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Battle in Lebanon; Carter Calls Bush Administration 'Worst in History'; Michael Moore Under Investigation

Aired May 21, 2007 - 17:00   ET

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

WOLF BLITZER, HOST: And to our viewers, you're in THE SITUATION ROOM.
Happening now, breaking news. As a powerful explosion rocks Beirut, there's also all out combat at a refugee camp where Lebanese soldiers are battling radical Islamists.

Is al Qaeda setting ablaze another corner of the Middle East?

He set off an angry exchange with the White House when he called the Bush administration -- and I'm quoting now -- "the worst in history."

Is former President Jimmy Carter now having second thoughts?

And his new film blasting America's health care system is a hit overseas, but Michael Moore faces potentially serious trouble right back here at home. The government suggests all is not well with the making of this film, "Sicko."

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Breaking news out of Lebanon this hour -- an explosion rips through a shopping district in a Muslim area of the capital, setting vehicles and buildings on fire. To the north, Lebanese Army tanks pounding away at a Palestinian refugee camp near Tripoli, as Islamic radicals with ties to Al Qaeda hit back with machine guns. Dozens of people are dead.

Our State Department correspondent, Zain Verjee, is standing by.

But let's first turn to our senior international correspondent, Nic Robertson.

He's joining us from the Lebanese capital of Beirut -- Nic, you were just there on the scene where this horrific explosion occurred.

Set the scene for our viewers -- what happened?

NIC ROBERTSON, CNN CORRESPONDENT: Wolf, incredibly chaotic down that -- where the blast took place. It looked like a car bomb was driven to the front of an apartment building. It detonated, damaging cars nearby, ripping off the apartment front immediately above the blast, ripping off the apartment front in a neighboring building, blowing out windows across the road 100 yards away. Windows were also blown out in a local television station.

Ambulances rushed to the scene. We saw several people being taken away. We're told at least six people wounded in that big bomb blast -- Wolf.

BLITZER: And there's no way of determining how many dead -- if there are dead -- or wounded, until people can get a lot closer, rescue workers, emergency personnel who are on the scene.

Now all of this is happening in Beirut as very serious fighting continuing up north.

What's going on up there?

ROBERTSON: Well, the standoff continued around the Nahr el-Bared Refugee Camp. About 30,000 refugee are believed to live there. In amongst them -- hiding amongst them, the Fatah al-Islam, an alleged al Qaeda-linked group hiding there.

The Lebanese Army shooting into the camp -- sustained gunfire early in the day, falling off to a low around the midday, picking up again later in the day. An effort to get food, medicine and water in to the residents failed late in the day. The Lebanese Army has the camp surrounded. They were using tank fire during the day, as the militants continued to hold out there -- Wolf.

BLITZER: Nic, stand by.

We're going to stay on top of this story.

I want to bring in our State Department correspondent, Zain Verge -- Zain, you're watching this. You have more on this fire that's really engulfing Lebanon and other parts of the region.

ZAIN VERJEE, CNN STATE DEPARTMENT CORRESPONDENT: Exactly, Wolf.

There's fear Lebanon could become a breeding ground for Al Qaeda terrorists.

(BEGIN VIDEO TAPE)

VERJEE (voice-over): What began as a hunt for bank robbers ended like this -- a crowded Palestinian refugee camp turned in to a war zone. Lebanese forces pounding well armed militants holed up inside the camp.

They call themselves Fatah al-Islam and have links to Al Qaeda. Their leader sentenced to death in absentia for the murder of a U.S. A.I.D. worker in Jordan in 2002.

The group wants to wage war against the U.S. from Lebanon and now it's flexing its muscles, exploiting Lebanon's political tensions, taking advantage of the crowded and radicalized Palestinian camps to set up terror cells. HISHAM MELHEM, AL-ARABIYA TELEVISION: These are ideal places for these radicals to recruit people and to -- and to preach their dark ideology.

VERJEE: Like northern Lebanon, Gaza also echoed the sound of warfare -- Israeli air strikes on Hamas targets in retaliation for rocket attacks fired in to Israeli cities. At the same time, open conflict between Palestinians, as Hamas and Fatah gun for each other.

and bloody sectarian fighting continues to rage in Iraq -- a region on fire, as predicted months ago by Jordan's King Abdullah.

KING ABDULLAH, JORDAN: We can possibly imagine going in to 2007 and having three civil wars on our hands.

VERJEE: While the White House is saying all sides should cool down, the administration is backing the Lebanese Army's tough response.

SEAN MCCORMACK, STATE DEPARTMENT SPOKESMAN: The Lebanese armed forces are reacting admirably.

VERJEE: As the violence rages on in Lebanon, Gaza and Iraq, terrorists are able to exploit the chaos, making it harder for the U.S. to influence events in the region.

