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The Situation Room

Gadhafi Still Clings to Power in Libya; U.S. Urges Democracy in Iran

Aired February 28, 2011 - 17:00   ET

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

WOLF BLITZER, HOST: Brooke, thanks very much.

Happening now, new reports of bombs and explosions rocking Libya. The embattled leader, Moammar Gadhafi, desperately clinging to power, as more government forces abandon his weakening regime and join the protesters.

The Pentagon puts Gadhafi on alert -- repositioning his naval and air forces to be ready for what it calls "all options."

Is U.S. military action imminent in the region? And the Obama administration seizing the moment, now issuing an urgent new call for democracy in Iran.

Could the government of Ahmadinejad be the next to fall in the Middle East?

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

A defiant Moammar Gadhafi is refusing to acknowledge any signs of political turmoil in his country. And in interviews with a BBC and ABC News reporter today, Gadhafi fiercely denied using force against his own people.

(BEGIN VIDEO CLIP)

MOAMMAR GADHAFI, LIBYAN LEADER (through translator): They love me. All my people are with me. They love me all.

CHRISTIANE AMANPOUR, ABC NEWS CORRESPONDENT: But if they do love you -- GADHAFI (through translator): They -- they -- they will die to -- to protect me and my -- my people.

AMANPOUR: If...

GADHAFI (through translator): No, no, no.

AMANPOUR: If you say they...

GADHAFI (through translator): Something...

AMANPOUR: -- do love you, then why are they capturing Benghazi and they say they're against you there?

Why are they...

GADHAFI (through translator): These are guida (ph). It is guida, not my people. It is guida that...

AMANPOUR: (INAUDIBLE).

GADHAFI (through translator): -- lying guida, guida, yes.

(CROSSTALK)

GADHAFI (through translator): They came from outside.

(END VIDEO CLIP)

BLITZER: He was referring to Al Qaeda. That's what he was saying, "Guida," but he was really meaning al Qaeda.

Meanwhile, the U.S. Treasury Department has announced it's freezing at least $30 billion in Libyan government assets here in the United States. That's reportedly the largest amount ever blocked under any sanctions program.

We're covering this story from every angle on the ground, as only the global resources of CNN can.

Let's go to our senior international correspondent, Ben Wedeman.

He's standing by live for us in Eastern Libya.

What's the latest there -- Ben?

BEN WEDEMAN, CNN SENIOR INTERNATIONAL CORRESPONDENT: The latest is that what we saw today, Wolf, is that in mid -- mid-afternoon we heard an airplane overhead, and, you know, you don't hear airplanes very often here.

Shortly afterwards, we heard a large blast. Now this was outside the town Al-Jadda (ph), Ashtabia (ph), about an hour-and-a-half's drive west of Benghazi. We went to see where the blast took place. It was inside a large army base which is also an ammunition dump. We spoke to the guards at the gate at that ammunition dump. And they said that four or five bombs were dropped by a Russian-made Soyuz jet.

According to them, there were no casualties or -- or any significant damage in the area, although we did hear some secondary explosions afterwards. Of course, anti-aircraft batteries in the area, which are really just anti-aircraft guns mounted on the back of pickup trucks, started to blast away in the air. But by then, the airplanes had already left.

Now, of course, Libyan state TV has denied that any such raid took place. But it does seem to fit within what we heard from Saif al-Islam Gadhafi, the son of Moammar Gadhafi, who said that the Libyan Air Force has been used to try to destroy ammunition dumps to try -- to try to prevent the ammunition from falling into the hands of the opposition -- Wolf.

BLITZER: Ben, you just Tweeted this -- and I'll read it to our viewers: "Anti-Gadhafi general reveals plan to take control of west. Quote, 'We'll unite the people, form a combat unit and liberate it, God willing.'"

Now, go ahead and elaborate on this Tweet.

WEDEMAN: Well, there -- maybe the Tweet doesn't include a tongue in cheek. I asked this general and he sort of -- it came just right off of his tongue. And it didn't sound like really he had much of a plan beyond the words itself. And that, in fact, seems to be the case in Eastern Libya, that there's lots of talk about mobilizing the people, organizing the military force and sending it down the road to Tripoli. But it is more than a 24-hour drive, if you're lucky, from Benghazi to Tripoli. And there are a lot of things in between.

So it seems that there's a lot of talk about action, but not much action -- Wolf.

BLITZER: It's about 500 miles from Benghazi along the Mediterranean coast to Tripoli.

