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Colin Powell Against Key Provision of Bush's Plan To Create Military Tribunals for Suspected Terrorists; Robert Novak Taking Direct Aim at Richard Armitage in CIA Leak Case; Barak Obama Interview; California Governor's Race Controversy; Jim Webb Apologizing For Long-Ago Claim That Women Not Fit For Combat

Aired September 14, 2006 - 16:00   ET

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

WOLF BLITZER, CNN ANCHOR: Thanks, Susan.
And to our viewers, you're in the SITUATION ROOM, where new pictures and information are arriving all the time. Standing by, CNN reporters across the United States and around the world to bring you today's top stories.

It's happening now. Republicans at odds over tougher treatment of terror suspects. The former secretary of state Colin Powell now breaking ranks with the president even as Mr. Bush lobbies lawmakers. It's 4:00 p.m. here in Washington where a Senate panel just cast a critical vote against the White House.

Also this hour, sorry in Virginia. Democratic Senate candidate Jim Webb eats his past words about women in combat. Is this the break embattled incumbent George Allen is hoping for?

And hot times in the California governor's race. It's 1:00 p.m. in Sacramento where Arnold Schwarzenegger was caught on tape, but now it's his Democratic opponent who is caught up in controversy.

I'm Wolf Blitzer and you're in the SITUATION ROOM.

This hour, President Bush is sticking to his guns against the powerful contingent of Republican rebels. He made a rare visit to Capitol Hill today to lobby for his plan to create military tribunals for suspected terrorists. But today the former secretary of state Colin Powell is taking a stand against a key provision of Mr. Bush's plan.

Powell says America's own troops would be put at risk if the U.S. redefines the Geneva Convention and authorizes harsh interrogations of terror suspects. Powell is siding with a trio of influential Republican senators taking on the president, including possible White House hopeful John McCain. Just a short while ago, a Senate panel approved their version of a tribunal bill.

CNN's Kathleen Koch is standing by at the White House. But let's go to CNN's Andrea Koppel. She's on Capitol Hill with more -- Andrea.

ANDREA KOPPEL, CNN CONGRESSIONAL CORRESPONDENT: Wolf, by a vote of 15 to nine, the Senate Armed Services Committee approved a bill pushed by several influential senators, Republican senators at that. Among them, John McCain, John Warner and Lindsay Graham, effectively throwing down the gauntlet, not just to the White House but specifically to President Bush.

Today's vote caps days of quiet behind closed-door negotiations between these three senators and members of the president's cabinet, including members of the intelligence community and the Department of Justice.

But it exploded into the public late yesterday afternoon and, today, as part of this increasingly public relations campaign mounted by both sides to win the public's support, you had Senator McCain releasing a letter today that he had received from the former secretary of state Colin Powell, who was also chairman of the Joint Chiefs of Staff and a retired four-star general, expressing his support for Senator McCain's bill.

Then you had, on the other side, the White House releasing a letter from the current Secretary of State Condoleezza Rice expressing her support for the president's bill.

The letters were just the latest installment, Wolf, in a day that began with a rare visit to Capitol Hill by President Bush, who met behind closed doors for about an hour with senior members of the House Republicans.

Actually many, many Republicans were there. It was part of the president's push both to get his colleagues fired up ahead of November midterm elections, but also to try to push through key parts of his anti-terror legislation.

At issue, the refusal by Senators McCain, Warner, and Graham to support what President Bush wanted, which was to withhold intelligence information from terror suspects when they went to trial.

Also another key element, the Geneva Convention. The Bush administration wanted to narrow the focus of the Geneva Conventions. Senator Warner, Graham and the trio essentially saying that to do so could put American servicemen at risk if they were arrested or taken into captivity overseas.

So even though most Democrats oppose the president's bill, Wolf, you have them sitting back, letting the Republicans now clash publicly because the backdrop to all of this is the November midterms where national security, as you well know, has been the centerpiece, not just of the president's campaign, but also of his fellow Republicans -- Wolf.

BLITZER: Andrea, thanks very much. Andrea on the Hill.

Now to the White House, Kathleen Koch is there. Give our viewers a sense, Kathleen, of how the president and his team is dealing with this uproar on the Hill.

KATHLEEN KOCH, CNN CORRESPONDENT: Well, certainly, Wolf, this is not the kind of thing that the White House wants to see, but it's evidence that these top senators, Republicans, even in this election year, are not going to follow in lock stop behind the president.

Now, at his briefing this afternoon, Press Secretary Tony Snow tried to clarify the White House's position, saying we are not trying to change or amend the Geneva Conventions, we're trying to bring them substance, bring them clarity.

He said that the problem with the Geneva Conventions, as they exist now, is that there are no standards and that nations can basically do what they want. And he insisted the White House is really trying to get rid of lawlessness and let people know exactly what they can and can't do.

