Senator Clinton, Hillary Rodham Clinton, atop the list now that Al Gore has dropped out? She has 30 percent. And then way down, John Kerry and Joe Lieberman are at 13 percent. Everybody else sort of is at single digits. Did that surprise you?

GIULIANI: No. I don't think it would surprise anyone who understands politics. I mean, Hillary Clinton has tremendous name recognition. She's someone who gets connected among Democrats in particular, you know, to President Clinton, where, you know, he's very popular among Democrats.

So when you think about it as Democratic voters and the kind of feeling and the kind of sense the Democratic voters had about President Clinton, and I assume about, you know, Senator Clinton, that isn't so surprising. I mean, she has the strongest name recognition of any of that group. So once Al Gore drops -- I think Al Gore, even at the time he dropped out, was still preferred by like 50 or 51 percent of the Democrats.

So, the idea that Hillary Clinton would be second, you know, would be at 30 percent, isn't so unusual.

BLITZER: Do you take her at her word when she says she is not going to run in 2004?

GIULIANI: I think that's right. I mean, I think that probably -- yes. Yes, I think it's her first term in the Senate. Unless things change dramatically, it's going to be an election against a very difficult incumbent to defeat. I think President Bush is going to be, you know, very difficult for any Democrat to defeat.

I hope, of course, no one defeats him and that he wins. But in politics, you can't take that for granted. But I think right now, it looks like a very difficult race for a Democrat.

BLITZER: How's she doing right now, the senator, the junior senator from New York?

GIULIANI: A very different voting record than I would have.

(LAUGHTER)

And a very different set of positions.

BLITZER: You would have been a different kind of senator, representing...

GIULIANI: Sure. But, you know, we represent very different philosophies and a very different approach to government.

BLITZER: I know you're about to get remarried. I want to congratulate you on that. I want to thank you very much for...

GIULIANI: Thank you very, very much.

BLITZER: ... spending some time reflecting on a wide range of issues with us.

GIULIANI: Happy Holidays and Happy New Year.

BLITZER: Happy New Year to you, as well, and to the whole family.

GIULIANI: Thank you, Wolf. You, too.

(END VIDEOTAPE)

BLITZER: And coming up, the wartime economy's wild ride in 2002. President Bush says the economy is growing again. Is it? And what does that mean for your bottom line?

And how will the corporate corruption of the past year affect future Wall Street deals? We'll ask the outgoing House majority leader, Dick Armey of Texas, and the former Clinton labor secretary, Robert Reich.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

DAVID DUNCAN, ARTHUR ANDERSEN: On the advice of my counsel, I respectfully decline to answer the question based on the protection afforded me under the Constitution of the United States.

KEN LAY, ENRON: I am deeply troubled about asserting these rights, because it may be perceived by some that I have something to hide.

(END VIDEO CLIPS)

BLITZER: Two of the main players in the Enron accounting scandal refusing to testify earlier this year. David Duncan of Arthur Andersen mishandled Enron's books, and Ken Lay, the former chairman and CEO of Enron.

The corporate corruption of 2002 is one of the top 10 stories of the year. Joining us now to discuss that and the overall state of the economy are two special guests. In Dallas, Congressman -- the outgoing majority leader -- Dick Armey, who's retiring from the U.S. Congress. And in our Boston bureau, the former labor secretary under President Clinton, Robert Reich.

Gentlemen, welcome back to LATE EDITION.

Congressman, let me begin with you on the whole notion of the economic comeback. All of us want to see the economy come back, but how concerned are you that a war with Iraq potentially could cost a lot of money and derail the economic turnaround?

REP. DICK ARMEY (R), TEXAS: Well, obviously, that would have serious budget consequences for the government. But more importantly, it would have a continuing atmosphere of uncertainty, fear, and concern for the American people. And of course, uncertainty breeds caution, caution means people sit out the stock market, they're slow to get involved in it, they're reluctant, they're cautious, and of course now, with so much of the nation invested in that, the depressed stocks feed back into consumer confidence in an adverse way, and it just maintains a slow economy.

So it would be far better for the performance of the economy to see American people's attitudes lifted by an understanding that no war was necessary.

BLITZER: A lot of people are nervous out there, Robert Reich, about a potential war with Iraq, certainly the tensions with North Korea right now. How will that play in your assessment on this effort to have the economy come back to life?

ROBERT REICH, FORMER LABOR SECRETARY: Wolf, investors hate uncertainty. So I doubt very much that we're going to see much action in the stock market. Perhaps 2004 the economy will rebound. In terms of stocks, I don't think we're going to see a tremendous rebound in 2003. Again, with that overhang of uncertainty.

But we also saw that this past Christmas season has been very, very disappointing for retailers. We have a drop in the consumer durable purchases in November.

The economy is not really in anything resembling a vigorous recovery right now. In fact, many people would say that this is the most anemic recovery on record. Consumers are barely holding on. Consumers are the only thing that has basically kept the economy going over the past two years, and that's the big question mark: consumer confidence.

BLITZER: What about that, Congressman?

ARMEY: I agree. I agree with that. We have to address the whole question of security, and that is the underlying -- what should I say, psychology of this depressed economy.

When people feel more secure and more secure about their future, more secure about jobs, more secure about tenure at the job, more secure about future promotions, more secure about their retirement security -- it's an amazing pall over people's current consumption behavior, how they worry about what their retirement will look like.

BLITZER: And the cost of oil, Robert Reich, clearly could have a significant effect, at least in the short term, on the economy.

I want to put some numbers up on our screen, tell our viewers what they're looking at. If you take a look at U.S. dependence on imported oil, Canada of course provides the most oil to the United States, at around 21 percent of U.S. oil needs. Saudi Arabia second, almost 17 percent. Mexico, Venezuela, going down.

But even Iraq is providing, if you show the next screen up there, Iraq provides almost 6 percent of U.S. oil imports, an unusually high number.

If you have to take a look at all of this oil uncertainty, and the impact, the ripple effect that a higher price per barrel could have on the U.S. economy, what does that say to you and the viewers out there, who are already a little bit jittery about an economic recovery?

REICH: Wolf, it means that 19 -- that the year 2003 is going to be even more uncertain. Oil prices are already above $30 a barrel. Venezuela, the strike down there, it looks like it's going to be settled, but that uncertainty has added to the overall uncertainty.

OPEC, the Organization of Petroleum-Exporting Countries, has been controlling the exports of oil and taking advantage of the current uncertainty.

REICH: I think oil prices, if they go anywhere, given uncertainty in the Middle East, they are going to continue to go upward, and that is going to have certainly a downward effect on the U.S. economy.

So we're not looking at a vigorous recovery, unfortunately, in 2003. I wish I could be more buoyant and upbeat. I wish I could be a cheerleader, like many business economists are, for the economy. But as a matter of fact, as a practical matter, 2003 could be a very slow year.

BLITZER: Congressman Armey, you're from Texas. You know something about oil. You're an economist, among other things. What's going to be the impact of oil, assuming that there will be a war with Iraq and there could be a disruption of the flow of oil, at least a short-term disruption?

ARMEY: We've seen that before. As long as America remains so heavily dependent on foreign oil supplies America is always going to be, what should I say, open to depressive effects from interruptions.

That's why I personally find it so regretable that the environmental extremists prevented us from having instituted even last year a solid energy policy that would have given us access to some of the greatest oil reserves that are available in the world, but particularly to the United States.

It's time we really get beyond that and get on with a decent energy policy that will lend an air of future stability to our energy supplies.

BLITZER: How is it possible, Congressman Armey...

REICH: Well, Wolf...

BLITZER: Bob Reich, hold on one second. I just want Congressman Armey to respond to this.

How is it possible that after the oil embargoes of, what, 20, 30 years ago and all the cries over the years of the still-significant dependence of the United States on foreign imported oil, that the U.S. still remains as dependent as it is?

ARMEY: Because the U.S. has not developed its own domestic supplies of petroleum that are there and available to us. We haven't used all that is available to us in energy sources alternative to fossil fuel energy. We have the coal reserves that lay out there that could be developed with clean coal.

What we have in America is an energy crisis over an ideological conflict. And it is time for the practical business of life to beat the romance of environmental extremism if we're going to have any stability in our energy system.

BLITZER: All right. Robert Reich, go ahead.

REICH: Well, I just wanted to say that as long as we're getting into politics and policy right now, let me put a very strong plug in for renewable energy resources. This is something that we certainly have the technological competence to explore. We ought to be the world leader in renewable energy.