(END VIDEO TAPE)

VERJEE: And, Wolf, the U.S. has always supported the weak and fragile, but yet democratically elected government of Prime Minister Fouad Siniora. They're hoping here that by taking military action in this forceful way, it could help strengthen his own position among the Lebanese people who are also just learning, Wolf, from U.S. officials that they are now looking into how the United States can help the Lebanese military -- Wolf.

BLITZER: All right, we'll watch this.

Zain Verjee at the State Department.

Let's take a closer look now at this mystery militia that's at the heart of the Lebanon fighting up north. Fatah al-Islam is based in the Nahr el-Bared Refugee Camp that's north of Tripoli, although it's begun showing up in other Palestinian camps, as well.

It's said to have anywhere from 150 to 500 armed men, some drawn from other Arab countries. They're led by one Shakir al-Abssi, a Palestinian who trained in Syria and, by some accounts, fought U.S. troops in Iraq. Jordan sentenced him to death in absentia for the 2002 killing of the American diplomat, Lawrence Foley.

Also sentenced, by the way, for that crime -- a face all too familiar to Americans, Abu Musab al-Zarqawi, the leader of Al Qaeda In Iraq, who killed in Iraq last year.

Abssi says his group has no organized ties to al Qaeda, but agrees with its goals. Its statements appear on the same Islamist Web sites as Al Qaeda communiques.

We're watching all of this closely. And we're also watching some deadly Israeli air strikes that have failed to stop the rockets fired into Israel from Islamic militants in Gaza. Israeli officials say 13 more such rockets fell today, one of them killing an Israeli woman. Both sides are threatening to escalate this conflict, which is now overshadowing a bloody Palestinian factional fight in Gaza.

CNN's Ben Wedeman has more.

(BEGIN VIDEO TAPE)

BEN WEDEMAN, CNN CORRESPONDENT (voice-over): Attack after attack after attack -- Israel's pursuit of its enemies in Gaza is unrelenting.

Monday, four militants from Islamic Jihad were killed in an Israeli air strike in northern Gaza. Overnight, Israel hit a house in Gaza City. Eight people were killed, including civilians. Israel said it was targeting militants in the street and did not intend to hit the house, which belongs to the extended family of a Hamas member of the Palestinian parliament.

Despite the pounding, Hamas insists it will not back down.

"Our commitment is to god, our people and the nation, say Hamas leader and Palestinian Prime Minister Ismail Haniya. "We will continue in this way until god gives us one of two wishes -- victory or martyrdom."

At this rate, it may be the latter. In the past week, the rockets have damaged homes and businesses, and wounded around a dozen Israelis, traumatizing many more.

Such images put excruciating pressure on the government of Ehud Olmert to act. But there are good reasons for the Israeli Army not to rush in to Gaza. New weapons and tactics learned from Hezbollah in Lebanon could make an Israeli offensive a bloody proposition.

(on camera): Hamas is threatening to resume its campaign of suicide bombings against Israel, while Israeli cabinet ministers warn if Hamas doesn't stop firing rockets, Israel may target the group's political leadership.

If either threat is carried out, the worst in this latest outbreak of violence may be yet to come.

Ben Wedeman, CNN, Jerusalem.

(END VIDEO TAPE)

BLITZER: Let's check in with Jack once again for The Cafferty File.

I'll tell you, that region is on fire right now -- Jack. JACK CAFFERTY, CNN CORRESPONDENT: It's -- it's just every day there's something else going on in that part of the world, and none of it's any good.

The recommendations of the Iraq Study Group appear to be getting a second look now from the Bush administration.

Remember that report -- the one whose recommendations about what to do with the war in Iraq were rejected out of hand by the decider last fall?

At the time, he decided he had all the answers and didn't need no stinking report.

The "Washington Post," though, reports this morning the White House is now reconsidering the timetable for political milestones spelled out in that report. The Iraqi government would have to stick to the schedule or risk losing U.S. assistance.

Some of those milestones include setting up provincial elections and passing laws on the sharing of oil revenue -- something that still hasn't been done.

This second look comes at Congress tries to resolve the impasse over the Iraq War funding bill. That's built largely on the Democrat's true pullout plan. The Iraq Study Group did not call for a timetable for troop withdrawal, but did suggest that one could begin by early 2008. The panel also called for limited circumstances for troops to remain in Iraq.

So here's the question -- why is the Bush administration suddenly taking a second look at the Iraq Study Group report?

E-mail your thoughts to caffertyfile@cnn.com or go to cnn.com/caffertyfile.

Curious, don't you think -- Wolf.

BLITZER: Good question, Jack.

And let's see what our viewers think.

Thank you.

Up ahead, the White House calling former President Jimmy Carter "increasingly irrelevant." That's a quote. Find out what he said about the Bush administration that prompted an escalating war of words.

Also, we're on patrol with American forces looking for missing American troops in very dangerous parts of Iraq.