And President Bush himself, in a meeting this morning with South Korean President Noh, stuck to that, saying that they are only trying to clarify, not to redefine, the rules for holding prisoners and interrogating them.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: So the question I ask to -- about any piece of legislation is will the program provide legal clarity so that our professionals will feel comfortable about going forward with the program? That's what I'm going to ask.

And I will resist any bill that does not enable this program to go forward legal clarity. And there is all kinds of letters coming out and today, by the way of active duty personnel in the Pentagon, the JAG, supported the concept that I have just outlined to you. This is an important program for security of this country.

(END VIDEO CLIP)

BLITZER: And the program, of course, being the secret CIA prison program that the president himself unveiled last week. Now, when the president mentioned the JAG, he was talking about the Judge Advocate Generals, top attorneys at the Pentagon. Both he and Tony Snow insisting they've come out with this letter today, saying that they support the president's plan.

But here is the letter. The letter is all of two paragraphs and it's very interesting to note that the words "support, recommend" are not in here anywhere. It's very brief. The only saying -- we do not object to Section VI or to Section VII of the administration's proposal. Certainly not a ringing endorsement.

And there are several on Capitol Hill, congressional sources who have come to CNN, insisting that they have information that these JAGs were coerced to come forth to put out this letter, to sign it, to change their positions -- positions some of them took before Congress only last week and say that they now support the president's or the administration's proposals. The administration, though, denying that. Tony Snow saying that these men are not toadies, and they wouldn't sign on to something that they didn't agree with -- Wolf.

BLITZER: All right, Kathleen, thanks very much. On Capitol Hill right now, another divisive issue for Republicans on display. That would be immigration reform. Only minutes ago, House Republicans voted 283-138 to build new fencing along the border with Mexico.

The House approved that provision last year as well, but just weeks before congressional elections, Republican members are eager to show they're tough on border security. The House and Senate are stalemated, as you know, over broader immigration reform proposals passed by the Senate, including a path toward citizenship for many illegal immigrants.

Zain Verjee is joining us now from the CNN Center in Atlanta with some other stories making news. Hi, Zain.

ZAIN VERJEE, CNN ANCHOR: Hi, Wolf.

What's preventing killings in some parts is not saving lives in others. Military officials say an operation to stem the sectarian violence in five Baghdad neighborhoods is working, but officials say elsewhere in Baghdad, the violence is just creeping up. Today, two bombings near an orphanage left nine people dead.

Also today, four U.S. soldiers died near Baghdad in separate attacks. And the military announced the deaths of another soldier last night, and that brings the number of U.S. military deaths to 2,678 since the Iraq war began.

Yesterday, the judge was accused of favoring Saddam Hussein. Today, he did Hussein a bit of a favor. Despite the claims of many others, the trial judge told Hussein that he was not a dictator. Instead, the judge said, quote, "It is the people around a person that make a dictator." Hussein thanked the judge for the comment. Hussein and the others are on trial for allegedly ordering the killings of over 100,000 Kurds back in 1988.

And Amnesty International says Hezbollah is guilty of war crimes in the recent war with Israel. Today the group released a harsh report. It criticized the scale of Hezbollah's attacks on Israel, and cited Hezbollah leaders, saying that they were targeting innocent civilians. Amnesty International says the U.N. should look into the matter, and that Hezbollah should be held accountable. The group did say, also, that Israel committed some violations of war -- Wolf.

BLITZER: Zain, thank you for that.

Let's check in with Jack Cafferty. He's in New York with "The Cafferty File." Hi, Jack.

JACK CAFFERTY, CNN ANCHOR: Wolf, it's no secret the U.S. could use more troops in Iraq. Some are being forced to do multiple deployments, some marines as many as four different deployments over there, while the military at home lowers its standards to let more high school dropouts and some convicted criminals enlist in order to meet recruiting goals. In the meantime, since 1993 the Pentagon's had this don't ask, don't tell policy that bars people openly gay from serving in the military. Because of this policy, 11,000 service members have been kicked out, 800 were in highly crucial jobs, including 300 with important language skills, 55 of those proficient in Arabic. We don't need those folks, do we?

The "New York Times" reports gay rights groups are now making their biggest push in a decade to change the rules. They are drumming up support around the country and trying to get through a Democratic bill in the House that would do away with don't ask, don't tell.

Now this will surely face resistance in the Pentagon and from Republicans, but polls are suggesting that more than 60 percent of Americans now support allowing gays to serve openly. Also, at least two dozen foreign armies, including Britain and Israel currently allow openly gay people in the Armed Forces.

So here is the question, should the Pentagon reconsider its don't ask, don't tell policy for gays in the military? E-mail your thoughts to CaffertyFile@CNN.com or go to CNN.com/CaffertyFile, Wolf.

BLITZER: Started that policy, as you remember, with Bill Clinton when he took office back in 1993. One of the first questions posed to him and that resulted in the don't ask, don't tell policy. It still continues to this day. We'll see if there is going to be a change, Jack. Thank you.