And there's no reason we have to do a lot more drilling. There's no reason we have to pollute the air as much as we do. It is, in my terms, a disgrace that we're not doing more with renewable energy. And I hope this crisis teaches us that we cannot have a foreign policy that is based on oil politics.

BLITZER: Well, what do you mean precisely by renewable energy resources, Bob Reich?

REICH: We're talking about wind and solar, all sorts of ways in which we have already the embryonic technologies to develop the ability to produce energy that is non-polluting.

These are not environmental extremists who are pushing this. These are people who are very deeply involved in technology, who know that we can do it. There's no place around the world who has the technological competence that we do in these renewable, non-polluting energy technologies. And that's what we ought to be investing in right now, Wolf.

BLITZER: All right, we're going to take a quick break, but I want Congressman Armey to respond on that point.

We heard a lot about wind and solar in the 1970s after the Arab oil embargo against the United States, but all that seemed to have petered out rather quickly. Is Secretary Reich on to something, though, here, Congressman?

ARMEY: Well, I appreciate the appeal he has to what he's talking about here. But these are, frankly, I think, in terms of the practical application in large amounts of energy generated, they're the romantic alternatives. They don't get down to the real brass tacks of taking the real energy supplies that are available to us and getting on with developing those supplies. And I'm talking ANWR here as my first best example. BLITZER: ANWR being the oil up in Alaska, the oil reserves up there, a subject that has been hotly debated, of course, over the past several months.

We're going to take a quick, short break. More of our discussion on the wartime economy with Congressman Armey and Bob Reich. Plus, they'll be taking your phone calls. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We're continuing our conversation with Congressman Dick Armey of Texas -- he's retiring from the U.S. Congress -- and the former labor secretary under Bill Clinton, Robert Reich.

Bob Reich, if you had to make one or two specific proposals to try to stimulate the economy, get the economic recovery going early in the new year, what would they be?

REICH: Well, I think the best proposal is to eliminate the payroll tax on the first $10,000 to $20,000 of income. The advantage here is that it puts money directly in people's pockets, money that they're likely to spend and thereby stimulate the economy.

Four out of five Americans spend -- or actually pay more in payroll taxes than they do in income taxes. So, this is a fair way of doing it. It's also one that is guaranteed, almost guaranteed to get the economy going again.

I understand that the Bush White House is now considering this. A lot of Democrats support it. I hope this is part of the White House's plan.

BLITZER: All right. What do you think about that, Congressman?

ARMEY: Well, I would consider that a fairly ineffective alternative. What you have to do is reduce the cost of investment or of savings and increase the return on investment. You need to have a smart set of tax cuts that focus on savings and investment to gin up that activity.

And you need to address retirement security. It's the underlying psychological hurdle that we've got to overcome. A comprehensive plan to give people a greater sense of confidence that they will control a more secure retirement.

And unfortunately, cutting the payroll tax, which is devoted to social security, in the face of its already existing liquidity problems for the next generation, would, I think, undermine people's confidence about the security of their future in retirement years.

BLITZER: Go ahead, Bob Reich.

REICH: Well, what we need right now is to, first of all, acknowledge the problem, the immediate problem, is overcapacity, underutilization. There are too many factories, too much equipment, too many people who are idled right now. We've got to push the economy forward by pumping up demand.

The Federal Reserve Board can't do it alone. The Fed has lowered interest rates, short-term interest rates, 12 times. They're now 1.25 percent. That's the lowest it's been in decades, and that's like pushing on a wet noodle.

The only way you're going to actually get this economy going is to give consumers more money, more money in their pockets, temporarily. Now, I'm not talking about a permanent cut in the payroll tax. I agree with Dick Armey, if you did that, you might jeopardize social security. We're talking about a one-year tax holiday.

Now, that can easily be paid back, for example, in future years after 2004, after the economy is back in good shape, just freeze taxes on the very wealthy. Don't give them a big tax cut; they don't need it. That would more than make up for any loss right now in the social security trust fund.

BLITZER: On that last point, Congressman, the Bush administration seems to be backing away from speeding up, accelerating some of those tax cuts for the wealthiest Americans that were passed this past year. Is that a good idea?

ARMEY: No, it's not a good idea, and I'm frankly a little disappointed here again. One of the things you have to make policy calculations that are designed to say what are the real economic consequences of what you do and try to keep the politics out of it.

I think the Bush administration right now seems to be too responsive to political background noise. The fact is, if you cut the marginal rates -- we've seen it too many times before beginning with Kennedy in '62 -- you will, in fact, increase discretionary work, discretionary consumption more quickly than anything else.

You also, and I want to build on something Bob Reich said, he's exactly right about, greater demand for American product in overseas market. We need to develop our international export side of our economy. We've taken steps in the last Congress to do that, but aggressive trade and export opportunities ought to be pursued and are available to us if we pursue them properly.

BLITZER: What do you think, Bob Reich, of this new economic team the president is putting in place? They have to be confirmed by the Senate. But let's go through one, the new secretary-designate of the Treasury, John Snow. What do you think of him?

REICH: Well, he's had a very good record, a very good employer. I dealt with him a little bit over the last 10, 15 years. But this new team, let's keep in mind, they are going to be a sales team. They are not developing the new economic package.

That new economic package, as Dick Armey just suggested, is being developed largely by Karl Rove, the president's political adviser, other people in the White House. It's already pre-packaged. That new team is going to have to go out and, whether they like it or not, whether they agree with it or not, they're going to have to sell it. That's their job.

BLITZER: Congressman, John Snow will be joined by Stephen Friedman who will be the chief economic adviser in the White House. Is this new team going to get the job done?

ARMEY: Well, I think they will. And quite frankly, I think particularly John Snow, who I know a little better, has a PhD in Economics from Virginia. This is a big deal and shows his qualifications are quite capable.

I think both Snow and Friedman will be assertive. They're not going to have accepted these positions with the notion that they would let politics define the economics of the administration. I think they will assert themselves.

And there are some very smart and capable people in this White House. If they can just get beyond politics and focus on true economic policy, we can develop some very good economic policies with this White House. They have some very bright people in there.

BLITZER: Finally, what did both of you think about the new chairman designate for the Securities and Exchange Commission, William Donaldson? I'll let Bob Reich respond first.

REICH: The SEC's big problem is lack of money to enforce the laws right now. You might have a chairman in there who is less cozy with the industry than Harvey Pitt. I think everything I know about the chairman designate has been positive. But unless the Congress appropriates and the president puts into the budget more money for effective enforcement of the securities laws, that SEC is going to be just absolutely ineffective.

BLITZER: Congressman, you'll have the last word.

ARMEY: Well, I think we do have a good chairman now. And obviously, if you have a good person who you find reliable, give him the resources to do his job. I think that part of what has been our concern in the past few years is going to be corrected, probably is corrected.

BLITZER: All right, on that note, I want to wish both of you a Happy New Year. Thanks to both of you for joining us many times this past year and in the coming year as well.

Good luck, especially to you, Congressman, as you begin many, many years ahead of you outside of Washington. It feels pretty good, I guess, doesn't it?

ARMEY: Well, it's an exciting time to go on and see what other adventures I can find. I've been fortunate to have two exciting careers, and I've got just enough time in my life for a third one, so I'm looking forward to it.

BLITZER: Bob Reich can tell you there is life after Washington.

(LAUGHTER) REICH: There certainly is. Not much of it, but it is. It's very pleasant out here.

(LAUGHTER)

Happy New Year to you both.

BLITZER: All right, good luck to both of you.

ARMEY: Happy New Year.

BLITZER: Happy New Year of course.

And up next, public and private, a White House photographer shares the photos that captured five U.S. presidencies. Diana Walker's fascinating book, when LATE EDITION returns.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIPS)

UNIDENTIFIED MALE: We now have a Republican administration, a Republican House and a Republican Senate.

UNIDENTIFIED MALE: I've got to tell you, when you see the energy in this room, you know that the future is in and with the Republican Party.

UNIDENTIFIED MALE: Our time in the desert is over.

(APPLAUSE)

(END VIDEO CLIPS)

BLITZER: Three Republican winners on Election Night 2002. Defying predictions, the Republicans rode President Bush's popularity to a very strong performance, recapturing the Senate, and gaining seats in the House of Representatives, making it one of our top ten stories of the year.