Plus, the New Mexico governor, Bill Richardson, making it official -- jumping into the race for the White House -- but as an underdog. Find out what he has to say. My interview with him live, coming up this hour.

We'll be right back.

COMMERCIAL

BLITZER: This hour, supporters of an immigration reform deal are trying to push it forward in the U.S. Senate.

But opponents are pushing back just as hard. And amid all of the arguing and maneuvering, one U.S. senator contends it's unthinkable that a vote will happen this week.

Let's bring in our Congressional correspondent, Dana Bash -- Dana?

DANA BASH, CNN CORRESPONDENT: Wolf, very shortly, the Senate will vote to formally start debate on immigration. But critics have been on the Senate floor all afternoon. They didn't wait for the debate to officially start to lash out.

(BEGIN VIDEO TAPE)

BASH (voice-over): It began with a plea from the Senate majority leader.

SEN. HARRY REID (D-NV), MAJORITY LEADER: If we put rhetoric aside, we have the opportunity to pass a law that treats people fairly strengthens our economy.

BASH: yet in the next breath, the Senate's top Democrat started ticking off flaws in the bipartisan immigration plan -- things he wants changed, like a guest worker program that allows 400,000 workers or more into the U.S. per year for two year terms.

REID: We must not create a law that guarantees a permanent underclass -- people who are here to work in low wage, low skilled jobs.

BASH: It was a tell tale sign of the wrenching debate ahead. Both liberals and conservatives have long lists of complaints about what's in the nearly 400-page immigration bill.

SEN. JIM BUNNING (R), KENTUCKY: No matter what you call it, X, Y or Z Visas, this bill will grant amnesty to millions of illegal immigrants all over this country.

SEN. JEFF SESSIONS (R), ALABAMA: I want to share a few things about how a bill should become law and what we were taught in grade school about it.

BASH: leading Republican critic Jeff Sessions displayed a poster evoking the cartoon, "Schoolhouse Rock."

(BEGIN VIDEO CLIP FROM SCHOLASTIC ROCKS, COURTESY ABC)

UNIDENTIFIED MALE: I'm just a bill. Yes, I'm only a bill. And I'm sitting here on Capitol Hill.

(END VIDEO CLIP)

BASH: He scolded negotiators for using back room wheeling and dealing, not open committee hearings, to hatch the plan.

(END VIDEO TAPE)

BASH: Already, Republicans who helped strike this immigration deal are under fire back home. Georgia's Saxby Chambliss and South Carolina's Lindsey Graham were addressing their state party conventions this past weekend and they got booed by their fellow Republicans when they started talking about immigration -- Wolf.

BLITZER: Dana Bash on Capitol Hill.

He's been a regular on the campaign trail now for months, but the new -- the Democratic New Mexico governor, Bill Richardson, today making it all official, announcing he's a candidate for president of the United States.

Governor Richardson is joining us now live from Los Angeles, where he made his announcement.

Governor Richardson, thanks very much for coming in.

GOV. BILL RICHARDSON (D), PRESIDENTIAL CANDIDATE: Nice to be with you, Wolf.

BLITZER: I know you have some reservations about this immigration deal that was worked out by Ted Kennedy, John McCain, the president of the United States.

But if were you a member of the Senate or the House right now, you had to vote on this package as is, take it or leave it, would it be a yes or a nay?

RICHARDSON: It would be a yes, but at the same time, Wolf, I do believe it needs to be improved. But I've got to give them credit, it's good start. It's bipartisan. They are saying two fundamental things -- there has to be more border security. That is very important.

And then, secondly, a legalization plan for 12 million undocumented workers. That's not amnesty. It's going to take at least 10 years for anybody to become a citizen. But there are some flaws in it, and that's what they're paid to do, the senators and the House, to fix those flaws -- too much family separation; the guest worker program.

They've got to get some labor protections for those 400,000 workers. And then it doesn't say something else that really is not in the -- in the bill, and that is what about this crazy wall they want to build between Mexico and the United States?

That's not going to work. It's not funded. It's a bad symbol.

BLITZER: All right, so you... RICHARDSON: But they have made a good start and I've got to give them credit.

BLITZER: Well, here's the way you made, in part, your announcement earlier today that you want to be president.

I want to play a little clip.

(BEGIN VIDEO CLIP)

RICHARDSON: I'm running for president because this nation needs a leader with a proven track record, an ability to bring people together to tackle our problems here at home and abroad.

(END VIDEO CLIP)

BLITZER: All right, the polls show that you're still at the second tier, although you must have been encouraged somewhat by this "Des Moines Register" poll that just came in. It's got you now at 10 percent; John Edwards with 29; Barack Obama, 23; Hillary Clinton, 21.

What do you need do, Governor to get yourself at the top tier of these candidates?