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

Coming up, new fireworks today in a story that apparently won't disappear. That would be the CIA leak controversy. Up next, Bob Franken, he's got some new information. Tough talk from the journalist who sparked this story.

Plus, he's a rising star for the Democrats but is the freshman senator from Illinois thinking of running for the White House? I'll ask Barak Obama. I'll give you a clue. He's leaving the door open.

And later, provocative words, politics and audio tapes. Arnold Schwarzenegger was caught on tape but it appears his opponent may be the one to pay the price. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New uproar today in the CIA leak case. Going back to where the controversy actually began. The columnist Robert Novak is taking direct aim at former State Department official Richard Armitage. Armitage recently confessed to being Novak's initial source in the outing of Valerie Plame Wilson's identity. More now from our CNN national correspondent Bob Franken. He's here in THE SITUATION ROOM, Bob. BOB FRANKEN, CNN NATIONAL CORRESPONDENT: Well Wolf, we would have thought the Armitage disclosures would have cleared things up. Silly us.

(BEGIN VIDEOTAPE)

FRANKEN (voice-over): Robert Novak is proving one of the immutable laws of Washington, a controversy is never really over. Now we know that former deputy Secretary of State Richard Armitage was the first person to leak Valerie Plame's identity to Novak.

We know because he says so, that he mentioned her connection to the CIA in an offhand manner, saying he thought she worked there, but Novak now says the contention by Armitage that it was a passing reference that propelled the writer to identify Valerie Plame in July 2003 wasn't so off-hand after all.

Novak writes, "He identified to me the CIA division where Ms. Wilson worked. Armitage did not slip me this information as idle chitchat, as he now suggests. He made it clear he considered it especially suited for my column."

The entire controversy began after Plame's husband Joseph Wilson had raised loud challenges to Bush administration claims Saddam Hussein was getting uranium from Africa.

UNIDENTIFIED FEMALE: I and my former CIA colleagues --

FRANKEN: Novak's column set off a multi-million dollar special council's investigation into whether the law had been broken by a White House trying to get retribution. To break the law Armitage would have had know he was identifying a secretive operative. But when he went to special prosecutor Patrick Fitzgerald in October of 2003, to say he realized he had been Novak's source, Fitzgerald decided not to prosecute.

Ken Duberstein, President Reagan's White House chief of staff, and a close friend of Richard Armitage, tells CNN the Armitage version of events is exactly what he told me in October of 2003. Armitage has declined a CNN interview but he told a friend, if everybody had cooperated like I cooperated this would have been over long ago.

As for Novak, he insists that Armitage obscured what he really did.

(END VIDEOTAPE)

FRANKEN: Plame and Wilson have added Armitage to the list of people they are suing. So the beat goes on, and by the way, Special Prosecutor Fitzgerald says, Wolf, the investigation goes on.

BLITZER: And the whole notion of Armitage being the initial government source that provided this information to Robert Novak and Bob Woodward of the "Washington Post," since he was one of those that was sort of critical of the administration's policy toward Iraq, with Colin Powell, was not necessarily one pushing to go to war against Saddam Hussein, it suggests what?

FRANKEN: Well, the Armitage forces would suggest that this shows that there was no real White House conspiracy to discredit Joseph Wilson. However, the other side, other people say let us not forget he might have been a critic inside, but he was a member of that administration.

BLITZER: And for some reason, he decided to give this information to Bob Novak. I think the story continues, at least for today.

FRANKEN: Yes.

BLITZER: Bob, thanks very much. Good to have Bob Franken here in THE SITUATION ROOM.

There is fresh speculation today about Senator Barak Obama's White House ambitions. Obama heads to Iowa this weekend for an event hosted by Senator Tom Harkin that traditionally showcases Democratic presidential hopefuls. I spoke with Senator Obama just a little while ago.

(BEGIN VIDEOTAPE)

BLITZER: Let me read to you, Senator, what you were quoted as saying in your hometown newspaper, the "Chicago Sun-Times" in November of 2004: "I am not running for president in 2008. The only reason I'm being definitive is because until I'm definitive you" -- referring to reporters -- "will keep asking me this question, but it's a silly question." Is it a silly question? Because I'll ask you flat out, are you thinking right now of throwing your hat in the ring and running for the Democratic presidential nomination?

SEN. BARAK OBAMA (D), ILLINOIS: Well, let's put this in context, Wolf. That question was asked of me the day after I had been elected to the United States Senate. I hadn't been sworn in yet, I hadn't gotten an office here in the Senate, and, you know, I thought the question was silly.

You know, I have not changed my mind in the intervening two years, in terms of my attitude toward 2008. I'm focused on 2006 and trying to make sure that we can recapture the Senate and recapture the House. That's my focus. That's what I'm going to concentrate on.

BLITZER: Because I asked the question in the context of where you're going to be this weekend, namely in a neighboring state called Iowa. You're going out to Iowa. When any politician at this time of the year, this time of the political cycle goes to Iowa, you know what us political reporters, what we think.