Welcome back to LATE EDITION.

Joining us now, a guest who has had special access to presidents for over two decades. The photographer Diana Walker's new book is called "Public and Private," and it includes pictures of presidents, both Republican and Democrat.

Diana Walker is joining us now live from our London bureau.

Diana, thanks for joining us. Welcome to LATE EDITION.

And I want our viewers to see some of these remarkable pictures. You've taken pictures of presidents going back to the 1970s.

The first one I want to put up on our screen for our viewers in the United States and around the world to see is that remarkable peace treaty signing ceremony at the White House involving the late president of Egypt, Anwar Sadat, the late prime minister of Israel, Menachem Begin, and Jimmy Carter, who was then president. It was a glorious day at the White House, on March 26, 1979, wasn't it?

DIANA WALKER, PHOTOGRAPHER: Oh, Wolf, it was the first really big event I'd ever witnessed at the White House. And President Carter reminded me, when I saw him about the book, that this peace treaty has never been broken, which is quite extraordinary.

BLITZER: It was an amazing picture. I was there that day as well.

There's another picture I want to put up showing Ronald Reagan and Queen Elizabeth. Tell us about this picture.

(LAUGHTER)

WALKER: Queen Elizabeth had visited the Reagans and done a tour of California, and it had never stopped raining in the 10 days she was there. And at a state dinner held in San Francisco for her, she made this very funny toast, in which she said that she knew that the Puritans had brought many customs from her country, but she had no idea they brought the terrible weather, too. And President Reagan just broke up. It was very funny.

BLITZER: He was laughing robustly.

(LAUGHTER)

Let's put up another picture. This one showing Nancy Reagan and the wife of President Gorbachev of the then Soviet Union. It's 1985. And Raisa Gorbachev is there as well. Talk a little bit about this picture.

WALKER: Well, this was the first behind-the-scenes picture that I really took during the Reagan administration. And Mrs. Reagan was meeting with Mrs. Gorbachev in the home of the Aga Khan in Geneva. And there I was witnessing this. And it looked to me then, Wolf, that this was not going to be the warmest relationship that ever happened. It was a little stiff.

(LAUGHTER)

BLITZER: It was a little stiff. There may be -- in fairness, there could have been a language barrier as well.

WALKER: Oh, I think so.

BLITZER: There's another picture that's relevant very much today, when President Bush, on Thanksgiving, a dozen years ago, went out to meet with U.S. troops in Saudi Arabia. That was to Operation Desert Shield, getting ready for Desert Storm. You remember, obviously, that picture.

WALKER: Yes, and this was at the end of the day, and the president had been surrounded by congressmen and a whole delegation that had gone with him out into the desert. And at this point we were just about to leave, and the sun was going, and the troops were all around him, and suddenly the president stood up by himself, and he started throwing souvenirs to the troops, like key-rings and tie-clips and things like that, and suddenly there was this really magnificent and wonderful moment. And I just knew, if I could hold tight, and technically I had it all right, we really had a picture there.

BLITZER: Now, there was another picture...

WALKER: It was beautiful, a beautiful moment.

BLITZER: ... you took of the Bush family in the summer of 1992, obviously, before the election. Talk about this picture, because we see the then president, but a future president there as well.

WALKER: I know, isn't that amazing? It was the whole family, and they were having a -- they were posing for a family portrait for the White House staff photographer, David Valdez (ph), and I was there behind the scenes. And it was just this wonderful sort of chaotic, typical family thing with the Bushes, where there were children, grandchildren, dogs, everything all around. And there's the president George W. Bush just left of center.

BLITZER: Fast forward now to 1997. This next picture is a remarkable picture of Bill Clinton and Al Gore praying in the White House. Well, let's go back to the one about them praying in the White House.

WALKER: Yes, the one praying is so obviously a behind-the-scenes picture that never could have been taken in a normal photo op. And I was there, and I was very happy to have the opportunity to make that picture because somehow it told me, and I hope it told those who saw that picture or see it now, something about the president and the vice president that they might not have known before, and that was their practice -- how they practiced their religion.

BLITZER: And the final picture that I want to show our viewers, we glimpsed at it briefly, is on the day that he left office, Bill Clinton getting ready to get into the limo. This was not a happy day for him.

WALKER: No. And I had followed the president for the last week. He was in the presidency behind the scenes. And he had just finished this huge rally out at Andrews Air Force Base, and he was heading for the plane to take him back to New York, no longer the president of the United States. And he decided not to get into the limousine there. Instead, he started walking in the rain toward the plane to leave.

And it seems to me that even though the weather is terrible and it was cold and windy, you can really see more about what it's like to be leaving the presidency. I think it's written all over his face at that very moment.

BLITZER: Diana Walker is a photographer from Time magazine, a great photographer. She's done a marvelous book. I hope it's on a lot of people's coffee tables very, very soon. If you haven't seen it, you should go take a look at these pictures. There are more than, I think, 200 of them, public and private.

Diana Walker, congratulations, by the way, on the birth of a grandson, Jack (ph). She'll be taking a lot of pictures of Jack (ph) as well. Thanks, Happy New Year to you, Diana.

WALKER: Happy New Year to you, Wolf.

BLITZER: Up next, Bruce Morton's essay. Bruce remembers the lives lost in 2002.

(COMMERCIAL BREAK)

BLITZER: Time now for Bruce Morton's essay. He looks back at the lives we lost in 2002.

(BEGIN VIDEOTAPE)

BRUCE MORTON, CNN CORRESPONDENT (voice-over): We lost Cyrus Vance, Jimmy Carter's secretary of state, who resigned in protest, something secretaries of states don't often do, over his president's unsuccessful effort to rescue the American hostages in Tehran by force.

We lost Stephen Ambrose, a historian who specialized in writing about World War II from the point of view of the men who fought it, and who, asked do you want to be called Professor or Doctor, told a reporter, "Steve will do."

Peggy Lee died at 81, a woman who could sing everything, jazz, pop, standard, extremely well, and who taught other singers that the words, the phrasing of a song do matter.

We lost Rosemary Clooney, who invited 1950's America to "come on to my house." Many did.

Britain's Princess Margaret died, a troubled royal, and the queen mother, a truly beloved one, died at 101. Of course they loved her. When the Germans bombed Buckingham Palace, she said "Now we can hold our heads up in the East End," a working-class neighborhood which had been hit hard.

Lost Richard Harris, an Irish actor who loved acting and life and last played Alder Stumbledelore (ph), the head wizard in the Harry Potter movies.

Lost Milton Berle, whose vaudeville act made millions go out and buy their first TV sets. Lost Katy Jurado, the memorable Mexican actress who starred in "High Noon."

Lost Linda Boreman, who as Linda Lovelace was a porno star in the 1972 movie Deep Throat. She was 53.

Lost Lionel Hampton, age 94, for 60 years a jazz master. Dee Dee Ramone, the bass player for that famous punk band, died of heroin, age 50. J. Carter Brown died at 67; headed Washington's National Gallery for 23 years and brought in treasures from China, from Egypt, a whole show of Vermeers.

And we lost Roon Arledge, who revolutionized TV sports, Monday Night Football, the Olympics, and who made ABC News a powerhouse with shows like Nightline.

Jonas Savimbi died, a turbulent leader who kept the Angolan civil war going for a generation. And a man we don't know, General Van Tien Dung (ph), who led the communist troops that captured Saigon and ended the Vietnam War.

We lost Canadian photographer Yusef Karsh (ph), who got his famous picture of Winston Churchill, they say, by snatching the great man's cigar from his mouth and shooting the scowl that followed.

Lost "Slammin'" Sammy Snead, one of the three or four best golfers ever. And Los Angeles Lakers play-by-play man Chick Hearn (ph), who gave the language phrases like "Slam-dunk and airball."

HEARN: Slam dunk.

MORTON: Lost Ann Landers, who advised a couple of generations on how to live their lives. Lost Mildred Wort Benson (ph), who wrote the Nancy Drew stories girls read for decades, and who when she died at 96 was working on her newspaper column for that week.

We lost Joseph Bonanno, the gangster knicknamed Joe Bananas. He was 97.

And we lost Daniel Pearl, age 38, a gifted "Wall Street Journal" reporter killed by Islamic extremists in Pakistan, who proved in his short life that outstanding reporting still exists and that it can be dangerous.

Lots of memories as the old year ends. I'm Bruce Morton.

(END VIDEOTAPE)

BLITZER: Thank you very much, Bruce.