Is -- is there talk where you are of a serious no fly zone being imposed on the Libyan regime?

And you mentioned that there -- there have been Libyan Air Force jets flying overhead.

How serious are the rebels, if you will, where you are, taking this possibility that the U.S. and others might create a no fly zone over Libya?

WEDEMAN: Well, certainly, that's something, Wolf, that they would like to see. That would prevent the kind of air raid that took place today. And, of course, here in the eastern part of Libya, they have very little in the way of air power. All they have, as far as we can tell, are some antiquated helicopters. So people would and look favorably upon the idea of some sort of no fly zone being imposed upon Libya.

But at the same time, they're very eager to say they don't want to see any sort of foreign military inven -- intervention on the ground in Libya. That's a very sensitive topic in this country that, of course, was occupied by the Italians. It was a very bitter struggle over that. So the Libyans are not eager to see anything beyond really a no fly zone -- Wolf.

BLITZER: Ben is one of our journalists now inside Libya.

We're going to check back with him soon.

Stand by, Ben.

But let's go to the White House right now, where they're using the word "delusional" to describe the Libyan leader. President Obama has just wrapped up a meeting with the United Nations secretary- general, Ban Ki-moon.

Let's go to our White House correspondent, Ed Henry.

He's got the details. Some strong words emerging from the Obama administration after this meeting -- Ed.

ED HENRY, CNN SENIOR WHITE HOUSE CORRESPONDENT: No doubt, Wolf. You're absolutely right. The fact of the matter is Secretary of State Hillary Clinton was in Geneva earlier today, saying the time for Colonel Gadhafi to go is now, in her words, without further violence or delay. Then you did have this huge meeting here at the White House. President Obama sitting down behind closed doors with the U.N. secretary-general just days after both the U.S. and the U.N. moved forward with sanctions to try to squeeze the regime in Libya.

And during this White House meeting, interesting that the interview you mentioned with Colonel Gadhafi emerged. These details were in the somewhat rambling interview, he called on the U.N. And other officials to come in and inspect his country, insisting there were no war crimes, insisting he had not committed any violence against his own people.

So the U.S. ambassador to the United Nations, Susan Rice, came out, addressed reporters and said that this was ridiculous.

(BEGIN VIDEO CLIP)

SUSAN RICE, U.S. AMBASSADOR TO U.N.: It sounds just, frankly, delusional. And when he can laugh in talking to American and international journalists while he is slaughtering his own people, it only underscores how unfit he is to lead and how disconnected he is from reality. It makes it all the more important the urgent steps that we have taken over the course of the last week, on a national basis, as well as the steps that we've taken collectively through the United Nations and -- and the Security Council.

(END VIDEO CLIP)

HENRY: But I pressed Ambassador Rice on the fact that that slaughter she talked about was already happening last week, when the president came forward and addressed this subject on camera, but stopped short of calling for regime change. I asked her what has changed since then.

She said, look, this is an evolving situation on the ground in Libya. And as we previously reported, senior officials at the White House were concerned that if the president was too bold, too direct in his language days ago, that maybe the Libyan dictator would have harmed some of those Americans who were still there on the ground in Tripoli, who have since left, of course, Wolf.

What does the president think about all of this, the latest developments?

We don't know. He did not come forward to talk on camera today. This meeting with the U.N. secretary-general was closed to TV cameras and reporters. They only let still photographers in. But the president did not allow reporters in to potentially ask him questions about all this -- Wolf.

BLITZER: Why not?

Why didn't we hear directly from the president today?

HENRY: You know, they basically are saying that Secretary of State Clinton was in Geneva talking about this. You heard the U.S. ambassador to the U.N., Susan Rice, also deal with this.

They are keeping him mostly behind closed doors on this. They are not putting the president out publicly. And this is really a break from past practice, with previous administrations, Democratic and Republican, when you have a -- you know, the U.N. secretary- general here, or various world leaders here, usually the president is made available for questions. They have not done, that -- Wolf.

BLITZER: Yes, because he was, almost on a daily basis, coming out and talking about Egypt when the situation was unfolding dramatically. But here, he's either releasing a written statement or making that statement he made last week.

We're going to have a lot more on this part of the story coming up.

Ed Henry is over at the White House for us. Thank you.

They're the driving force behind the potential fall of a dictator.

But just who is the opposition threatening Gadhafi's power and could they really take over the country if he falls?

Plus, she's been described as a, quote, "voluptuous blond" and one of Moammar Gadhafi's closest confidants. Just ahead, we're going to tell you why she's no longer at his side.