OBAMA: Well, look, Wolf, if you look at my calendar over the next two months, I'm going to be traveling to every single state where there are contested races, where there's an opportunity for us either to win the House or the Senate.

Now, it turns out that there are a couple of important House races in Iowa, there an important governor's race in Iowa. For me to avoid Iowa simply because I'm worried about what reporters think when it's right next door to my home state of Illinois wouldn't make much sense.

BLITZER: Can we hear that Shermanesque statement about 2008? Are you ready to make that statement right now?

OBAMA: Wolf, I have given you more than enough to work with, at least for the next week.

(END VIDEOTAPE)

BLITZER: At least for the next week, he says. Much more -- in fact, all -- of the interview with Senator Obama is coming up in our next hour here in THE SITUATION ROOM. I'll also ask him about his bill that would shed some light on government spending, pork barrel spending, if you will, why two of his colleagues tried to block it.

Much more coming up with Senator Barak Obama, including where he stands in the effort to pass new legislation on the war on terror. Much more with him coming up in the next hour.

On our "Political Radar" this Thursday, in Ohio, voters are choosing among five Republican candidates to replace Congressman Bob Ney on the November ballot. Ney quit the race last month, citing the strain of a corruption investigation. The winner of today's special election in Ohio's 18th congressional district will face Democrat Zack Space this fall.

Texans and many other Americans are remembering Ann Richards. The former governor of the Lone Star State died from cancer yesterday. She served just one term before being defeated by George W. Bush.

Today, the president had kind words for his former rival. The statement Mr. Bush said -- let me read it to you. "Ann loved Texas and Texans loved her. As a public servant, she earned respect and admiration and became a national role model, and her charm, wit and candor brought a refreshing vitality to public life. We extend our sympathies to Ann's family and friends. Texas has lost one of its great daughters."

Ann Richards wit, in fact, and candor were on display at the Democratic National Convention as a lot of us remember back in 1988 when she took direct aim, this shot, at Mr. Bush's father, then the Republican presidential nominee.

(BEGIN VIDEO CLIP)

ANN RICHARDS, FORMER TEXAS GOVERNOR: Poor George. He can't help it. He was born with a silver foot in his mouth.

(END VIDEO CLIP)

BLITZER: Ann Richards was 73 years old. We extend our deepest condolences to her family and friends. Still ahead, more on our top story, Colin Powell taking on his former boss. The former secretary of state takes a stand against President Bush over amending the Geneva Conventions. We'll discuss that in our "Strategy Session."

Also, Republicans are feasting on the idea of keeping control of Congress. Democrats are hungry to take control, but what would they need to do that? Jeff Greenfield is standing by. He's got four ideas, four things. We'll ask him. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Welcome back to THE SITUATION ROOM. I'm Wolf Blitzer in Washington.

In our "Strategy Session," a Senate panel hands President Bush a defeat in the war over terror fighting tactics. And the former secretary of state Colin Powell is now aligned with some other top Republicans against the White House in an election year battle over national security.

Joining us now, our CNN political analyst and Democratic strategist Donna Brazile and our CNN contributor Bill Bennett, the host of "Morning in America." That's a radio program. Guys, thanks very much for coming in.

Colin Powell, in this letter that Senator John McCain and several Republicans released said this, among other things: "The world is beginning to doubt the moral basis of our fight against terrorism. To redefine Common Article 3 would add to those doubts. Furthermore, it would put our own troops at risk." The president has got a problem with Republicans in the Senate."

WILLIAM BENNETT, CNN CONTRIBUTOR: He does have a problem. The question is what the president will do. I think he will stand strong. He's got people on his side. John Negroponte is on his side. General Hayden at the CIA has said if we go along with what is proposed, we would probably not be able to do the kinds of interrogations we did with Khalid Shaikh Mohammad -- you wouldn't have people doing it -- that led to very important information that kept us safe.

BLITZER: What do you think? Politically, this is a problem. John McCain can be a maverick, Lindsey Graham can be a maverick. A lot of people don't call John Warner, the chair of the Senate Armed Services Committee a maverick.

DONNA BRAZILE, CNN POLITICAL ANALYST: Look, I think the Republicans have a real problem right now. You have three strong Republican leaders who are saying this is the right approach. This is the approach that will not only codify article -- or Common Article 3 of the Geneva Conventions, but also this could help us prosecute the war on terror, bring these terror suspects to justice, and the administration should go along with him.

I don't see any reason why the administration believes that they should have the House version of the bill, which I think will get us in worse trouble.

BENNETT: Well, I think it's precisely because of this world opinion business. I understand the argument, the world opinion. A lot of world opinion is against the United States. I think we probably need to stand up against a lot of that opinion.

But what you've got, if do you what is recommended by Powell and the others, is you've got a situation where a court sitting in The Hague can call American interrogators before it, try them on grounds of international law, because they're unhappy with the U.S. involvement in Iraq.