Coming up in our next hour of LATE EDITION, Congressmen David Dreier and Charlie Rangel give their take on the year that was, plus our Final Round. Don't miss their resolutions for the new year. LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We'll get to our discussion and the top 10 stories of the year with Congressman David Dreier and Congressman Charlie Rangel in just a moment. But first, here's CNN's Fredricka Whitfield in Atlanta with a news alert.

(NEWSBREAK) BLITZER: Events this year profoundly changed the way we live. Our colleagues at cnn.com have compiled a list of the top 10 most influential stories of the year. These events affected our faith, our safety, our beliefs, and our pocketbooks.

An emotional pull from last year's story is at number 10 on cnn.com's list for 2002. A year of grief culminated in some moving tributes at the sites where those four hijacked planes crashed on September 11th, 2001. On the one-year anniversary, silence and solitude prevailed at those moments when chaos had unfolded the year before.

At number nine, a direct result of September 11th. The biggest reorganization of the U.S. government in more than half a century. President Bush signed a Homeland Security Bill, a 170,000- person department was created, all to protect American soil from another September 11th-style attack.

From parishes throughout the U.S. to the Vatican. The sex scandal that brutalized the image of the Catholic Church makes number eight on cnn.com's list. Top church officials were accused of covering for priests who had molested children and teenagers by discreetly moving them around to different parishes. The scandal led to criminal charges for some well-known priests and the downfall of Boston's archbishop, Cardinal Bernard Law.

A post-September 11th recession, the prospect of more terrorist attacks and a rash of devastating corporate scandals pushed the U.S. economy through a roller coaster year, the seventh biggest story of 2002. The battered markets reflected in many CNN polls, which showed Americans more worried about the economy than the confrontation with Iraq.

The making of political history made its way into the top 10 at number six. The Republicans took control of the Senate and strengthened their hold on the House, marking the first time in nearly 70 years that a sitting president's party made gains in off-year elections of his first term.

The list reads like a who's who of corporate America. And their collective downfall makes our list at number five. Charges of mismanagement and corruption brought down giants like Enron, Arthur Andersen, and WorldCom. Decorating guru Martha Stewart faced an investigation of insider trading. And Congress moved to rein them all in with tougher regulation.

A war that began in 2001 got into the trenches and caves in 2002. At number four, the U.S.-led war in Afghanistan, still being fought as coalition troops try to rout out pockets of Taliban and al Qaeda while they pursue the world's most wanted man, Osama bin Laden. Bin Laden's al Qaeda remained effective in 2002.

And at number three on cnn.com's list, the collective reign of terror that swept through the Middle East and elsewhere. The year's bloodiest incident, October 12th in Bali, Indonesia. More than 180 people died when two bombs exploded in a crowded nightclub district. A different brand of terrorism captured our attention in October and comes in as the year's second biggest story. Sniper attacks in the Washington metropolitan area killed 10 people, wounded three others, and crippled the region before suspects John Allen Muhammad and his 17-year-old counterpart, John Lee Malvo, were captured.

Rated at this year's top story by cnn.com, the showdown with Iraq. The Bush White House accuses Saddam Hussein of developing chemical, biological, and nuclear weapons. Baghdad counters with charges of war mongering by the U.S. American pressure intensifies. Iraq is warned of serious consequences if it does not cooperate with U.N. weapons inspectors. The tension is palpable as we end the year, and the showdown leaves us as possibly the biggest story of 2003 as well.

And joining us now to talk about these stories and what the future holds in 2003 are two congressmen we always love to have here on LATE EDITION. In New York, the Democrat, Charlie Rangel. He's the ranking member of the powerful Ways and Means Committee. And in Los Angeles, the Republican, David Dreier. He's the chairman of the Rules Committee.

BLITZER: Congressmen, always a pleasure to have you on the show.

REP. CHARLES RANGEL (D), NEW YORK: Happy New Year.

REP. DAVID DREIER (R), CALIFORNIA: Great to be with you both. Happy New Year. And welcome home, Wolf.

BLITZER: Thank you very much. It's become an end-of-year tradition here on LATE EDITION to have both of you on.

And let me begin with you, Congressman Rangel, get your assessment. Iraq was by our cnn.com estimate, the top story of 2002. Going into 2003, does it look like that will be the top story of the year as well?

RANGEL: I hope that it is the top story that we avoided war, that there was more outrage. It doesn't surprise me that CNN would come up with this as being the top story. What surprises me is that there's not any outrage in our country.

I think the president ought to be complimented for going to the U.N., the way he's handling North Korea in a diplomatic way, but I think it's outrageous to say that we would go it alone in Iraq if we don't get the support of our friends throughout the world.

BLITZER What about that, David Dreier?

DREIER: Well, for starters, you know full well that there is no way in the world that we will go it alone. And I think I've said to you all in this program before, unilateral is a term that should be taken out of the mix here. Why? Because we know that even if we don't have the full support of every one of the 193 nations on the face of the earth in our attempt to deal with Iraq, we clearly are going to have allies like Great Britain and I think that we're working now with Turkey, Saudi Arabia. There are loads of other allies who are going to be with us.

We, of course, want very much to pursue, as the president did at the encouragement of Democrats and Republicans last summer, the multilateral approach by getting the United Nations support there. This is obviously a top story.

The whole international situation -- and I think that Rudy Giuliani said it very well in your interview, that coupling the war on terror with Iraq and obviously dealing with the situation now that exists on the Korean Peninsula is going to be the greatest challenge that we're going to be facing. And it's obviously a very, very serious one.

BLITZER: All right. Congressman Rangel, is it your sense that fighting a potential war against Iraq is not, as Rudy Giuliani and David Dreier say, part of the bigger war on terror altogether?

RANGEL: Well, there's been absolutely no evidence. The president may know something, but he's not sharing it with the Congress or the intelligence committee, to connect the 9/11 act of terrorism with Saddam Hussein. Truly...

DREIER: Charlie?

RANGEL: Saddam Hussein is a person we've been wanting to get rid of for a long time. But he's not just a threat to us and his neighbors, he's a threat to the international community.

There is no reason why we've got to treat North Korea diplomatically when they already have nuclear weapons, with the exception of oil, of course, and the way we're treating Iraq and saying that we'll go it alone. No, not alone. We'll go alone with Great Britain, because the only friends we have in the Middle East is Israel. You can't trust those other countries because it's based on our relationship to their reservoirs of oil.

DREIER: Well, let me just say that -- I mean, it's very clear to me that we're going to have a broader coalition in dealing with this challenge. And I think we'll...

RANGEL: Why is it so clear to you? Why is it so secret?

DREIER: There's nothing secret, and I will tell...

RANGEL: Who are the people?

DREIER: Charlie, let me tell you one of the reasons, as we look at this, there is in fact a direct nexus between the two. And that is, at the very beginning Sarin and VX, two of the most deadly chemical weapons around, word has come out and the Washington Post did a story on this, of the transfer of that capability from Iraq to al Qaeda.

Similarly, if you look at a guy called Haqmid Shakir (ph), he is one of the top operatives of Osama bin Laden. He's been based in Baghdad. Now, I'm not saying at all that Saddam Hussein was involved in the September 11th attacks. Make that very clear.

But I do believe that there is a very serious threat posed to the future of the greatest nation on the face of the earth and our interests around the world.

RANGEL: And that would warrant...

DREIER: And that threat comes from Iraq, it comes from al Qaeda and the war on terror, and, obviously, we have real challenges here in North Korea.

And I think Colin Powell was absolutely right in his interview with Wolf today when he talked about the fact that we need to diplomatically pursue a resolution there on the Korean Peninsula.

But I will tell you that our former ambassador there, Don Gregg, I visited him with Senator Lugar 12 years ago when he was the ambassador to South Korea, he said that's the most dangerous spot in the world, and we need to be very, very vigilant in dealing with that threat.

RANGEL: You're an outstanding member of the Congress, and your concerns about the connection between Saddam Hussein and terrorism certainly is not shared by the Intelligence Committee.

Having said that, and having given all the respect I can to your subjective concerns, is this enough to have a preemptive strike against a country?

Rather, we should find out the potential enemies of the country of Iraq and bring them together and to bring some support...

DREIER: Charlie, we're not considering a preemptive strike. We're not considering a preemptive strike. If you look at the attacks that have taken place just in the last several weeks, I was about a month ago at Incirlik, at our base dealing with Operation Northern Watch.