And the U.S. steps up its call for democracy in Iran.

Could it be the next domino to fall in the Middle East?

Lots of news happening today, right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: We're going to get to Jack Cafferty in just a moment.

But joining us on the phone now is a young woman named Iman, only her first name. She's in a very precarious situation in the town of Misurata. That's not far from Tripoli right now.

I want to play some video for you first.

Look at this.

(VIDEO CLIP)

BLITZER: That was video that was captured just a little while ago in Misurata, in Libya.

Joining us on the phone is Iman.

Iman, tell us, first of all, what -- what's going on where you are.

IMAN: Currently, the city is in the hands of the protesters. But there have been skirmishes on the outskirts. I live about a mile from the radio antenna in an area known as Hybad (ph). And there have been attacks on it every day for the past three days.

There's also been -- you can hear fighting -- the fighting that's going on in the airport. It's about eight or nine miles from my -- from my house.

So there -- there has been fighting. But currently, the city is in the hands of the protesters.

BLITZER: How scared are you right now?

How dangerous is the situation where you are?

IMAN: Honestly, there hasn't been -- there -- there hasn't been any fighting in -- in -- in the actual city. All the fighting that has been happening has been on the outskirts. The radio -- the radio antenna is near the sea. And the airport is further off, although I do know that the airport is surrounded by a residential area and one man was killed. He was 30 years old. He was in his house. And his two daughters were injured, one the age of 10 and one -- one that was six years old. BLITZER: Who is in control of Misurata?

Is it...

IMAN: So what...

BLITZER: -- is it the regime, Gadhafi's forces or is it the opposition?

IMAN: The opposition.

BLITZER: The opposition are firmly in control. And what -- what I hear you saying is that the Libyan forces loyal to Gadhafi, they're are trying to retake the city where you are, is that right?

IMAN: I don't know about retaking the city at this point. But they are trying to -- currently, they -- the opposition is using the local radio station to organize the city. And so there have been attacks on -- on that -- on that radio station.

And members of catibillo (ph), which is like a -- posi -- a security -- special security forces that are near the airport. And initially they -- they -- they weren't attacking the city. The members of the opposition went to them and started attacking them. They fought back, and that's when -- that's when the fighting in the airport area began.

BLITZER: What would you like to see the outside world do right now as far as Libya is concerned, specifically, the United States?

IMAN: (INAUDIBLE) Over the area to the helicopter (ph). There was constant fear of, you know, bombings. Honestly, I don't know what else. You know, most people that are here don't want too much interference from the outside community. They're saying we started this on our own, and we'll be able to finish it on our own, but we would like to see a freeze on all of his money and all the people who are surrounding him.

BLITZER: I don't know if you've heard, but the U.S. government today froze $30 billion in Libyan assets in the United States. That money is being held for the Libyan people, but, obviously, Gadhafi and his regime won't have access to it. Iman, we're going stay in close touch. Good luck to you. Good luck to all the people of Libya right now. Thanks very much.

IMAN: Thank you very much.

BLITZER: Let's get to Jack Cafferty right now. He's got the "Cafferty File" -- Jack.

JACK CAFFERTY, CNN CONTRIBUTOR: It has been two weeks since public unions, supporters in Wisconsin, began protesting in and around the state capital of Madison. In fact, they're still there. They're upset over Republican Governor Scott Walker's proposal to close the state's $3.6 billion budget gap. Part of his plan calls for putting limits on public workers collective bargaining rights and requiring those workers to have more money taken out of their paychecks for health care and pension funds.

The budget bill is at a standstill right now. It passed the assembly, but rather than vote on a bill in the Senate which is their job, the Democratic state senators all ran away to Illinois, and they're still there. Governor Walker is standing firm on his plans to try to get this bill through. Thousands of pro-union protesters have swarmed state capitol buildings and other states as well over the last week. Places like Indiana and Ohio in response to bills that are being proposed that would call for cuts to public union employees benefits and limiting their collective bargaining rights.

In Tennessee, teachers are fighting a bill that would take away their collective bargaining rights. They've already said that they would make some concessions on things like tenure. That prevents teachers from being fired. It's often criticized as keeping bad teachers in a classroom. In this economy, public labor unions have lost a good deal of public support. That's because private sector union workers no longer get the job protection, health benefits, and pension plans that government employees continue to enjoy.

So, here's the question. Should the power of public labor unions be reduced? Go to CNN.com/caffertyfile and post a comment on my blog. BLITZER: All right. Jack, thank you.