BLITZER: Well, I think what Lindsey Graham and the others, what they are suggesting is that the evidence that is used in a court, in a military tribunal, against the terror suspect, that they -- the suspects and their lawyers -- should have the right to know what the evidence is, that if it's classified, don't use that evidence, get other evidence. But if you only have classified evidence and you want to bring charges, at least give them the due process of knowing what they're accused of.

BENNETT: But disclosing your most powerful evidence as classified evidence and supposing there are very good reasons not to share it with them, I mean, that's a piece of it.

The other piece of it is the piece I mentioned. These are very difficult, complex issues. By the way, Arlen Specter who, you know, is who is not a reliable vote for George Bush came out in support of the president's position on this. This thing has to be talked about and discussed. There's -- I don't deny the president has a problem because of this opposition, but I think he's absolutely right and I think it's critical.

BLITZER: Donna, you had a point?

BRAZILE: But, Lindsey Graham, who is a military lawyer and an expert in this area, says that the judge -- he came up with a compromise -- the judge could review the evidence. And if the judge believed that the so-called classified evidence could pass muster, then it could be passed on to a jury.

But if it it's classified and -- that would hurt our national security interests, the judge wouldn't be able to pass it on to a jury.

I think what Mr. Graham and others have come out with is a good compromise. It has bad bipartisan support. And that's the approach we should take.

BLITZER: You know Colin Powell.

BENNETT: I do.

BLITZER: He's a serious guy.

BENNETT: I know. BLITZER: He's a four-star general, retired. What he is concerned about -- speaks with military authority -- what John McCain, who himself was a prisoner of war -- speaks with a lot of military authority -- what they're concerned about is that this could come back to haunt and endanger U.S. forces who might be arrested around the world.

BENNETT: Well, we know what happens to U.S. forces when they get in the hands of the enemy. So, you don't get much relief at that end.

Yes, these guys speak with some authority, but so does the president of the United States. And so does General Hayden, when he talks about what kind of a precedent this could establish for interrogations. We have gotten information from these people using the methods we have used, which has been invaluable, which has kept us safe.

One wants to, I think, be very careful before one messes with that.

BLITZER: So, you're saying there should be one standard for detainees held by the U.S. military, and a separate, looser standard held by civilian agents of the U.S. government, like the CIA?

BENNETT: Well, I -- it's complicated. In part -- that's one solution to it.

The other solution is to recognize, as Condoleezza Rice wrote in her letter, that, under international agreement, we can write our own standards for interrogation, such as those under Article III, as other nations have done, and not be subject to somebody's interpretation at the Hague.

BLITZER: How is this going to play out politically come the elections in November?

BRAZILE: Well...

BLITZER: What are you seeing, because, as you know, the White House is trying to hammer the Democrats as being weak on terror.

BRAZILE: Well, again, I'm quoting Lindsey Graham, when he said, this is not about November 2006. Think about our troops. Put our troops' safety first when thinking about this legislation.

And I think that's the right approach in looking at this legislation.

BLITZER: You want to button this up?

BENNETT: Well, it does have something to do with 2006. And it has something to do with the president's leadership, and giving the president his prerogative to prosecute this war, and to do it in a way that's effective.

There are people now beginning to wonder whether we are pushing this thing hard enough, and whether we are putting American interests in the prominent place they need to be. That business yesterday, just very quickly, on the Taliban led a lot of people to ask a question as to whether we should have moved there. Are we being strong enough on our own defense?

BLITZER: I know, Donna, you were very close to Ann Richards, the now late governor of Texas.

BRAZILE: Yes.

BLITZER: She passed away yesterday.

As you look back on her legacy, what goes through your mind?

BRAZILE: You know, I think of Governor Richards as someone who kicked the door open and allowed more women and minorities take a seat at the table.

She was a fearless leader. She enjoyed her work. She enjoyed working with young people. She raised test scores. She brought everybody to the table in Texas. She leaves a rich legacy. And I believe that the family has set up a foundation, the Austin Foundation.

There is a school called the Ann Richards School For Girls. And we're going to raise money to make sure that we keep her legacy going.

BLITZER: Donna Brazile, Bill Bennett, thanks very much.

BENNETT: Thank you.

BRAZILE: Thank you.

BENNETT: Thank you.

BLITZER: They are part of the best political team on television, as our viewers, by now, know.

Up next: He's been in hot political water, but is Governor Arnold Schwarzenegger coasted with Teflon now? We will have the latest on his up-and-down race for reelection.

And a candidate's past claim that women don't belong in combat comes back to haunt in one of the hottest Senate contests in the nation.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Welcome back.

And California Governor Arnold Schwarzenegger has a date to debate his Democratic rival. He and Phil Angelides have agreed to hold their only face-off on October 7. Polls show Schwarzenegger now holding a double-digit lead over Angelides. But will a new controversy hurt him in his reelection effort?

Let's bring in CNN's Peter Viles. He is joining us from L.A. -- Peter.