We are seeing Saddam Hussein's forces attack, shoot at British and American planes. And so they are provoking this kind of...

RANGEL: But they're being shot at...

DREIER: This is all done in compliance with the U.N. resolution following the war in Kuwait, Charlie.

RANGEL: Well, I don't have any problem, if you go into some Republican conference and tell me now that the United States is going to abide by the rulings of the United Nations and the international community, then heck, you should invite me to these Republican conferences.

Unless you're making this up as you go along. But I understood that no matter what the United Nations says, if we decide that we're not pleased with it we'll go it, strike going it alone, we'll go with Great Britain and whatever countries you have on your secret list.

BLITZER: David Dreier, let me interrupt for a moment and ask you this. We end this year, most U.S. intelligence analysts firmly convinced that Osama bin Laden is, indeed, alive.

How well that's another matter, but is, indeed, alive, probably somewhere along the border in some cave between Pakistan and Afghanistan.

Is it your sense that in the coming year, 2003, the U.S. and its coalition partners are going to be able to find this guy?

DREIER: Well, Wolf, of course we hope so. But I think the president made it very clear from the beginning on September 11th, this is not about one man. We know that there are al Qaeda networks around, their network extends around the world, with terrorist cells that exist there.

And so it's not simply Osama bin Laden, but we hope very much that this madman, who's responsible for the loss of the lives of so many of Charlie's constituents, and obviously in Washington and the flight in Pennsylvania, that this does come to an end, and we're hoping very much that we'll be able to do it.

But who knows whether we will or not. But it shouldn't be centered on one man. It's the war on terror, and it's going to be an ongoing one.

BLITZER: Are you concerned, Congressman Rangel, as many of your Democratic colleagues say they are, that this focus on Iraq is detracting from the overall war on terrorism?

RANGEL: I think sooner or later the numbness of this initial attack, this initial historic attack on our country, that more Americans will feel more comfortable in asking questions as to why are we just putting all of these resources directed toward mobilizing our military towards Iraq?

Why is it that we've changed and shifted from Osama bin Laden being the person, he makes more video and public appearances and yet with all of the resources we have we haven't the slightest clue where he is?

DREIER: Charlie, you've got to understand, this is not a shift. This is part of the overall war on terror that we are fighting, and the threat to our very existence.

RANGEL: This -- this is...

DREIER: There are many people out there who want to do us in. You're a very courageous veteran of the Korean War. And you know I have the greatest regard for you. You understand the seriousness of our national security concerns, Charlie. And that's why we've got to come together and work very hard, as a lot of Democrats are with the president on this. RANGEL: Well, we can't -- just because we have a volunteer army that is recruited from the lower and more moderate income people in our country, we should not just be so anxious to allow them to go in harm's way unless America feels more confident that they are in danger. And...

DREIER: Charlie...

RANGEL: ... notwithstanding your eloquent concerns about Osama bin Laden and Hussein, it would seem to me that America is not ready to go to war at this time.

(CROSSTALK)

RANGEL: And I think we need more assurances from the administration that we have some type of danger that we're facing.

DREIER: Charlie, one of my staff members, who's a recent Princeton alumnus, is in two weeks going to be joining the United States Marine Corps. The brother of my press secretary, a very bright, capable guy, going into the United States Marine Corps.

We have a lot of patriotic young individuals from across the economic spectrum who are stepping up to the plate and helping us deal with this very serious threat to our existence.

RANGEL: Yes, but, you know, realistically, when you talk about a war, you're talking about ground troops, you're talking about enlisted people, and they don't come from the kids and members of Congress. You know that, and I know it.

And as a matter of fact, I'm going to introduce legislation to have universal military service to let everyone have an opportunity to defend the free world against the threats that is coming to us from the Middle East.

DREIER: Everybody does have the opportunity to do it.

RANGEL: Oh, no, no. I'm talking about mandatory.

(CROSSTALK)

RANGEL: I'm talking about mandatory service.

BLITZER: So you want to reinstate the draft? Is that what you're saying, Congressman Rangel?

RANGEL: Exactly.

I think that we've been too cavalier in talking about who we're going to teach lessons. We've got 35,000 troops in South Korea that's exposed to the North Koreans. We've got troops in the Middle East. We've got troops all over Europe.

And we've got older people in the Congress like myself, just talking about what we're not going to tolerate, that we have to teach them a lesson.

I think, if we went home and found out that there were families concerned about their kids going off to war, there would be more cautiousness and a more willingness to work with the international community than to say, our way or the highway.

(CROSSTALK)

DREIER: There is no one enthusiastically approaching the prospect of war. This is being taken very seriously by the president and his top advisers. You know that.

RANGEL: I don't know that.

(CROSSTALK)

BLITZER: Congressmen, stand by, we're going to take a quick break.

Congressman Charlie Rangel, I think you made some news on this program about reinstating the draft. We'll see how far that proposal goes.

We have a lot more to talk about, including a lot of domestic issues during this past year, what we can expect in the year to come. We'll also be taking your phone calls for Charlie Rangel and David Dreier.

LATE EDITION will be right back.

(COMMERCIAL BREAK)

BLITZER: Welcome back to LATE EDITION. We're continuing our conversation and taking your phone calls for Congressman Charlie Rangel and Congressman David Dreier.

We have a caller from Texas. Go ahead, please.

CALLER: Thank you so much, Wolf. Just wanted to pose a question to Mr. Rangel. I feel that the American sentiment very much is that we are ready for this and that we have to be and the war on terrorism is very real. And wanted to ask you why, in fact, the Democrats feel it's so difficult to get behind the president on this.

RANGEL: I don't think I'm talking for all Democrats. There were a substantial number of Democrats that have supported the president right from the very beginning. But I just don't believe that America is prepared to get involved in this war unless there's a shared sacrifice.

And it just seems to me that that case hasn't been made. The case hasn't been made that the United States of America is in imminent danger from the government of Iraq.

BLITZER: David Dreier, I want to ask you about the whole Trent Lott debacle, what happened there, and I want to specifically refer to some comments that President Bush made, which many think set the stage for Trent Lott's decision to retire as the majority leader. Listen to these words from the president.

(BEGIN VIDEO CLIP)

BUSH: Any suggestion that the segregated past was acceptable or positive is offensive, and it is wrong. Recent comments by Senator Lott do not reflect the spirit of our country.

(END VIDEO CLIP)

BLITZER: The president speaking firmly on that issue. But does the Republican Party, David Dreier, have a problem as far as the issue of race is concerned?

DREIER: The answer is absolutely not. The Republican Party is a party which is strongly committed to expanding civil rights. If you listen to President Bush's radio address yesterday, his focus on the faith-based initiative, which is designed to deal with those in the urban areas who are struggling through religious-based operations is very important.

In the area of education, we as Republicans have been the strongest supporters of educational choice, taking those with substandard public education in the inner city and allowing them to have the opportunity to improve their education, their schools, and to have that kind of choice.

So we have, on a wide range of issues, stepped up, and it is our party which is strongly committed to this. And we do have -- and I know Charlie's going to talk about the fact that we no longer have any African-Americans in the United States House of Representatives...

RANGEL: You've got that right.

DREIER: I know. But if you look at the fact that we have a great new Lieutenant Governor, Mike Steele, in the state of Maryland. A terrific guy.

RANGEL: Fantastic.

DREIER: And we have a lot of other African-Americans...

RANGEL: You must have one or two others.

(CROSSTALK)

BLITZER: All right. Let's let Congressman Rangel respond. But I want to focus it directly on this, on the president of the United States. He did take the initiative and many think, Congressman Rangel, that the decision by Trent Lott to step down was the direct result of what President Bush said in Philadelphia that day.

RANGEL: I agree with you, Wolf, that the president joined in and whatever Lott had done to upset the administration, they certainly threw him overboard. He said he put his foot in his mouth, and he had to pay the political price for it.

But you know, David, and I love you, the truth of the matter is that when you have a problem and you don't face up to it, you can never resolve it. We have these underlying feelings of racism within parts of the Democratic Party.

DREIER: Absolutely.

RANGEL: After all, it was our Dixiecrats that you guys inherited and took advantage of and made a strong part of your Southern strategy.

The truth is that is should be embarrassing to you, as it is to me, to walk into the House of Representatives and to see no people of color on the Republican side. It's embarrassing to me to walk into the Senate and to see no people of color on the Republican or the Democratic side.