RICHARDSON: Well, I also saw a poll where I'm 10 percent in New Hampshire -- probably the two most important states. So I'm moving forward.

What I need to do is, one, get known around the country that I'm the candidate that is most prepared, with the most foreign policy background, the most energy background. I'm a governor. I've run a state. I've managed a bureaucracy of over 100,000 people as secretary of energy. And that I have a positive plan to bring this country together, both domestically and internationally.

It's, also, Wolf, outworking everybody. And you know that. I'm everywhere. I am going house to house in Iowa, in New Hampshire, Nevada, South Carolina. Now Florida wants to move up. I'll go to every house in Florida. I don't know how I can do that, because it's a big state.

BLITZER: You're ready to campaign.

The whole no -- you were pretty tough on the president today in your remarks, which I was listening to.

But would you go as far as the former president, Jimmy Carter, who suggested in recent days that this administration, from an international relations standpoint, may be the worst ever?

RICHARDSON: No, I wouldn't go as far as president Carter did. I -- I'm very fond of him and he's sort of a mentor to me, but I think he went too far.

What I did say, Wolf -- and, look, I'm a positive candidate, but I at least outlined what I want to do about Iraq -- that we need to get out with honor and dignity; that we need an energy plan that makes us energy independent.

I'm positive. I did cite what I believe are major flaws in the president's domestic and foreign policy. But, you know, too often some candidates are all negative.

I'm positive. I want to be positive. My ads in Iowa and New Hampshire, they're positive. They're funny. I'm not trying to, you know, go after the negativism that so permeates our body politic.

So this is how I believe I'm going win, by outlining a good vision to bring this country together domestically, internationally. I think we've got some real problems. You cited immigration; a middle class that needs some help; Iraq -- the divisions that -- we're thinking too much as red and blue states. We should think a lot more about being Americans and being bipartisan in our approach.

And this is why the immigration bill that seems to be moving forward has promise, because it's bipartisan.

BLITZER: Governor, we're going to have more on Jimmy Carter and what he's saying today, because he seems to be backing away a little from those earlier remarks.

But we've got to leave it right there.

Governor Richardson, thanks very much for coming in. And, once again, congratulations.

RICHARDSON: Thanks Wolf.

Nice to be with you.

BLITZER: Bill Richardson is the governor of New Mexico.

Coming up, the U.S. government investigating filmmaker Michael Moore and his latest blistering documentary, as his movie debuts in Cannes. We'll have details of his potential legal trouble.

Plus, an emergency landing with some bad landing gear.

Can the pilot put it down safely?

We'll show you.

Stay with us.

You're in THE SITUATION ROOM.

COMMERCIAL

BLITZER: Our Carol Costello is monitoring some other stories incoming into THE SITUATION ROOM right now -- Carol, what's going on?

CAROL COSTELLO, CNN CORRESPONDENT: Well, let's start in Florida, Wolf. Some tense moments in Tampa, where this twin engine Cessna had to make an emergency landing because its front wheels would not lock. Onboard, a flight instructor a student and a dog. Watch this thing land. Ooh, there you go.

The instructor was actually able, as you can see, to touch down safely. When he brought the nose down at the very last second -- you're going see the plane skidding to a stop. But to tell you, no one was hurt, including the dog.

A widely prescribed diabetes drug is now linked to increased risk of heart attack, as much as 43 percent. The drug is called Avandia and more than six million people worldwide are on it or have used it to treat Type II diabetes. The study appears in the "New England Journal of Medicine." But it also says the overall risk is small, and people should talk to their doctors if they're concerned.

The bottom line on Wall Street, a mixed day, with the Dow down slightly after hitting an intraday record. But the S&P is up, and at one point briefly topped its own record high before retreating.

The Nasdaq posted modest gains.

Back to you -- Wolf.

BLITZER: Carol, thank you.

Coming up here in THE SITUATION ROOM, the war of words between Jimmy Carter and President Bush.

Does the former president still think the current president is the worst in history?

Also, the U.S. is funneling a billion dollars a year to Pakistan for its help in capturing Osama bin Laden.

So why are some U.S. officials saying bin Laden is harder than ever to capture?

Stay with us.

You're in THE SITUATION ROOM.

COMMERCIAL

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

Happening now, a new vote of confidence from President Bush for embattled Attorney General Alberto Gonzales. He's facing a possible no confidence vote in the Senate, which Mr. Bush is calling, and I'm quoting now, "pure political theater."

Also, an Iranian-American woman reportedly now officially charged in Tehran with trying to topple the country's government. Haleh Esfandiari is an academic with dual citizenship. She went to visit her mother in December, was prevented from leaving and was arrested this month.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Hundreds of U.S. troops are searching for three comrades missing since an ambush in Iraq's Triangle of Death a week-and-a-half or so ago. It's a slow and painstaking process, as they literally try to leave no stone unturned.