PETER VILES, CNN CORRESPONDENT: Wolf, it is getting to the point in this campaign where the Angelides campaign needs to make something happen. But it does not now appear that this convoluted tale of these audiotapes is going to turn into that kind of a political event.

(BEGIN VIDEOTAPE)

PHIL ANGELIDES (D), CALIFORNIA GUBERNATORIAL CANDIDATE: It is hot here today.

VILES (voice-over): Democratic Phil Angelides was looking for heat, and he thought he found it: Arnold Schwarzenegger caught on tape.

(BEGIN AUDIO CLIP)

GOV. ARNOLD SCHWARZENEGGER (R), CALIFORNIA: Puerto Rican, or the same thing as Cuban. I mean, they are all very hot.

(END AUDIO CLIP)

VILES: Hot as in hot-blooded. At first, the story played according to the time-honored script.

First, some outrage:

ANGELIDES: Once again, Governor Schwarzenegger has made comments that are deeply offensive to all Californians, comments which have embarrassed our state.

VILES: Then, an apology:

SCHWARZENEGGER: It made me cringe.

VILES: But then the backfire -- the Angelides campaign admitted two of its staffers had found the secret tapes online and leaked them to the state's biggest newspaper.

KATIE LEVINSON, SCHWARZENEGGER CAMPAIGN SPOKESWOMAN: This is one of the most unethical acts in the history of California politics.

VILES: Not so, said the Angelides campaign. But it didn't exactly defend the leak either.

CATHY CALFO, ANGELIDES CAMPAIGN MANAGER: We're looking into it now. I mean, am I happy? No.

(LAUGHTER)

VILES: It's the latest example of Angelides' inability to put Schwarzenegger on the defensive, even though the governor was abandoned by voters in a disastrous special election last fall. JOE MATHEWS, REPORTER, "THE LOS ANGELES TIMES": He should be vulnerable. He's a Republican in a Democratic state in a Democratic year. And his opponent, Phil Angelides, has had -- doesn't seem to have the money or the -- the campaign operation so far to really score points and get traction.

VILES: Schwarzenegger is aggressively courting Democratic votes by endorsing Democratic bills, a higher minimum wage, a major reduction in greenhouse emissions.

UNIDENTIFIED MALES AND FEMALES: Let's go, Phil. Let's go.

VILES: Meantime, even fellow Democrats are upstaging Angelides. He was supposed to be the star of this rally, but watch what happens. L.A. Mayor Antonio Villaraigosa suddenly darts off the stage to comfort a little girl who had fainted. Angelides can only watch, while the mayor steals the spotlight and carries off the girl.

(END VIDEOTAPE)

VILES: A quick follow-up point on those tapes, Wolf.

The Angelides campaign maintains it has done absolutely nothing wrong here, that these tapes were not protected. They were not hidden in any way. There was no password or hacking involved. The tapes were just sitting out there for anybody with an Internet connection to look at, and all they did was call attention to them.

And one other point about that special election where Arnold Schwarzenegger lost very badly. He was hammered in that election, and he was hammered by the labor unions in this state, which are very powerful. If those labor unions come to play for Phil Angelides in the coming weeks, it is very likely, political analysts say, that this race is going to tighten up -- Wolf.

BLITZER: Peter Viles reporting for us from L.A. -- thanks, Peter, very much. We're going to be watching that California race very closely.

Coming up: Senator George Allen still feeling the sting from his now infamous "macaca" comment, but now his Democratic challenger also getting some heat for something he said. We will take a closer look at the increasingly heated showdown in Virginia.

And later: Are U.S. officials exaggerating Iran's nuclear threat? Tough questions now being asked -- all that coming up, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Welcome back.

In Virginia, Democratic Senate candidate Jim Webb is apologizing today for a long-ago claim that women are not fit for combat. It's the latest controversy over words in one of the hottest and increasingly nastiest Senate races in the country. Let's bring in our senior political analyst, Bill Schneider -- Bill.

WILLIAM SCHNEIDER, CNN SENIOR POLITICAL ANALYST: Wolf, whoa. It's starting to get rough out there. Just look at what is happening in that Virginia Senate race.

(BEGIN VIDEOTAPE)

SEN. GEORGE ALLEN (R), VIRGINIA: Hey, gang. How you all...

SCHNEIDER: First, there was the controversy over Virginia senator George Allen's remark while on the reelection campaign trail to a young aide working for Allen's Democratic opponent, Jim Webb.

ALLEN: Let's give a welcome to macaca here.

(APPLAUSE)

ALLEN: Welcome to America and the real world of Virginia.

SCHNEIDER: Allen repeatedly apologized.

Allen had been expected to win easily. But, after the controversy, polls showed the race tightening up. This week, the Allen campaign organized a news conference with five women graduates of the Naval Academy to protest an article written by a academy graduate Webb in 1979.

"There is place for women in the military," Webb wrote, "but not in combat. I have never met a woman whom I would trust to provide those men with combat leadership."

The women claimed Webb's article fostered harassment and hostility at the military academy.