Libya's Moammar Gadhafi may have a tenuous grip on the capital city of Tripoli, but on the ground and mere miles away, CNNs Nic Robertson finds his reach is weakening even as we speak.

(BEGIN VIDEO CLIP)

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: The signs were saying in the crowd here were saying things like Gadhafi, you bloodsucker. Gadhafi, you and your family have to go. They're also calling we want guns. We want guns.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: The revolution in Libya certainly giving the Obama administration a new opportunity to urge the fight for democracy and other parts of the Middle East, specifically, Iran. Lisa Sylvester is monitoring that part of the story for us. A lot of tough talk coming out from the Obama administration on Iran right now.

LISA SYLVESTER, CNN CORRESPONDENT: Yes, we're keeping an eye on this, Wolf. Calls for protests in Iran against the government of Mahmoud Ahmadinejad. This coming as the U.S. government is turning up the international pressure on Tehran.

(BEGIN VIDEOTAPE)

SYLVESTER (voice-over): At the U.N. Human Rights Council in Geneva, Secretary of State Hillary Clinton accused Iran of being hypocritical, clamping down on its own opposition while denouncing the violence in Libya.

HILLARY CLINTON, SECRETARY OF STATE: Why do people have the right to live free from fear in Tripoli but not Tehran? The denial of human dignity in Iran is an outrage that deserves the condemnation of all who speak out for freedom and justice.

SYLVESTER: This coming after the U.S. National Security Council issued a statement over the weekend condemning Tehran for, quote, "An organized intimidation campaign, arresting political activists, students and journalists, and denying its citizens access to information, jamming satellite transmissions and blocking Internet sites."

The international campaign for human rights in Iran accuses the Iranian revolutionary guard of detaining four political opposition leaders. Mehdi Karroubi and Mir Hossein Mousavi and their wives. Iran denies it. Dissidents have been calling for a fresh wave of protests. In June 2009 after the disputed election of Mahmoud Ahmadinejad, tens of thousands of people took to the streets.

HADI GHAEMI, INTL. CAMPAIGN FOR HUMAN RIGHTS IN IRAN: In June 2009, we saw similar protests much larger back then, and now, we're seeing similar trends coming back. The government is very nervous about that, and I think they believe as the tensions, they're going to prevent, but tonight is a very critical night in Tehran, because tomorrow, there have been calls for people to come out and protest.

SYLVESTER: But this time around may be more difficult. In 2009, Iran clamped down hard on protesters and has since tightened its grip on Iranian society.

MARCO VICENZINO, GLOBAL STRATEGY PARTNERS: Well, 2009 I think it was the element of surprise immediately after the election. What the government had back then but still has now and still has now is the militias or members of the Iranian revolutionary guard, the Iranian revolutionary guard and then you have the street gangs, but now, they're much more prepared.

(END VIDEOTAPE)

SYLVESTER (on-camera): The international campaign for human rights in Iran, Hadi Ghaemi, says the political activists, they were arrested without being officially charged or given an opportunity to get an attorney. The advocacy group worries that while the world is preoccupied with Libya, the Iranian government is quietly trying to stamp out the opposition movement -- Wolf.

BLITZER: And that's why the Obama administration right now is trying to elevate this subject, raising the rhetoric right now. I've spoken with Obama administration officials who say it was a major mistake on their part, and they are deeply -- they're deeply sorry about it that in 2009, they weren't more publicly supportive of the demonstrators on the streets of Tehran. They think they should have given them some additional political support.

They didn't get that at that time, and they think it was a mistake at that time. Not necessarily they have (ph) changed the situation, but they wanted to send that message to the Iranian people we're with you when it comes to democracy. We'll be with you. They sort of feel they let them down in 2009. That's why you see Hillary Clinton now and these other statements almost on a daily basis coming out.

SYLVESTER: And they have a new call for protests tomorrow. So, in a way, the U.S. government is now getting a second chance at that. We don't know exactly the numbers yet of how many people will show up these protests tomorrow, but we're definitely going to be keeping an eye on all of this, Wolf.

BLITZER: Thanks very much, Lisa. We'll be talking to you.

Signs calling Gadhafi a block sucker and the smell of burning buildings. Ahead, our Nic Robertson takes us outside Tripoli where thousands of protesters are gathering.

Plus, I'll interview the Libyan ambassador to the United States. He's not condemning Gadhafi. You saw part one of the interview on Friday. He's standing by live to join us today once again.