RANGEL: So don't tell me about you know a black lieutenant governor in some state.

DREIER: Charlie, I agree with you.

RANGEL: That's just like saying that you have a black -- that you've had dinner with. That's not fair.

DREIER: Charlie, Charlie, I agree with you that racism is a problem in this country.

RANGEL: And it's a problem for your party. Your party.

DREIER: But the way Wolf posed that question is, is this a Republican Party problem? And the answer is no, because we've seen strong leadership from the president. We saw Trent Lott deal with a difficult situation extremely well, and I think that our party has stepped forward.

There's a great article in today's New York Times...

RANGEL: But why is it that African -- but why is it that African-Americans feel so uncomfortable at your party? Why did J.C. Watts leave? I mean, why -- you're not there.

DREIER: That's not true. Charlie, you know, you can't paint it with a broad brush like that. You're obviously a Democrat. But remember, I like to remind you, you won the Republican nomination in one of your races. So you're part of our party too. But the fact is...

RANGEL: I like that.

DREIER: But the fact is, we're all in this issue together. And there are problems in both political parties on it. And I believe that we as Republicans have stepped up and made it clear that we are going to offer a very positive solution.

RANGEL: Maybe. If the president can go on BET and do what Lott did, we've come a long way.

BLITZER: All right, we'll see if he does do that.

Charlie Rangel, I want to wrap this up. A lot of people say that you are probably more responsible than anyone for Hillary Rodham Clinton's being elected the Democratic senator from New York State. In our most recent CNN/Time magazine poll, among registered Democrats, she comes in number one now that Al Gore has dropped out, for contention. Thirty percent say she should be the Democratic presidential nominee in 2004. Everybody else way down.

Do you think it's time for the junior senator from New York to rethink her commitment not to run for president in 2004?

RANGEL: No, I really don't, even though there's no question that she's an outstanding senator to the country, the Congress, and our great state is lucky to have her. But I think we do have other candidates that have been out there, that have (inaudible) their political concerns longer than she has that should be considered.

BLITZER: All right. I guess you're breathing a little...

DREIER: We've got our candidate. We're going to work in a bipartisan way.

BLITZER: Are you breathing a little bit easier now, David Dreier, hearing that Charlie Rangel is not recommending that Hillary Rodham Clinton run for president?

DREIER: Well, we know that Charlie is one of the most prescient guys around. And he's made that decision for Mrs. Clinton and I think that's fine.

George Bush is going to be the nominee of my party. I'm going to strongly support him. I'm convinced he's doing a great job, enjoying bipartisan support.

And as we begin this new year, it's important to note that, yes, we've won Republican majorities in both houses of Congress. We have an opportunity, an opportunity to address a lot of these very serious problems. And I plan to continue to work with Charlie and other Democrats, as the president plans to, in a bipartisan way to try and address these things.

On that happy note...

RANGEL: I'd like to join with you and hope that the president takes advantage of this great political majority. And I'll be anxious to work with him on those issues.

DREIER: Thank you very much, Charlie. Look forward to that. And Happy New Year to you both.

BLITZER: Happy New Year to both of you.

RANGEL: Happy New Year. BLITZER: We look forward to having both of you on LATE EDITION many times in the coming year and wrapping up 2003 as you so nicely did 2002. Thanks to both of you very much.

Coming up on LATE EDITION, our Final Round. We'll debate the big stories of the week. Our Final Round, right after a CNN news alert.

(COMMERCIAL BREAK)

(NEWSBREAK)

(COMMERCIAL BREAK)

BLITZER: Welcome back. Time now for our Final Round.

Joining me, Julianne Malveaux, the syndicated columnist, Joshua Marshall of the Washington Monthly, Jonah Goldberg of the National Review Online, and Robert George of the New York Post.

The former soldier, Colin Powell, was, as they say, walking point for the administration today, carefully picking his way across the treacherous terrain of this North Korea story. The orders of the day: Keep calm, and call it a situation, not a crisis.

(BEGIN VIDEO CLIP)

POWELL: We have kept our friends and allies closely informed about developments. We have shared the intelligence. We have made it clear to the North Koreans that there are ways to communicate, but we will not enter a negotiation where they sit there and say, what will you pay us for our misbehavior, how will you appease our misbehavior this time?

(END VIDEO CLIP)

BLITZER: Jonah, is this style of diplomacy, as practiced by the secretary of state, going to work?

JONAH GOLDBERG, NATIONAL REVIEW ONLINE: I don't know if it's going to work yet. I hope it's going to work. I don't really see how the administration has any other choice right now.

The North Koreans have a habit -- what they want is for everyone to call this a crisis, because that's their strategy in times past, is to create a crisis and then basically blackmail the world to get it solved.

You know, the Bush administration has been beaten up for being unilateralist and gun crazy in the past, and right now it's trying to work through the U.N., take the multilateral approach. It may not work, but I don't see how they have any other choice right now.

BLITZER: Julianne.

JULIANNE MALVEAUX, SYNDICATED COLUMNIST: Jonah Goldberg has discovered the U.N. I love it. The fact is that it is something of a crisis. It's been 10 days since they said -- between the time that they said they have a nuclear capability and the time that they've opened up this plant. So I see it as something of a crisis. You can spin it however you want.

And they seem to be pretty irrational. I don't think that any kind of diplomacy is necessarily going to work with them. I'm not sure what the next steps are. I certainly think the U.N. needs to play a role. But I don't think that you cover this up or paper this over by saying, oh, gee, it's not a crisis, it's just a situation.

BLITZER: Am I crazy, Robert, but the fact that they're sort of cavalierly almost saying, the secretary of state on this program earlier, that yes, the North Koreans have had two bombs for some time now, and they're going to be able to build a lot more within a few months, is that not a big deal?

ROBERT GEORGE, NEW YORK POST: Well, you may be crazy, but it is also a big deal.

(LAUGHTER)

These are not mutually exclusive terms here.

No, it is -- it's a serious problem. But I think just the administration trying to say, well, you know, there's a crisis going on here, as Jonah says, it really plays into the hands of Pyongyang, which they obviously want money, and other kind of resources from the United States and from the West. So it's in their best interests to say there's a crisis here and you have to keep us calm.

Whereas I think the administration is dealing with this with the best hand that they've got, they're dealing with this the best way they can.

BLITZER: Josh?

JOSHUA MARSHALL, WASHINGTON MONTHLY: The best hand they've got, but they don't have much of any hand at all.

And I think the bigger story here is that the administration has been making a lot of threats over months and even last year that now it's becoming clear, they can't really follow through on. They've been basically telling the world, "If anybody, you know, kind of steps up to the nuclear line, that's it, we're taking you out." And here clearly we can't. So I think the -- this is an administration...

BLITZER: To its credit, though, the secretary of state did point out when he told me to take a deep breath, that last year all of us were going crazy because of India and Pakistan over Kashmir. And his diplomacy, in part, working with a lot of others, calmed that situation down.

MARSHALL: I think the difference is, is that our ability to deal with Pervez Musharraf is slightly better than it is to deal with Kim Jong Il. I mean, this is a vastly less predictable regime than either Pakistan or India.

BLITZER: While the secretary of state was speaking softly, the defense secretary earlier in the week appeared to be pumping up the rhetoric over at the Pentagon, making it clear that the United States was willing and able to fight simultaneous wars with both Iraq and North Korea.

(BEGIN VIDEO CLIP)

RUMSFELD: We are capable of fighting two major regional conflicts, as the national strategy and the force-sizing construct clearly indicates. We're capable of winning decisively in one and swiftly defeating in the case of the other. And let there be no doubt about it.

(END VIDEO CLIP)

BLITZER: Josh, is this a good cop, bad cop routine? Or is everyone in the administration, as far as North Korea is concerned, on the same page?

MARSHALL: Oh, I don't think they are at all. This has been brewing for a long time. When the administration came in, Colin Powell basically tried to keep the U.S. policy about where it was under President Clinton with maybe some revisions. You have hawks at the Pentagon, other parts of the administration, who wanted to ratchet it up.

And I think a lot of people in the administration, certainly outside the administration, think that now we're seeing the comeuppance of that shift in policy. So I don't think it is.

BLITZER: Jonah, if they already do have two nuclear bombs, it would be hard to just militarily go out and strike them and take out their reactors or what other military capabilities may be a threat.