KATHLEEN MURRAY, U.S. NAVY (RET.): There is no question that James Webb's attitudes and philosophy were major factors behind the unnecessary abuse and hazing received by me and my fellow women midshipmen.

SCHNEIDER: Webb's response? "To the extent that my writing subjected women at the academy or the active armed forces to undue hardship, I remain profoundly sorry," the candidate wrote.

What next? This ad being run in Virginia by an independent expenditure group, attacking Allen for a Senate vote he cast in 2003.

(BEGIN VIDEO CLIP, AD)

UNIDENTIFIED MALE: This is a vest left over from the Vietnam War. It's the protection we were given when we deployed to Iraq.

This is modern body armor made for today's weapons. The difference is life or death.

Senator George Allen voted against giving our troops this. Now it's time for us to vote against him.

(END VIDEO CLIP)

SCHNEIDER: Allen's campaign manager denounced the ad as -- quote -- "unfair and completely false." Critics who call the ad misleading claim that the amendment, which Allen, John Warner and other Republican senators voted against, was not specifically for body armor.

(END VIDEOTAPE)

SCHNEIDER: This campaign has nearly two months to go. Well, to borrow a line from an old movie, fasten your seat belts; it's going to be a bumpy ride -- Wolf.

BLITZER: Quickly, Bill, is Jim Webb now saying that women should be allowed to serve in combat? Has he changed his position on that substantive issue?

SCHNEIDER: Yes. In his statement, he said he has changed his views, that he is now comfortable with the idea of women going into a combat role. He has changed his view on that.

BLITZER: All right, Bill, thank you very much -- Bill Schneider reporting.

And that controversial ad attacking George Allen is making waves online, circulating on liberal blogs and on the popular video Web site YouTube. But who exactly is the group behind the ad?

Let's bring in our Internet reporter, Abbi Tatton -- Abbi.

ABBI TATTON, CNN INTERNET REPORTER: Wolf, that ad is also at the Web site of Vote Vets. It was their political action committee that sponsors the ad.

Now, they -- Vote Vets was formed earlier this year. They have endorsed Iraq and Afghanistan veterans who are running in November -- among their board members, Democrat and former General Wesley Clark, and also blog favorite Paul Hackett. He's an Iraq veteran that narrowly lost an Ohio special election last year, when he was running as a Democrat.

Vote Vets has posted their support from the online anti-war bloggers on their front page today. They are also seeking online input for where this ad should go next. A spokesman says that they have dozens of versions ready to go, and they want people to give their input online about where they want to see an ad.

Now, the Allen campaign is responding by sending out lists of the senator's votes for defense spending, as well as a link to a blog post that slams the accuracy of that ad -- Wolf.

BLITZER: All right, Abbi, thank you.

Up next: four questions, critical questions, in the battle for Congress. Jeff Greenfield is standing by. He will help us hone in on the big issues and the big themes.

And, later: Senator Barack Obama fires back at Republicans who accuse Democrats of being soft on terror. My interview with Senator Barack Obama, that is coming up in our next hour.

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

(COMMERCIAL BREAK)

BLITZER: Now the big picture and some of the key questions, as we count down to the November battle for Congress.

Our senior analyst, Jeff Greenfield, is here in Washington, right in THE SITUATION ROOM.

Good to have you here.

We know we're getting close to elections when you have four questions.

JEFF GREENFIELD, CNN SENIOR ANALYST: Right.

This has become sort of a tradition. Every primary and election night, we try to phrase, for tribal reasons, what are the four questions. And this is a preliminary list, because it's -- we're still a couple of months away, or six weeks away, whatever, from the elections.

But these are the ones that at least I think may turn out to be the keys. The first one, is all politics really local? I mean, that's a famous Tip O'Neill aphorism, the former House speaker, but it often isn't true. A lot of times, elections are -- even midterms -- are determined by national trends, Watergate in '74, the economy in '82, Clinton in '94.

So, the question this time is, will there be a national issue, whether it's disaffection with Iraq, whether it's dislike of the Democrats' position on terror, that will overwhelm local issues? So, that's one.

The second one is, how much will it matter if the voters are unhappy? You and I were raised at a time when, if voters were disaffected, that meant that the party in power was in trouble. But, in '04, even though most voters thought the country was off on the wrong track, and wanted a change in direction, they reelected the president, because they thought they couldn't take a risk with John Kerry, or maybe because the Republicans had a better turnout operation.

Another way to rephrase that is, will "had enough" be enough? In 1946, that's all the Republicans had to say to win the Congress. Had enough?

Will it work this time? I am dubious.

Third, will Democrats catch up on get-out-the-vote? Last time, the Democrats and their allies actually spent more money than Republicans, but the Republican turnout operation, which Karl Rove had been developing for four years, proved to be the difference in Ohio and a couple of other states. So, the question here is, will the Democrats have a vote -- a get-out-the-vote machine?