(COMMERCIAL BREAK)

BLITZER: Tripoli is generally subdued as protesters stay off the streets for fear of government retaliation, but outside the Libyan capital just 40 miles to the west, anti-Gadhafi demonstrators are far from quiet. CNN senior international correspondent, Nic Robertson, took a government-escorted tour of Zawiyah.

(BEGIN VIDEOTAPE)

ROBERTSON (voice-over): These are the people Moammar Gadhafi's government labels drug addicts and al Qaeda supporters, but here's what we saw, anti-government protesters, and this crowd of 2,000 is just 40 minutes drive from the capital Tripoli, in the oil-refining town of Zawiyah.

(on-camera): The signs were seeing in the crowd here were saying things like "Gadhafi, you bloodsucker." "Gadhafi, you and your family have to go." They are also calling, "We want guns. We want guns."

(voice-over): Hard to imagine. Barely a few miles away just a few minutes earlier, government officials were showing us how Gadhafi's troops control the roads. As the officials drove us towards Zawiyah, that control evaporates.

(on-camera): You can still smell the burning here. This police station only just burned, smoke rising up on the back here. All the trash from inside the police station put out here. A burned out wrecked police vehicle here, here. The tables and chairs from inside. And if you look up here, it's been shutted up, barricaded up, but when you look inside, the whole building is scorched inside.

(voice-over): A passing driver tells us more.

(on camera): So who are the 16 people who died? Who were killed?

UNIDENTIFIED MALE: The people.

ROBERTSON: From the people?

UNIDENTIFIED MALE: Yes, and four from the police. And the police have people, not just the people.

ROBERTSON: So this was a gunfight between the people and the police there?

UNIDENTIFIED MALE: The police, yes.

ROBERTSON: Yes.

All the signs here of some sort of violent confrontation that burned out tires in the middle of the road. The improvised checkpoints over there, nailed to a piece of wood. And there's heavy machinegun fire echoing over the sky.

Not clear what that was. There's a demonstration going on down the road here.

(voice-over): It's a front line of sorts. Now the government officials who were escorting us are nowhere to be seen.

(on camera): As we're walking down the street here, you can see the debris from all the rioting that's been going on here. And up on the roofs around us, there are gunmen with weapons, heavy machineguns overlooking this demonstration, overlooking us on this street.

(voice-over): A handful in the anti-government crowd tote new- looking weapons. Government officials claim weapons like these are being looted from the police and army, justifying, they say, shooting at protesters.

These former soldiers who have brought their weapons with them tell us why they changed sides. "The military chiefs, they are the ones who forced the soldiers to fire at the demonstrators," he says.

The area we see is small, just a few blocks.

I want to know who controls this city now.

(voice-over): "The city is controlled by demonstrators," he says. "These are the ones who are sacrificing."

An hour later, on the outskirts of Zawiya, government officials show us not all the city is against Gadhafi, taking us to several pro- government rallies.

(on camera): This is the second pro-government rally that we've been brought to. A few people here are hooting their horns here in a line of traffic. But if you actually step back and look at the number of the people who are protesting over there, the numbers are perhaps 50, 60, 70 at the most. It's quite a small crowd.

(voice-over): While our cameras are there, it quickly grows to several hundred. The crowd, turning angry as we pull away.

As we left the anti-government administration a little earlier, no anger directed at us. Only concern. This former soldier tells me he expects the army to attack them, and soon.

Nic Robertson, CNN, Zawiya, Libya.

(END VIDEOTAPE)

BLITZER: As we've reported, Secretary of State Hillary Clinton is in Geneva, where she delivered fighting words today to Moammar Gadhafi. She says the Libyan leader and his regime must be held responsible for brutal actions against their own people.

Our foreign affairs correspondent, Jill Dougherty, is joining us from the State Department.

I guess the key question is this, Jill: How far is the Obama administration willing to go? JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Right, that's the question, Wolf. And, you know, right now there is only one thing that's critical clear, and that is that the U.S. wants Moammar Gadhafi out now. But what's not clear is, what will force him out and who will fill that power vacuum that he leaves behind?

(BEGIN VIDEOTAPE)

DOUGHERTY (voice-over): The U.S. calls it a reign of violence by Colonel Moammar Gadhafi and his cohorts, and it's setting in motion a range of options to stop it.

HILLARY CLINTON, SECRETARY OF STATE: Nothing is off the table so long as the Libyan government continues to threaten and kill Libyan citizens.

