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Interview with Pakistani Ambassador Husain Haqqani; Attack on U.S. Embassy in Damascus; Scandal Hits Two More Murdoch Papers; U.S. Cutting Aid to Pakistan; No Breakthrough in Debt Standoff; "We Cannot Allow This to Happen"

Aired July 11, 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, President Obama promises Republicans he'll take heat from his own party to cut a deal on raising the debt limit. This hour, the hard bargaining in public and in private as the clock tick, ticks, ticks toward a possible financial crisis.

Also, the "News of the World" folds, but the hacking scandal tainting Rupert Murdoch's media empire keeps exploding. Two more Murdoch newspapers now accused of trying to tap into the personal information of a former British prime minister. And Pakistan's reaction to news that the United States government is cutting millions of dollars in military aid. I'll talk to the country's ambassador to the United States about the growing tension and the impact on the war on terror.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

The federal debt is soaring high or above the legal limit almost by the second. And President Obama is vowing to hold daily negotiations to raise the ceiling if that's what it takes.

Another round of talks broke up just a little while ago, without -- repeat -- without any breakthrough. With 22 days left until the August 2nd deadline, the president says he won't accept a stop-gap plan to prevent America from defaulting on its debts.

He used a news conference this morning to challenge both parties and to lay down some markers.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: I will not sign a 30 day or a 60 day or a 90 day extension. That -- that is just not an acceptable approach. And if we think it's going to be hard -- if we think it's hard now, imagine how these guys are going to be thinking six months from now, in the middle of election season, when they're all up. It's not going to get easier, it's going to get harder.

So we might as well do it now, pull off the Band-Aid, eat our peas.

(END VIDEO CLIP) BLITZER: All right, let's bring in our Congressional correspondent, Kate Bolduan -- Kate, we heard from the House speaker, John Boehner, just before he went back to the bargaining table.

Update us on the very latest, because the stakes right now are critical.

KATE BOLDUAN, CNN CONGRESSIONAL CORRESPONDENT: The stakes right now are very high, Wolf. Another day of debt talks. And Republicans really seem more dug in than ever on the key issue of taxes, as you very well know, as the country ticks closer to this debt ceiling deadline.

(BEGIN VIDEOTAPE)

OBAMA: All right, guys. This is the same shot you had yesterday, except we're wearing ties today.

BOLDUAN (voice-over): On a pivotal day in the debt negotiations, Republican House speaker, John Boehner, insisted Republicans are not to blame for the impasse, President Obama and the Democrats are.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: I want to do what I think is in the right interests -- the best interests of the country. But it takes two to tango. And they're not there yet.

BOLDUAN: In a hastily scheduled press conference responding to the president's own appearance before cameras, Speaker Boehner laid out what, in his view, the stalemate boils down to.

BOEHNER: The president continues to insist on raising taxes. And they're just not serious enough about fundamental entitlement reform to solve the problem for the near to intermediate future.

BOLDUAN: Just days ago, talks between Boehner and President Obama centered on a possible $4 trillion grand bargain, including, CNN was told, with significant tax revenue. But Boehner abruptly rejected that idea.

His turnaround comes amid intensifying pressure from fellow Republicans, including the number two House GOP leader, Eric Cantor.

Cantor all along has pushed for a smaller debt package of mostly spending cuts. But he rejected speculation there's a split between the two Republican leaders.

But the pressure on Boehner was evident Monday, as many rank and file Republicans remain adamant they will have not support anything amounting to a tax increase.

REP. ANDY HARRIS (R), MARYLAND: And I don't care if we call it expenditures in our tax code or revenues, what they are, are taxes on our job creators. And our job creators have responded by not creating jobs.

BOLDUAN: And others, like Congressman John Fleming, are angry negotiations are happening behind closed doors, accusing Congressional leaders of backroom dealing.

REP. JOHN FLEMING (R), LOUISIANA: As a congressman, why should I be forced to peruse cable stations and blog sites for information on the discussions and then be asked to vote for the deal when I have in input and no time to know even what's in it?

(END VIDEO TAPE)

BOLDUAN: Now today's meeting at the White House lasted, as we're told, about an hour and 45 minutes. Upon wrapping up and coming back to the Hill, Congressional sources tell CNN that there were no breakthroughs in this talk. But another source -- a Congressional source told me that the focus of these talks was on those -- the elements of the Biden-led talks that went on for weeks and eventually fell apart. But that was the focus of today's meeting.

They'll report back again tomorrow to try again to reach a compromise. And we're told that meeting tomorrow, Wolf, will start at 3:45.

BLITZER: And, as you know, that Biden negotiation had about a $2 trillion -- a $2.5 trillion price tag, in terms of budget cuts, budget reduction, deficit reduction, as opposed to the $4 trillion plus number that the president was ready to go forward. He was even willing, as you know, to put Medicare and Social Security on the table, to the deep irritation of so many Democrats.