And, last, is there a sleeping giant? Is there an issue that we -- we are not paying enough attention on? Interesting. This week, in Arizona, a conservative Republican beat a moderate establishment candidate on immigration. Immigration played out in Duke Cunningham's old district.

If it's not immigration, will there be something else? And will there be an irony here that Republicans will try to retain power by running an anti-immigration platform that their own president disagrees with?

Those are the four I have got now. And I should say to you, I'm more than happy to hear from voters, viewers, whatever we call them. If they got better questions, I will steal them, cheerfully.

BLITZER: You are going to be doing this a lot, the four questions.

There's also no doubt, though -- I have spoken to a lot of Democrats in recent weeks. You know what terrifies a lot of them? The October surprise.

GREENFIELD: Well, it may even be a November surprise.

And I will tell you one that popped up last time. And that is Osama bin Laden's greatest hits. You will remember that a tape was released just before the election from Osama that, in the Democrats' minds, seemed to -- seemed to convince enough voters that they couldn't take the risk of change at a time of terror.

So, one of the things that's really neat about politics, from my point of view, is all the people who claim they know what is going to happen. We never know what is going to happen.

And you're right. An October surprise can either take something that the president does on his own initiative or something, literally, from the other side of the world.

BLITZER: The fact that the economy seems to be moving in the right direction, and the price of gasoline going down moderately right now, the Republicans think that's going to be great.

GREENFIELD: Our colleague Bill Schneider has a rule that, when the economy is bad, the election is about the economy. When the economy is good, it's usually about something else.

It takes an awful lot for a party in power to get credit. I think Clinton and the Democrats in '98 got credit, despite the Lewinsky scandal, because the economy had been so good for so long. Whether people will have that perception by November, assuming things stay right, I don't know, nor do I know whether or not this housing bubble, which appears to be bursting in some places, is going to produce what economists call a poverty effect, whether people's anxiety that they don't have all this equity they thought could change it.

But, like I say, the person who says he knows or she knows what is going to happen, you know, I would like -- I got a bridge in Brooklyn I want to sell them.

(LAUGHTER)

BLITZER: Jeff Greenfield with his four questions.

We will do a lot of those four questions. And, in the end, we will multiply those four questions.

GREENFIELD: We could have 20 questions.

BLITZER: That's right.

GREENFIELD: OK.

BLITZER: Jeff Greenfield, thank you.

GREENFIELD: All right.

BLITZER: Jeff Greenfield and, as you saw earlier, Bill Schneider, they are part of the best political team on television.

Still to come, another politically charged questions, speaking of questions: Should the Pentagon reconsider its don't ask/don't tell policy for gays in the military? Jack Cafferty will be back with your answers.

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

(COMMERCIAL BREAK)

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

Hi, Jack.

CAFFERTY: Wolf, the question this hour is: Should the Pentagon reconsider its don't ask/don't tell policy for gays in the military, in light of the use of manpower that is being required with the war in Iraq and other places?

Justin writes from California: "Yes. And they are ought to call it don't ask/don't care. Come on. Are you telling me, in this day and age, when the military is taking 42-year-olds, mentally challenged young people, and those with criminal records, they don't have room for a few gays?"

Zach writes from Iraq: "I am in the military, currently serving in Iraq. I don't think openly gay people should be allowed to serve. I have seen firsthand how much trouble it causes if rumors about someone's sexual preference are made known." Elmer in Florida, chief petty officer, U.S. Navy, retired: "I retired after 20 years in the Navy. I'm also gay. I had to keep my sexual orientation private. Yes, gays should be allowed to serve openly. The military would gain, not lose. Good people are hard to find. And, if a gay person is willing to serve, the military brass should be willing to give them a shot at it. And who they're sleeping with has no bearing on job performance."

J. in Alabama: "Jack, the military leadership can make the policy best suited for the armed forces of the United States. They have a good track record. The problem arises when politicians get involved with things they know nothing about."

That's a lost list, my friend.

(LAUGHTER)

CAFFERTY: David in Texas: "Jack, I think the Pentagon needs to look at a lot of things, not just don't ask/don't tell. They sure could use the manpower in the military, especially in crucial Arabic- speaking roles. The Pentagon has a lot of problems, namely, that they are in charge of themselves, which has resulted in two blown wars in four years. They should start by firing Rumsfeld, and then look at don't ask/don't tell."

And James writes from Las Vegas: "Jack, since we can't meet military quotas, if RuPaul wants to join, let him."

(LAUGHTER)

CAFFERTY: Wolf.

BLITZER: You know, Jack, it wasn't that long ago that women couldn't serve in combat units. You sense that there's going to be a change in the U.S. military?

CAFFERTY: I don't know. There probably should be.

I saw a thing the other day. A 52-year-old female American military officer was killed in Afghanistan. Now, call me old- fashioned, but, to me, that's just -- she ought to be home with her grandkids. I mean, what -- you know, what is that? We have 52-year- old women being killed over there, and we don't let gays serve in the military? I -- something is wrong.

BLITZER: Jack, thank you very much.

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