GOLDBERG: That's right. And for example, when Josh said earlier that the United States has been saying, "If anyone comes up to the nuclear line they're in trouble," the reality is we now know that North Korea passed the nuclear line quite a while ago and that they probably had nuclear weapons in 1994.

And I think one of the things that this highlights -- this situation highlights is is that once a country does have nuclear weapons, it becomes much, much more difficult to deal with them in any way except through diplomacy and often just paying blackmail.

GOLDBERG: And that is one of the reasons why going after Iraq before it finds -- before it's able to become another North Korea and then we cannot negotiate with it and it can blackmail the entire region, is still a good foreign policy goal.

BLITZER: Go ahead, Julianne.

MALVEAUX: You know, I think, Jonah, when you throw Iraq into the equation, what you're really saying here is we're playing one kind of game -- there's no concept of foreign policy justice. We're playing one kind of game with Iraq, another kind of game with North Korea.

When you look at Rumsfeld talking about fighting a war on two fronts, being able to fight a war on two fronts, I think that's really irresponsible talk under the circumstances.

They probably did have nuclear weapons in 1994, and we're willing to play blackmail with them then. And so we've set a precedent about doing blackmail. And unless we do economic sanctions...

(CROSSTALK)

GOLDBERG: Are you saying that we can't fight two wars at one time?

MALVEAUX: No, that's what I'm saying. It's irresponsible to talk about it.

GEORGE: You have to keep in mind two things. First of all, in '94, we ended up having, as you say, blackmail, giving in to blackmail, and that was the Jimmy Carter-Bill Clinton agreement, which we're now trying to resolve.

Secondly, as Jonah said, you've got two separate situations with Iraq. You've got North Korea, which is a nuclear power, Iraq, which isn't yet and we're trying to prevent them from doing it, and that's why you've got two different strategies approaching them.

MALVEAUX: Robert, you know, it isn't that I don't understand the difference between the two. It's that I feel that the United States has been irresponsible.

And I think that when Mr. Bush sells wolf tickets in his State of the Union address as he did last time, when he talked about North Korea being a threat, basically he turned up the pressure on them.

BLITZER: Let's let Josh weigh in.

MARSHALL: Well, I think, you know, going back to what was said before, I don't think we owe justice to either Iraq or North Korea. But I think, as you say, the real issue is why we have pursued such a stupid policy toward North Korea over the last year and a half that's gotten us into this position.

I mean, there was a recent election in South Korea. A lot of the South Koreans think that we got us here, not that the North Koreans, not that anybody thinks the North Koreans are great, but that it's the Keystone Cops policy that the Bush administration has been pursuing in Korea that's gotten us here.

BLITZER: We're going to take a quick break. But I have to ask Julianne, wolf tickets?

(LAUGHTER)

MALVEAUX: It's street parlance for...

BLITZER: What does that mean?

MALVEAUX: Overtalking. Overtalking. You know, you say I'm going to, you know, kick your butt, I'm going to do this. Well, you're not going to do it.

BLITZER: Wolf tickets?

MALVEAUX: Wolf tickets.

BLITZER: Nothing to do with Wolf Blitzer?

MALVEAUX: Nothing to do with Wolf Blitzer. Sorry about that, Wolf.

BLITZER: OK. All right. I'm just wondering.

GEORGE: We will be selling tickets to this show at a later date.

(LAUGHTER)

BLITZER: Maybe that's -- Wolf Blitzer tickets.

(LAUGHTER)

Straight ahead on the Final Round, is the the human clone announcement science or flim flam? We'll be back in a moment.

(COMMERCIAL BREAK)

BLITZER: Welcome back to our Final Round. Was this really the week of the birth of the first cloned human being? The colorful people at the center of the story made their pitch.

(BEGIN VIDEO CLIPS)

BRIGITTE BOISSELIER, CLONAID: I'm very, very pleased to announce that the first baby clone is born.

(UNKNOWN): We believe that life was created on earth by a very advanced civilization from space using DNA and genetic engineering.

(END VIDEO CLIPS)

(LAUGHTER)

BLITZER: Jonah, they came out with this dramatic announcement, Eve, the first cloned human baby born, but they showed absolutely no proof of it whatsoever. No scientific data, no pictures, no nothing. Yet a lot of us made a big deal about this.

GOLDBERG: Yes, and you shouldn't have. I mean, "you" collectively, not necessarily you, Wolf. The shame here is that the National Enquirer didn't break this story, because if it did then all the snooty, elite press would have ignored it, which they should have.

You talk to any scientist, any journalist who covers this regularly, there's no way that these people really cloned a kid.

And they shouldn't have because basically that amounts to child abuse, because the first human clones are going to be horribly disformed and disfigured and born into agony, and you shouldn't be doing it.

BLITZER: The scientists do say, though, Julianne, that it's not that far off, in the not-too-distant future they will be able to clone human beings.

MALVEAUX: The technology is there, but Jonah's right, it hasn't been perfected. And so it could conceivably happen, but it would not be -- you don't know if the child would be able to grow up.

And these people are totally crazy. I really, I just said slow news week when I saw it. I said, obviously, you know, people want a little relief from North Korea, and so they decided to jump on this one. But it seemed hardly credible at this point.

Something, however, that the Senate and the House have been looking at, and with Frist now as a majority leader we expect probably to see legislation about, you know, this kind of science.

GEORGE: That's right, I mean, they managed to clone a sheep, but I don't think they're going to be cloning a Wolf any time soon.

(LAUGHTER)

But the fact is, though, in the last Congress, the House passed a bill banning human cloning and it got bottled up at the Senate. With a Republican Senate in there now, with Frist running things, I wouldn't be surprised if we really will see some legislation that officially bans it. Because, as Jonah said, the kind of experimentation would create these awful, awful, awful beings.

BLITZER: As far as we know, no group has been able to clone any primate, whether a monkey or anything else, let alone a human being.

GOLDBERG: Only 2 percent of the mammals cloned in laboratories, we're talking about including the sheeps, are even born healthy. Most of them are born horribly disfigured too. It's very difficult science.

BLITZER: But, Josh, tell our viewers why there are plenty of doctors out there, including at Stanford University, who think there is a role in science for cloning, not necessarily human beings, but cloning cells.

MARSHALL: Well, this is the major point, because the word cloning conflates two issues -- one, reproductive cloning, what we think of as cloning, making one person copied from an existing one; and the other is therapeutic cloning. And that's how you get into all sorts of, you know, coming up with new organs for people who have a faulty liver or faulty kidneys or something like that.

So there are definitely good scientific and ethical reasons to proceed with therapeutic cloning, even though I think everybody agrees that there are ethical and just basic scientific problems...

BLITZER: Not everyone. The two people who we just had that clip from, they don't.

(CROSSTALK)

(LAUGHTER)

MALVEAUX: Those people actually just wanted their 15 minutes of fame.

GOLDBERG: Yes, and that guy thinks his ponytail is an antenna to hear aliens. So we shouldn't take his opinion too seriously.

MALVEAUX: You know, and he went on a spaceship but didn't bring his camera.

(LAUGHTER)

BLITZER: Let's get back to some serious news over here. Preparations for the possibility of war between the United States and Iraq. CNN has reported, and today a front page story in the New York Times has repeated, that the U.S. military does believe, in fact they expect, Saudi Arabia will make its bases available if it comes down to another war. The Prince Sultan Air Base, among other sites, would be important. I was just there only 10 days or so ago.

Today Senator Joe Lieberman, the Democratic senator from Connecticut, said his talks with Saudi officials during his recent visit there were productive.

(BEGIN VIDEO CLIP)

U.S. SENATOR JOSEPH LIEBERMAN (D-CT): I left encouraged that the Saudi government, the royal family, understands how important their help will be. And I don't think they're going to disappoint us. But I didn't hear anything explicit that I can bring back.

(END VIDEO CLIP)

BLITZER: Robert, can the U.S. count on Saudi Arabia?

GEORGE: I think for the coming conflict with Iraq, yes, I think they can. I think the Saudis see the handwriting on the wall. And just, I think, more for their own PR purposes, they will be helpful.

The question is, though, what happens after Iraq? If they continue to fund these schools which spew their anti-American hatred and, in a sense, create this entire culture that is anti-Western, we'll be basically back to where we were before.

BLITZER: Julianne.

MALVEAUX: They're allies, but they're very reluctant allies. And it doesn't do them any good that the majority of the September 11th terrorists were Saudi. And so I think that they will be counted on in the short run. I think in the longer run, there are some issues that we've papered over with them. They are one of our weakest allies, weakest in terms of the connection.