What's been the reaction from the Democrats to the president's willingness to even raise those issues of Medicare and Social Security cuts?

BOLDUAN: Wolf, as early as last -- late last week, we were hearing strong pushback from rank and file Democrats, saying that -- the more liberal elements of the Democratic Party, especially in the House, saying the fact that -- the idea that Social Security was on the table was something that they absolutely could not agree to. One person saying that Social Security is a covenant that they have with the -- with many Americans that they cannot break. The idea of any concept of cuts to Medicare benefits has angered many, many Democrats.

But I'll tell you, there seems to be -- at least they're trying to make a distinction, Wolf, between changes to Medicare and cuts to Medicare benefits. That seems to be up to interpretation. And that's something that -- that they're -- that we need to look further into.

BLITZER: Yes. Well, we'll see if anything happens on that front.

BOLDUAN: That's right.

BLITZER: All right. Thanks very much, Kate Bolduan.

Let's check in with Jack.

He's got The Cafferty File -- I've been saying all along, Jack, the stakes on this issue really are significant.

JACK CAFFERTY, THE CAFFERTY FILE: It's -- it's something to watch, isn't it?

Ordinarily, they can get away with playing politics with this stuff. But the reality of this particular issue is ominous. And it will be interesting to see when those two worlds actually collide.

Meanwhile, other stuff. The secretary of the Treasury out with an ominous warning for the American people -- it's going to take a while for the economic recovery to feel like a recovery and for a lot of people it's going to be, quote, "harder than anything they've experienced in their lifetime for some time to come," unquote.

Timothy Geithner made those comments yesterday on NBC's "Meet the Press" in the wake of an outright ugly jobs report for the month of June. The U.S. economy added 18,000 jobs last month -- just dismal. The unemployment rate went up to 9.2 percent -- not encouraging at all, particularly if you're one of the more than 14 million Americans who are jobless in this country right now.

Millions of jobs don't exist here anymore. They've been sent overseas, where labor costs are much less, meaning corporate profits are much higher.

But what about the country?

There are 4.6 unemployed Americans for every job opening out there, according to the Labor Department. In some states, it's even worse. In Arizona, 10 job seekers for every job opening.

What's more, nearly 20 percent of all personal income in this country is now provided by the government, in the form of jobless benefits, Social Security, food stamps, welfare and other programs. The Great Recession officially ended in June of 2009, but many Americans haven't gotten back on their feet.

I guess they didn't get the news.

They can't find jobs. They can't get work. Job growth has been slower since then than after any recession since the Great Depression. And for a lot of Americans -- average folks -- times very, very tough.

Here's the question -- Treasury Secretary Tim Geithner says hard times will continue for some time to come.

Do you think he's right?

Go to CNN.com/caffertyfile and post a comment on my blog.

We've got a new paradigm, I think, Wolf. It's a -- it's a different world.

BLITZER: Yes. Because even if it's 9.2 percent, the official unemployment rate, people who are underemployed...

CAFFERTY: Oh...

BLITZER: It could go up to 15, 17, 18 percent. Somebody who's making $70,000 a year, they lose their job, but in order to put food on the table, they accept a job for $30,000 a year. They're considered fully employed, but they're certainly not making what they used to make.

CAFFERTY: No. It's a different world.

BLITZER: Yes.

All right, Jack.

Thanks very much.

Let's turn to Iraq right now, where the new Defense secretary, Leon Panetta, is putting the country's government on notice in the wake of deadly new attacks on U.S. troops.

Our Pentagon correspondent, Chris Lawrence, is joining us.

He's got the details -- Chris, what's going on. Here?

Secretary Panetta LAWRENCE, CNN PENTAGON CORRESPONDENT: Yes, Wolf, the new Defense secretary is making -- is waste no time, really, making it known that he's going to be a very forceful presence. Some very blunt talk during his first trip to Iraq as the new Defense secretary.

(BEGIN VIDEOTAPE)

LAWRENCE (voice-over): On his first trip as Defense secretary, Leon Panetta delivered a blunt message to Iraqi officials -- either you go after Iran-backed militias or we will.

LEON PANETTA, DEFENSE SECRETARY: In June, we -- we lost a hell of a lot of Americans as a result of those attacks. And we -- we cannot just simply stand back and allow this to continue to happen.

LAWRENCE: Here's why he's so upset -- 16 dead American troops just in June. The U.S. hasn't seen that level of bloodshed in two years.

PANETTA: My first responsibility as secretary of Defense, the first responsibility of your commanders is to make damn sure that we do everything necessary to protect you. And we are going to do that.

LAWRENCE: U.S. officials displayed their evidence for the spike in violence. Panetta and other officials accused Iran of supplying deadly new weapons to militias in Iraq -- improvised rocket-assisted mortars or IRAMs, are metal canisters packed with explosives and shot by rockets.