DOUGHERTY: The administration already is taking steps to help the thousands of Libyans fleeing the bloodshed. Refugees are crossing the borders into neighboring countries as Egypt and Tunisia, nations that themselves have just undergone their own revolutions.

P.J. CROWLEY, STATE DEPT. SPOKESMAN: We are dispatching two experts humanitarian teams to Tunisia and to Egypt.

DOUGHERTY: The U.S., along with other countries, is bracing for rescue missions, preparing medical and food supplies. Blocking funds that Gadhafi could use to continue his violent crackdown, the Treasury Department has frozen at least $30 billion in Libyan government assets, the largest amount ever blocked, it says, under a sanctions program.

CLINTON: Gadhafi has lost the legitimacy to govern, and it is time for him to go without further violence or delay.

DOUGHERTY: The U.S. ambassador is reaching out to opposition groups in Libya, assessing who might lead up a post-Gadhafi government. But some senators tell CNN the U.S. should help the rebels directly.

SEN. JOSEPH LIEBERMAN (I), CONNECTICUT: No-fly zones, recognition of the revolutionary government, the citizens government, and support for them with both humanitarian assistance. And I would provide them with arms.

DOUGHERTY: Administration officials say it's way too early to talk about arming the opposition, but they are considering the idea of a no-fly zone. A former State Department legal adviser, however, says that's complicated.

JOHN BELLINGER, FMR. STATE DEPARTMENT LEGAL ADVISER: Legally, there is no authority for the United States or other countries to do that under international unless authorized by the Security Council. And politically, that could be quite problematic as well for the United States or NATO, to begin shooting down Libyan aircraft, even in the face of the things that Gadhafi is doing against his own nationals. (END VIDEOTAPE)

DOUGHERTY: And now the Libyan ambassador to the United States has gone over to the opposition. Colonel Gadhafi has named a new ambassador. But will the U.S. have anything to do with him? After all, Washington considers Colonel Gadhafi's rule illegitimate, and that raises the possibility that the United States might sever diplomatic relations with Libya -- Wolf.

BLITZER: No U.S. diplomats are left in Libya right now. They have all left, right?

DOUGHERTY: Correct.

BLITZER: So they've shuttered the U.S. Embassy in Tripoli.

All right, Jill. Thanks very much.

Jill Dougherty, at the State Department.

Tens of thousands of people getting out of Libyan any way they can. They're desperate. We're going to the Tunisian border, where humanitarian efforts are being taxed to the limit.

And he was forced out of office in a tidal wave of public dissent. Now, the former president of Egypt, Hosni Mubarak, is being forced to stay inside Egypt. He can't leave the country. His money has been frozen.

Up next, why the new leadership in Egypt won't let him leave.

(COMMERCIAL BREAK)

BLITZER: New political questions now being raised about how President Obama is handling the worsening crisis in Libya.

Let's talk about that and more with our CNN senior political analyst, David Gergen, and our CNN national security contributor, Fran Townsend. Back in 2010, Fran visited high-ranking Libyan officials at the invitation of the Libyan government. She's also a member of the CIA's External Advisory Committee.

Over the weekend we heard Paul Wolfowitz, who was a top official, as you know, at the Pentagon during the Bush administration tell Fareed Zakaria that it probably was a mistake for the Bush administration to reestablish diplomatic relations with Gadhafi, to welcome Gadhafi back in the international community. And he basically blamed the victims of Pan Am 103 for pressuring the government to do so in order to collect more than $1 billion in reparations from Libya.

Looking back, Fran -- and you served in the Bush administration, in the Bush White House then -- was it a blunder to warm up and to sanctify, if you will, Moammar Gadhafi?

FRAN TOWNSEND, CNN NATIONAL SECURITY CONTRIBUTOR: Well, Wolf, if you look at Paul's comments to Fareed, he also said that we did need to acknowledge that they had turned over their nuclear weapons program. What he goes on to say is that we went too far. I think that's right.

Now, there was a series of things that we could do. One, was opening our embassy, reestablishing diplomatic relations, as you say.

The real policy debate -- and I participated in those policy debates -- revolved around whether or not they should be taken off the state sponsor of terrorism list, which is a list that's held and reported to Congress by the State Department. There was a vociferous debate inside the administration.

Part of that had to do with taking them off the list became linked to the payment of the Pan Am 103 victims' families. Frankly, those families did get compensated. I don't think they ever felt it was sufficient. And I'm not sure even with that we should have taken them off the list, and that had been my view at the time.