CNN's Arwa Damon with U.S. troops near Yusufiya -- Arwa.

ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: Wolf, we're out here with the men of the 123 Stryker Battalion, Charlie Company, just wrapping up their mission for the day.

(BEGIN VIDEO TAPE)

DAMON (voice-over): As dawn broke, an intelligence tip leads American and Iraqi soldiers across this bridge over the Euphrates River. They've been told that people associated with the capture of three Americans may have family members on the other side, in an agricultural area called Jirf Al-Sayed (ph).

Armed with a list of 74 names, the men move from farm to farm checking residents' I.D.s and asking questions.

UNIDENTIFIED MALE: I'll first ask about the explosion and if she's seen anybody suspicious on this side of the river.

DAMON: "No," says this Iraqi woman. "Nothing suspicious."

(on camera): Karguli (ph) village is just across the Euphrates River, but unlike the reception that U.S. forces got there, residents here actually seemed friendly and welcoming.

(voice over): But no one has any specific information. Most residents said they heard about the kidnapping after leaflets were dropped.

This woman says, "They suffered at the hands of the terrorists." That on the other side the river, four members of her family were killed or kidnapped. This father says they rarely leave the area.

UNIDENTIFIED MALE: You take care.

DAMON: Going door to door, moving through rugged landscape in the intense heat and coming up empty is both exhausting and frustrating.

UNIDENTIFIED MALE: The bottom line is we're looking for three of our guys. You know, and if we can find a clue, even one remote clue out here, that helps, and get those guys back. And that's what we're here for.

DAMON: In one house they find two men with wires and a PKC ammo belt. And on the way out, taking a break along this ditch, they find two men seeming to be hiding from them.

UNIDENTIFIED MALE: Nobody else in this neighborhood has been trying to hide from us.

DAMON: The wires are for electrical cabling; the ammo belt, old and rusty. All four are released.

Senior commanders say they believe they are getting closer, but this is what the soldiers see: a long day's work in new territory that offered no new leads.

(END VIDEOTAPE)

DAMON: As these men's mission ends on the 10th day that they have been searching for those three kidnapped soldiers, there is a growing sense of frustration -- Wolf.

BLITZER: Arwa Damon embedded with U.S. forces searching for those three soldiers. And by the way, those four men whom Arwa mentioned were later released.

Former president Jimmy Carter is now backing off some very controversial remarks he made about President Bush, calling his administration -- and I'm quoting now -- "the worst in history". And the White House had a few choice words for Carter in response. Now the former president is offering an explanation.

Let's go to our Mary Snow. She's in New York.

Mary, what is Carter now saying about his remarks?

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, the former president is saying that he should have been more careful, and the fact that he was misinterpreted.

(BEGIN VIDEOTAPE)

SNOW (voice over): Jimmy Carter is clarifying what he meant when he said this to the "Arkansas Democrat-Gazette" about the Bush administration...

JAMES CARTER, FMR. PRESIDENT OF THE UNITED STATES: I think as far as the adverse impact on our nation around the world, this administration has been the worst in history.

SNOW: The former president says he was comparing this administration to the Nixon years.

CARTER: I did comment on the fact that the Iraqi War and lack of progress in the Middle East caused me to put this administration as below that of Richard Nixon.

UNIDENTIFIED FEMALE: You didn't say it's the worst in history?

CARTER: Not intentionally.

SNOW: President Bush was asked what he thought of Carter's criticism.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I get criticized a lot from different corners, and that's just part of what happens when you're president.

THOMAS MANN, BROOKINGS INSTITUTION: Actually, it's uncharacteristic of ex-presidents to be as critical of a sitting president.

SNOW: Historians say Jimmy Carter has changed the unwritten rules of ex-presidents restraining criticism of sitting presidents, but Carter says...

CARTER: But I have always been very careful not to criticize any president, you know, in a personal way.

SNOW: Yet, when it comes to policy, Carter hasn't held back. Here what he said about the invasion of Iraq six months ago in THE SITUATION ROOM.

CARTER: It's going to prove, I believe, to be one of the greatest blunders that American presidents have ever made.

SNOW: On calling forth Guantanamo bay to be closed two years ago...

CARTER: The United States continues to suffer terrible embarrassment and a blow to our reputation as a champion of human rights.

SNOW: While he received low approval ratings while he was in the White House, Carter's considered a more popular ex-president in his role as diplomat. Historians point out that none of his presidential predecessors have been immune from his criticism.

DOUGLAS BRINKLEY, PRESIDENTIAL HISTORIAN: Every sitting president has to deal with the Carter factor, which is that he has an agenda of his own, that he's really speaking to a global audience.

SNOW: And in an interview with the BBC over the weekend, he had harsh words for outgoing British prime minister Tony Blair's support of President Bush.

CARTER: Abominable. Loyal, blind, apparently subservient.