BLITZER: You talk to any U.S. military planner planning for the possibility of war, they want that Prince Sultan Air Base, which is -- I was there, it's huge, and it's got some of the most sophisticated U.S. technology available.

GOLDBERG: I have no doubt it's very helpful, and I -- you know, part of the problem with the Saudis is that they are a closed monarchy with absolute rulers. And so they have this sort of clubhousey kind of attitude when it comes to international relations, where they can shake hands and wink and nod and cut deals and all that kind of stuff.

But I think Robert and Julianne are both right, that in the long term the larger problem is that the United States just isn't a good ally or friend to countries that aren't democracies. And eventually -- this is what happened with South Africa, this is what happened with various right-wing dictators in South America and some left-wing dictators, is that eventually, if you're not a democracy, then you're going to have a real problem being friends with the United States in the long run.

BLITZER: He was referring to the apartheid regime in South Africa.

(LAUGHTER)

Just wanted to make that clear.

Go ahead. Button this up, Saudi Arabia.

MARSHALL: Well, I think one point that really should be mentioned is that the U.S. policy has changed a lot from what it was six months ago, nine months ago. And that's one of the reasons that I think the Saudis' position has changed. The Bush administration went to the U.N. It's pursuing the inspectors, you know, giving that one last try. So I think that's another part of the equation. We've changed our policy.

BLITZER: All right. We have our Lightning Round. That's coming up just ahead. Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back to our Final Round. Now time for our Lightning Round.

Only a few minutes ago here on LATE EDITION, the Democratic Congressman from New York, Charlie Rangel, surprised a lot of us by saying he's going to introduce legislation to reinstate the draft.

(BEGIN VIDEO CLIP) RANGEL: I'm going to introduce legislation to have universal military service, to let everyone have an opportunity to defend the free world against the threats of...

DREIER: Everybody does have the opportunity to do it. Everybody does have the opportunity to do it.

RANGEL: Oh, no, no. I'm talking about mandatory. I'm talking about mandatory service.

(END VIDEO CLIP)

BLITZER: What about that, Robert George? You might be eligible for the draft. You're young enough to serve.

GEORGE: I don't think so.

I think it's a kind of a foolish notion that Rangel's, you know, running up the pole here. But, I mean, the fact -- what I think is interesting is that these are the kind of foolish notions that, you know, you never know exactly where they're going to end up.

I don't think he seriously wants to have a draft passed. I think he's doing it for a PR stunt.

BLITZER: Well, I think -- I don't necessarily agree. But let me ask Josh this point.

Charlie Rangel is concerned that if you look at the rank and file of the military, there's a lot of poor people, a lot of minorities, not enough sons and daughters, if you will, from members of Congress and the elite. And that's why he thinks that the U.S. may be rushing into a war, because the leadership doesn't have enough personal issues at stake. MARSHALL: It's possible. I mean, the last time we had a draft, though, it was pretty much the same thing. During the Vietnam War, that was certainly the perception and to a great degree the reality, that it was a heavily minority, heavily poor army, and if you were rich or well-connected, you could find some way out.

So I think that's possible. I think that the problem is, though, if he thinks he's going to, you know, worry baby-boomers that their kids are going to get sent off to war or worry the Iraqis, the people he's really going to worry are the generals that are going to get deluged by all these untrained teenagers.

(LAUGHTER)

BLITZER: Let's continue with our Lightning Round and talk about the economy. The Wall Street Journal reported this week that the Bush team is tinkering with the centerpiece of its economic stimulus package and may ease back tax breaks for some of the richest Americans.

Cold feet or political reality getting into the minds and hearts of the Republican Party? Jonah. GOLDBERG: Can't it be both? I think this is the first sign that the 2004 presidential election cycle has begun. That's what it boils down to. And that the Bush administration has been hurt on these class warfare things and is trying to dull the edge of it.

BLITZER: So you welcome this news?

MALVEAUX: I welcome it, but I think that he's going to try to cover it up by doing other kinds of -- they're talking about a tax break for dividends. That's focused on the wealthy as well, when only half of all Americans own stock and have dividends.

So he hasn't stopped his class bias just yet.

BLITZER: All right. Go ahead.

GEORGE: If cutting down the tax cut was a tax increase when Democrats were suggesting it, I don't know how Republicans get out of it.

BLITZER: All right. You want to wrap that up?

MARSHALL: You know, the article that this was reported and said overture to Democrats, it's just an overture to reality. It was never going to fly anyway.

BLITZER: One family with a whopping big tax bill is in West Virginia. Andrew Jack Whittaker was the biggest lottery winner ever. Get this. $315 million. Taken as a lump sum, that drops to $170 million. And taxes pare it back to close to only $112 million.

Is Whittaker a good poster boy for the legalized gambling that these kinds of lotteries represent?

GEORGE: Well, yeah, I mean, it's kind of funny. The millionaire who wins a million lottery.

I think lotteries are legalized gambling. I think they're immoral for states to run them.

BLITZER: Do you agree?

MALVEAUX: I agree. I don't think there's any such thing as a good poster boy for legalized gambling. I mean, basically, it's an extra tax on the poor, because the poor are more likely to play. Look at the wealth transfer there. You know, poor people pay their two bucks so a millionaire can get another $100 million. But it's focused on the poor, and it's used for tax purposes.

BLITZER: They both sound like William Safire, who's been opposed to this kind of legalized gambling for a long time. (LAUGHTER)

(CROSSTALK)

GOLDBERG: I have problems with some of the legalized gambling in the country as well, although, you know, when you ask is he a good poster boy, there was someone from West Virginia quoted in The Washington Post who said how relieved they were that it wasn't some guy up there with no teeth who couldn't speak English, and all of that kind of thing.

MALVEAUX: Oh my.

GOLDBERG: And I do think that, you know, this guy does make the lottery seem a little more mainstream.

BLITZER: And he gave a tenth, a tithe, of his winnings to his church, which was pretty impressive.

MARSHALL: You know, a few years from now we're probably going to be seeing the VH1 behind the music documentary about this guy's life...

(LAUGHTER)

... and how the $100 million was washed away in debauchery.

(LAUGHTER)

So I'll wait to give my verdict.

BLITZER: Public opinion finds people admire their president. President George W. Bush tops the CNN-USA Today Gallup poll, trailed by former President Jimmy Carter and Secretary of State Colin Powell.

A former first lady and the present first lady top the most admired woman poll, along with Oprah Winfrey.

Do we have heroes that we need right now, Julianne?

MALVEAUX: Name recognition and heroism are not the same thing. And clearly they did not call me when they were trying to figure out who admired George W. Bush.

But I think that you find your heroes in your backyard. You don't necessarily find them in the headlines.

BLITZER: Robert?

GEORGE: The same thing. The president is always usually the number one person. And it's basically name recognition.

BLITZER: Bill Clinton used to get that even during his weakest moments.

GEORGE: And they didn't poll me when that happened, I assure you.

(LAUGHTER)

BLITZER: Any New Year's resolutions? Any of you have a quick one?

MARSHALL: Next time I promise someone that Al Gore is definitely going to run for president, I'm going to get a third source.

BLITZER: What about you?

GEORGE: I'm going to give up puns.

(LAUGHTER)

BLITZER: I don't think so.

MALVEAUX: Why don't you give up lying, Robert?

BLITZER: Go ahead.

MALVEAUX: Don't sweat the small stuff.

GOLDBERG: I have a baby due in February. Be as good a dad as I can be.

(UNKNOWN): Aw, that's sweet.

BLITZER: That's a good one. Very nice. Congratulations.

GOLDBERG: Thank you.

BLITZER: Julianne's been with us for a while. You're going to be still with us during the week. Thanks for joining us on our Final Round.

MALVEAUX: Good to be here.

BLITZER: Appreciate it very much.

That's your LATE EDITION for Sunday, December 29th. Please be sure to join us again next Sunday and every Sunday at noon Eastern for the last word in Sunday talk.

Please join me Monday through Fridays, as well, noon Eastern, for Showdown: Iraq. Later in the day, 5:00 p.m. Eastern for Wolf Blitzer Reports.

Until then, thanks very much for watching. To all our viewers out there, don't only enjoy the rest of your weekend but have a happy and a healthy New Year.

I'm Wolf Blitzer in Washington.

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