In the end, it was decided to take them off the state sponsor list. But frankly, Wolf, we had concerns about it, which is what prompted me to go visit Gadhafi in 2007 and reiterate to him our displeasure with their continued activities.

BLITZER: But David, I've spoken to intelligence officials who say that Gadhafi at the time sold the Bush administration, you know, a phony story about his so-called nuclear program that was very, very iffy at best. They really didn't have much of a nuclear program, or even much of a weapons of mass destruction program. That the Bush administration was largely influenced by the opportunity to get some money from Gadhafi for the victims of Pan Am 103.

DAVID GERGEN, CNN SR. POLITICAL ANALYST: Well, Fran can speak to that better than I can. But I must say this, Wolf, overall, there were signs that Gadhafi was trying to get a nuclear capability. He has --

BLITZER: He was trying, but he apparently didn't get very far.

GERGEN: He didn't get very far, but think of it this way. That was eight years ago. And think if he had developed a nuclear capability, and we had this unrest now, and he had nuclear weapons at his disposal. Think how much more dangerous the world would be right now, with Gadhafi as crazy as he is, with his hands on nuclear weapons.

So, you know, you've got to make these kind of gambles in international relations. And I find it hard to second-guess the Bush administration over this.

BLITZER: You know, the argument though is that Gadhafi -- and I've been told this at the time, and you were there -- you were inside the White House, Fran -- he was scared out of his mind that he was going to follow Saddam Hussein, and the U.S. was going to basically find a way not only to get rid of him, but to kill him, and that's why he was willing to do and say and pay off, if you will, the U.S. with the reparations for the Pan Am 103. TOWNSEND: He was certainly intimidated by our actions in Iraq against Saddam Hussein, no question about it.

Wolf, I can tell you absolutely certainly that this was a deal that got cut based on the turning over of those weapons, and on the advice and the recommendation of the U.S. intelligence community that getting this program stopped and having him turn over what capability he had begun to develop was absolutely worth the cost. And then the question was what we going to give them in return.

BLITZER: So what should the U.S. do now, David? Look ahead.

GERGEN: Well, right now, I think the critical thing is to get Gadhafi out of there with a minimum loss of blood. I come down on the side of those who have been pushing for some sort of no-fly zone so that we can minimize the number of casualties, and that we ought to be prepared in a variety of other ways to come to the aid of the opposition if we have to. This is a moment of opportunity for us to show real solidarity with the protesters in that part of the world against a guy who is not only crazy, but a hugely brutal dictator.

BLITZER: Guys, thanks very much. We'll continue this conversation.

I wonder if Condoleezza Rice -- and I'm going to ask her -- if she regrets going to Tripoli and being received by Gadhafi when she was at the time knowing what we know right now. But that's the subject for another day.

Libya's ambassador to the United States broke with Moammar Gadhafi's government after unrest spread to his country. I'll ask him about the $30 billion in frozen Gadhafi assets in the United States.

Where did the Libyan leader get all that money, and what's going to happen to him? That interview in the next hour.

Stay with us.

(COMMERCIAL BREAK)

BLITZER: Next door to Libya, a strong show of force in Egypt against the former president, Hosni Mubarak. The attorney general there now issuing an order forbidding Mubarak from leaving the country.

CNN's Fionnuala Sweeney is joining us now live from Cairo with details.

What's going on there, Fionnuala?

FIONNUALA SWEENEY, CNN INTERNATIONAL CORRESPONDENT: Well, Hosni Mubarak, as you know, the former president, Wolf, is reportedly in Sharm el-Sheikh, at his presidential palace. He said he would die on Egyptian soil, but it would seem if he had ever any plans to leave, he won't be able to fulfill them. Because yesterday (INAUDIBLE), an opposition member of parliament who lost his seat because of corruption charges he filed against other government officials, went to the prosecutor general's office and filed what he said were allegations of credible evidence against Mubarak.

The corruption he detailed alleged secret bank accounts in Egypt owned by various members of the Mubarak family with funds totaling some $147 million. As a result today, the prosecutor general's office issued a statement saying it was freezing all the assets of the Mubarak family inside Egypt, and that applies to property, savings, bonds and taxes, et cetera. And also (INAUDIBLE).

BLITZER: All right. It looks like we've lost that signal with Cairo, but you get the point.

In effect, Mubarak is being told you can stay in Sharm el-Sheikh by the new regime in Egypt, but you can't leave the country, you have no access to that money, all of which has been frozen, including Swiss bank accounts and elsewhere.

We'll stay on top of this story.