(END VIDEOTAPE)

SNOW: Now, over the weekend, a White House spokesman said Carter was becoming increasingly irrelevant. Today Carter didn't take issue with that, saying he's not relevant in politics, he is relevant, though, in building things -- Wolf.

BLITZER: He's going to speak his mind as he sees it, I'm sure.

Thank you, Mary.

Mary Snow in New York.

Still ahead here in THE SITUATION ROOM, we're hearing from some U.S. officials that capturing Osama bin Laden might be getting harder than ever if the U.S. keeps pumping a billion dollars a year to Pakistan for its help.

Brian Todd trying to sort out the issue. He's standing by live.

Also, Michael Moore's latest documentary. It's called "Sicko," it's opening at the Cannes Film Festival.

Our Carol Costello is standing by to tell us about the latest controversy that this film is producing.

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

(COMMERCIAL BREAK)

BLITZER: Is the United States throwing good money after bad in the hunt for al Qaeda's leaders? There are new questions now emerging about a key U.S. ally's role in a massive anti-terror effort.

Let's go to CNN's Brian Todd.

Brian, what are we learning?

BRIAN TODD, CNN CORRESPONDENT: Wolf, we are learning of growing frustration on Capitol Hill and elsewhere over the $80 million a month the U.S. gives to Pakistan and what America's gotten for its money.

(BEGIN VIDEOTAPE)

TODD (voice over): The world's most wanted terrorist still eludes capture despite stepped up U.S. intelligence efforts over more than a year to find him. And a U.S. official now tells CNN al Qaeda has been operating with a greater level of comfort in Pakistan over the past year, finding more space to train and plot.

Current and former U.S. officials say the terror network's leaders in that region have been asking their affiliates in Iraq for money. This comes amid new questions of what Pakistan is doing with a billion dollars a year in U.S. aid.

DEREK CHOLLET, CENTER FOR A NEW AMERICAN SECURITY: We've seen many instances in which Pakistan's military has not done what we want it to do, and there's a question of, why are we continuing to pay them money? American taxpayers deserve that answer.

TODD: Democratic senator Jack Reed is leading an effort to tie the money given to Pakistan with its performance on the ground against terrorists. When we asked Pakistan's ambassador about that...

MAHMUD DURRANI, PAKISTAN AMB. TO THE U.S.: I tell you one thing, that if that language comes in, it will become more difficult for Pakistan to support you. TODD: Pakistani officials say the money from the United States is actually a reimbursement for what Pakistan spends to fight terrorists. But Pakistan's effort is again under fire.

Current and former U.S. intelligence officials tell CNN Pakistan's non-aggression deal signed last year with tribal elders along its border with Afghanistan has hurt the hunt for Osama bin Laden and the fight against al Qaeda. Pakistani officials on the defensive about charges that their troops don't do enough to stop Taliban raids into Afghanistan.

DURRANI: We arrest them, check them, and we kill them whenever we find Taliban or al Qaeda. We have no sympathy for them.

(END VIDEOTAPE)

TODD: Pakistani officials also deny the charge that they've pulled back their troops in a key border region where the Taliban and al Qaeda are known to operate. They say they've recently added troops in that border region, going from about 80,000 to about 90,000. Now, that's compared with about 43,000 U.S. and NATO troops combined in Afghanistan -- Wolf.

BLITZER: Brian, how does the Bush administration respond to the idea of tying some of this money for Pakistan to its performance against the Taliban and al Qaeda?

TODD: We're getting no real serious indication that they want to do that. A National Security Council spokesman would only say that the U.S. investments in the partnership have paid off, there's more work to be done, he says, and they're engaged with the Pakistani government to ramp up this fight.

BLITZER: Brian Todd watching this incredibly important story for the us.

Let's get back to our top story, though, right now.

A massive explosion rocking Beirut as a pitch battle continues to rage between the Lebanese army and Islamic militants in the northern part of Lebanon. And that's on top of the cross-border strikes between Israel and the Islamic radicals in Gaza unfolding right now.

Let's get some analysis from our world affairs analyst, the former defense secretary, William Cohen. He's chairman and CEO of The Cohen Group here in Washington.

It looks like the region is really on fire right now. And I'm going to play a little clip of what the president said on the eve of the war with Saddam Hussein in Iraq.

Let's listen to this.

(BEGIN VIDEO CLIP)

BUSH: Success in Iraq could also begin a new stage for Middle Eastern peace and set in motion progress towards a truly democratic Palestinian state.

(APPLAUSE)

BUSH: The passing of Saddam Hussein's regime will deprive terrorist networks of a wealthy patron that pays for terrorist training.

(END VIDEO CLIP)

BLITZER: All right. That was the hope clearly going into the war. It hasn't -- it hasn't developed like that, unfortunately.