Fionnuala, thank you.

So just who are the rebel forces driving the potential fall of the Gadhafi regime? Could they be the next leaders of the country? We're digging deeper.

And the Pentagon and Washington gets ready for potential possible military action in the region. We're getting new information about some ships, warships, that are already in the area. Are more on the way?

Stick around.

(COMMERCIAL BREAK)

BLITZER: Lisa Sylvester is monitoring some of the other top stories in THE SITUATION ROOM right now.

A verdict on a high-profile terror case in the U.K. What happened?

SYLVESTER: Hi, Wolf.

Well, a British Airways employee is found guilty on four terror- related charges including a plot to blow up planes. British prosecutors say the employee passed encrypted information to radical cleric Anwar al-Awlaki.

Al-Awlaki asked the airline's software engineer about airport security and if it was possible to "get a package or person on board a flight to the U.S." Sentencing is set for next month.

A powerful storm leaves a deadly impact. Two tornadoes leveled homes in Kentucky and in Tennessee, crushed a man to death when high winds tossed a trailer like a tin can. That storm also downed trees and power lines, leaving up to 30,000 homes without electricity. Forecasters have tornado watches in effect from Mississippi, across the Southeast.

And more than 120,000 acres in Texas scorched by wind-driven wildfires that have already turned deadly. The smoke along I-20 was so heavy yesterday, it caused several accidents. One killed a 5-year- old child.

Dozens of homes have been lost in the wildfires. But officials hope calmer winds today will help firefighters keep them from spreading.

And this is a campout that is out of this world. Two Discovery astronauts are all set for a six-hour spacewalk. That's after preparing for the vacuum of space by spending 14 hours camping out in an airlock on the International Space Station.

Tomorrow, astronauts will work to attach a module to the station where they can do experiments in physics, biology, and biotechnology, just to name a few -- Wolf.

BLITZER: These guys are courageous, these guys who walk out there in space.

SYLVESTER: I know. You've said before that you wouldn't go to space.

BLITZER: No. No, there are some things I wouldn't do, and that's one of them.

Thanks.

We're getting new information here into THE SITUATION ROOM right now about possible military options that the United States is considering. We're going to have a live report from the Pentagon just ahead.

(COMMERCIAL BREAK)

BLITZER: Let's take a look at some "Hot Shots" coming into THE SITUATION ROOM right now.

In Katmandu, Nepal, this holy man arrives at a temple to take part in a Hindu festival.

In Russia, the president, Dmitry Medvedev, tests the country's I.D. payment card.

In Israel, one of the Chilean miners takes part in a baptism ritual in the Jordan River.

And in Afghanistan, look at this. Kids take advantage of winter and have an all-out snowball fight.

"Hot Shots" here in THE SITUATION ROOM.

Let's get right back to Jack. He's got "The Cafferty File" -- Jack. CAFFERTY: Wolf, the question this hour is: Should the power of public labor unions be reduced?

John writes from New Jersey, "Yes. Public labor unions have gone beyond collective bargaining to holding the taxpayers hostage. The most recent insurgency in state capitals -- i.e. Wisconsin -- is no less than financial terrorism that circumvents our voting and electoral process. Now is the time to address not only the value of public unions, but the actual productivity of civil servants."

Ken writes from Seattle, "Separate the paper pushers who make our government stupid and discipline their demands. One should not get to the keep a job when lazy and late and sloth-like. Leave the teachers alone."

Michael in New Mexico, "A unionized public employee, a member of the Tea Party and a CEO were sitting at a table. In the middle of the table, a plate with a dozen cookies on it. The CEO reaches out, takes 11 cookies, looks at the Tea Partier, and says, 'Watch out for that union guy. He wants a piece of your cookie.'"

Eve in Texas, "Only when the super rich stop running the country. Many people dislike unions and their past and present abuses. But these abuses don't compare to the blatant buyout of our Congress by the super rich. I fully support the unions because they have been responsible for maintaining what little middle class we have left."

And Fran writes, "The unions need to be strengthened. The workers of America have been vilified for everything bad that has happened. It's the rich, the corporate bosses, Wall Street, the banks, and the rich Republicans who cater to wealthy that have caused this mess. Remember, Bush/Cheney took over a great economy and turned it into a near depression."

And Paul in Florida writes, "There should be no public labor unions. The very idea that the union negotiates with the people they elect is corrupt beyond the mean."

If you want to read more on this controversial subject, go to my blog, CNN.com/CaffertyFile.

BLITZER: Jack, thank you.