WILLIAM COHEN, FMR. DEFENSE SECRETARY: Not quite a case of irrational exuberance, but certainly optimism on the part of the president to say he hoped this might come about. But what we're seeing now take place is a sense of pessimism.

Now, I was recently in the region, and there was almost a sense of inevitability that there was going to be warfare this summer between the Israelis and the Palestinian groups in Gaza, in the north, in Lebanon, and potentially spilling even in to Syria. And this sense of negativity or pessimism was quite tangible.

BLITZER: It almost has a self-fulfilling prophecy, that kind of negative attitude in the region.

COHEN: It really does. And there are so many elements to this.

First, you have a number of U.N. resolutions, one of which has not been enforced; namely, the disarmament of militias in Lebanon.

BLITZER: The Hezbollah specifically.

COHEN: With Hezbollah has not taken place. You have seen now Hezbollah has been feeling rather successful in terms of its conflict with Israel last summer. And so they've been building up their military capability.

You have the question of another U.N. resolution which may come to pass. They're debating it today and perhaps even tomorrow that may set up a tribunal to have an investigation and a trial of those responsible for the assassination of the former prime minister of Lebanon.

BLITZER: Rafik Hariri. And the Syrians hate that idea.

You know, I've been speaking to some Lebanese today who are really blaming the Syrians, in effect, for creating this latest outpouring of violence in Lebanon, saying that they're sending a signal, you go ahead with this tribunal, this international tribunal, and you're going to see what's going to happen in Lebanon.

I don't know if you buy into any that conspiratorial theory.

COHEN: Well, that's one allegation. That may or may not be true. But the question becomes, what does the U.N. do in the face of this?

Do they then say to Syria, if you are in fact undermining this process that the U.N. is going on record in favor, what does that mean in terms of U.N. action against Syria?

So, there are a lot of moving parts of this, particularly down in Gaza now, where Hamas has indicated that they may now escalate their attacks on the Israelis. The Israelis saying they're going to get involved in political targeting (ph) again. So this is a pretty volatile mixture.

It seems to me once again the U.S. is right in the middle with Secretary Rice trying to bring about some restarting of the peace process talks at a time when there is really no one to talk to, certainly in the Palestinian faction, because they're at war with each other right now. So there has to be a unity government that really wants a peaceful agreement.

And go back to the Palestinian situation in Lebanon. It's really a very, very difficult situation for them.

You've got roughly 12 refugee camps, 400,000 Palestinians who are really among the poorest of the poor, with very little political representation or opportunity. You have that as a breeding ground now attracting al Qaeda.

So you have Sunni extremists moving in to the Palestinian refugee camps now, and you have Shia militants who are now coming in and being supported by Syria and Iran. So, very dangerous mixture, and it means that the U.N. has to get serious about this, but so do all of the collective countries who are concerned about that area not simply boiling over and blowing up.

BLITZER: Because the stakes for all of us...

COHEN: All of us.

BLITZER: ... enormous right now.

Secretary Cohen, thanks very much.

COHEN: Good to be with you.

BLITZER: And still ahead here in THE SITUATION ROOM, it's a hit at the Cannes Film Festival, but will Michael Moore new documentary land him in trouble with the U.S. government?

Plus, Jack Cafferty wants to know this: Why is the Bush administration suddenly taking a second look at the Iraq Study Group report?

Stay with us. We'll be right back.

(COMMERCIAL BREAK)

(NEWSBREAK) BLITZER: Michael Moore's latest documentary is entitled "Sicko". It's getting some rousing reviews at the Cannes Film Festival, but he's facing some potentially serious trouble right here at home.

CNN's Carol Costello once again joining us.

Carol, what's the trouble all about?

CAROL COSTELLO, CNN CORRESPONDENT: Always controversy surrounding Michael Moore. Moore's documentary "Sicko" premieres in France, but will it play the United States?

The U.S. government is investigating Moore's documentary, and he fears if he brings his film back to the United States, it could be confiscated. But for now, Moore is basking in the spotlight.

(BEGIN VIDEOTAPE)

COSTELLO (voice over): A triumphant Michael Moore at Cannes. "Sicko," his blistering look at America's health care system, was a hit. And vintage Moore.

MICHAEL MOORE, "SICKO" (voice over): He sawed off the tops of two of his fingers. His first thought...

UNIDENTIFIED MALE, "SICKO": I don't have insurance. How much is this going to cost?

MOORE, "SICKO": The hospital gave him a choice. Reattach the middle finger for $60,000, or do the ring finger for $12,000. Being the hopeless romantic, Rick chose the ring finger for the bargain price of $12,000.

COSTELLO: The controversial film is getting rave reviews. "Screen Daily" calls it "... great, heart-on-sleeve cinema." Even FOX calls it a brilliant and uplifting new documentary, despite Moore's critical assertion that other countries do health care better than the USA.

MOORE, "SICKO": What did they charge you for that baby?

UNIDENTIFIED MALE: None. Everything is on. It's not America.

COSTELLO: But all is not rosy for Moore. Part of the documentary was filmed in Cuba. Moore took three ailing 9/11 emergency responders for medical treatment there. The U.S. Treasury Department is investigating whether Moore violated the U.S. trade embargo by traveling to Cuba.

MOORE: The point was not to go to Cuba, but was to go to America, was to go American soil, to Guantanamo Bay, and to take the 9/11 rescue workers there to receive the same health care that they're giving the al Qaeda detainees.

COSTELLO: Moore says politics is behind the investigation, and says the message in "Sicko" is not partisan. MOORE: And I think that when people see this film they're going respond to it no matter what -- if they're Republican or Democrat, liberal or conservative, and even rich or poor.

(END VIDEOTAPE)

COSTELLO: Now there are many politicians who are eviscerated in "Sicko," but Hillary Clinton, a Democrat, bears the brunt of Moore's wrath. Accused of taking money from HMOs and pharmaceutical companies while touting university health care -- Wolf.

BLITZER: Always lots of controversy. Thanks, Carol.

Michael Moore no stranger to that controversy. When his film "Bowling for Columbine" won the Academy Award for best documentary back in 2003, Moore slammed President Bush during his acceptance speech saying -- and I'm quoting now -- "We are against this war, Mr. Bush. Shame on you."

"Bowling for Columbine," by the way, was the highest grossing documentary of all time until Moore broke his own record with "Fahrenheit 9/11," which earned almost $200 million worldwide. That film generated controversy at the 2004 Republican convention, when Senator John McCain called Moore a "disingenuous filmmaker" -- that's a quote.

Moore was at the convention in the news media area. And when the crowd chanted "Four more years!" for President Bush, Moore flashed an "L" sign for loser and chanted "Two more months!"

Still ahead here in THE SITUATION ROOM, why is the Bush administration suddenly taking a second look at the Iraq Study Group report? Jack Cafferty with your e-mail.

All that coming up.

We'll be right back.

(COMMERCIAL BREAK)

BLITZER: It's commencement season across the United States right now, and there's no doubt that I was thrilled to receive an honorary degree yesterday at George Washington University's commencement exercises on the National Mall. It was inspiring to be between the Capitol and the Washington Monument, to see those thousands of graduates and their families moving on their way.

The previous weekend, by the way, I had the honor of delivering the commencement address at Franklin & Marshall in Pennsylvania. I was also awarded an honorary degree there.

Let me just make it clear I want to wish all of the grads out in the country, including Jack Cafferty's daughter, who just graduated from Tulane University in New Orleans, only the best of luck.

Jack, I hope you show me a little more respect now that I've gotten these honorary degrees.

JACK CAFFERTY, CNN ANCHOR: Yes, Dr. Blitzer. Whatever you want.

You know, it's a little intimidating. I don't have any college degrees. I dropped out after three years. So I wish you'd quit talking about all this parchment you're collecting.

BLITZER: Sorry about that.

CAFFERTY: OK.

The question this hour is: Why is the Bush administration suddenly taking a second look at the Iraq Study Group report?

Richard in Louisiana writes, "Bush and his cronies may be feeling the heat from the Democrats about this war funding bill and the withdrawal of our troops. Of course this will be denied and it will be stated over and over again that this was their plan all along."

Raymond in Tennessee weighs in with: "One word answers this question: desperation."

Robert in Petaluma, California, "Jack, although it's hard to know what is ever going on with this administration, it seems the main reason the president's open to these benchmarks is to get the oil revenue-sharing bill passed, opening the way for privatization of Iraqi oil locked up in long-term contracts to four major oil companies."

Rick in Swarthmore, Pennsylvania, "They've already lost the rest of us, and if they don't do something, they're going to lose all remaining Republican support."

Todd, also Pennsylvania, "I think the president and his administration want to do what's best for the country, regardless of what 70 percent of Americans polled believe. They know mistakes have been made, even if they don't admit it as much as people would like. But they also know that we cannot just leave Iraq."

William writes, "You're so one-sided, I can't understand why anyone would listen to your drivel. Why don't you try just once to see the center point? Your lame attempt at humor over mangoes is as lame as the rest of your report."

And Ed writes from Atlanta, "Two words: political cover. President Bush can't stand the heat much longer, so he's trying to open the windows in the kitchen."

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

BLITZER: After I saw that report in "The Washington Post," I went back and reread that Iraq Study Group report. A lot of good stuff in there, Jack. CAFFERTY: One of the things that's a little troubling, though, is at the time it was written several months back, they said time is of the essence and things are deteriorating quickly. You wonder if the window may have closed over there.

BLITZER: Yes, the window closing quickly. Let's hope something can be done.

Jack, see you in an hour.

We'll be back.

In the meantime, let's go to Lou in New York.

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