PANETTA: I would like for Iraq to exert more of an effort to go after those that -- those extremists that are making use of these weapons.

LAWRENCE: But the Iranian-backed militants are Shiite Muslims, the same religion as most officials who control Iraq's government. Iraqi leaders are more comfortable taking on Sunni Muslim extremists, neither of which is what where American troops (INAUDIBLE) supposed to operate in a support (INAUDIBLE) the U.S. would launch unilateral missions to destroy the militias.

PANETTA: So I want to assure you that...

(END VIDEO TAPE)

LAWRENCE: So again, one of the things that Secretary Panetta also pushed the Iraqis on was when U.S. troops will actually leave Iraq. He not only has a different style than his predecessor, Secretary Rob -- Bob Gates, but he also delivery -- delivered that message somewhat differently. Whereas Gates really seemed to reach out to the Iraqis, to say he want to stay, we will stay if we are asked, Secretary Panetta was a little more reserved on that. And he even pressed Iraq to make up its mind whether they want the U.S. to stay or go.

He says there have to be deployments scheduled. The U.S. can use those military assets in other ways. So he said Iraq needs to hurry up and make up its mind whether it really wants the U.S. to stay past the deadline of December 31st.

BLITZER: Is anyone talking, at the Pentagon, Chris, about the fact that Iraq now is a major oil exporting country once again?

They're taking in a lot of money. If the U.S. decides to keep, let's say, 10,000 or 15,000 troops beyond the end of this year, are the Iraqis ready to foot the bill and let the U.S. taxpayers off the hook, to pay for that deployment of thousands of U.S. soldiers in Iraq?

LAWRENCE: That would be a very, very interesting development, Wolf. It would sort of be the flip side of what we're doing in Pakistan, where Pakistan puts about 100,000 troops on the border to go after insurgents and we pay them about $300 million. So this would be the sort of the -- the flip side of that -- the Iraqis paying the U.S. to stay.

But I haven't heard anyone talk seriously about that yet. Of course, with the economy, the debt crisis, the financial situation in the U.S. being what -- what it is today, I don't think any option is off the table.

BLITZER: Yes, because if they keep 10,000 troops in Iraq in the years to come, we're talking billions and billions of dollars...

LAWRENCE: The costs add up.

BLITZER: -- that the Iraqis can afford and at this tough economic time here in the United States, I think there's going to be a lot of resistance on Capitol Hill to U.S. taxpayers paying for it.

But we'll see what happens on that front.

Check it out for us and let us know if you hear anyone seriously, at the Pentagon, talking about Iraq coming up with the cash to pay for an extra deployment of American troops.

Chris, thanks very much. A lot of questions about how long a big phone hacking scandal may have been going on. I'll ask the former British prime minister, Tony Blair, what, if anything, he knew when he was in office and whether he was personally hacked.

And the Obama administration responding to an attack on the United States embassy in Damascus with its strongest condemnation yet of Syria's president.

(COMMERCIAL BREAK)

WOLF BLITZER, CNN ANCHOR: Let's get into the scandal that's reaching deeper and deeper into Rupert Murdoch's media empire. Allegations of phone hacking by now defunct "News of the World" newspaper may just be for a lot of people in Britain are saying the tip of the iceberg.

Two more Murdoch newspapers are now being implicated by a former British prime minister. Let's bring in CNN's Becky Anderson. She's watching all of this unfold in London. What are the latest allegations, Becky, out there today?

BECKY ANDERSON, CNN ANCHOR AND CORRESPONDENT: It's quite remarkable. If Rupert Murdoch thought he was going to draw a line under this by jetting in this weekend and closing down "The News of the World" he got another thing coming today.

I mean, three strands to this story and if you blinked, Wolf, let me tell you, you missed part of this story today. The most of the important, probably coming from the office of Gordon Brown, the former prime minister, allegations that other papers in the news international stable.

And of course "The News of the World" was part of that stable, may have illegally blogged information on him and on his family. It was a tweet from his wife today saying so sad to learn all about my family's privacy is very personal. I'm really very hurt if indeed it is true.

He's not saying he was hacked into as one paper reports. What he is saying is that journalists and/or private investigators from the "Sun" newspaper and/or the "Sunday Times" newspaper, and that's a very respected Sunday newspaper here in the U.K, tried to, and I quote, "blag information from one of his banks, from his accounts and indeed tried to get information on one of his children.

That child has cystic fibrosis and we're told the only reason the Browns knew about this was somebody from the newspaper rang them to say we believe your child has cystic fibrosis. So there's a lot going on at this point.

I mean, "News International" issued a statement tonight effectively saying please don't do any more reporting on this and any information you have, wherever it's coming from, they say, please let them have that information because there's an ongoing investigation.

This is a story that's only raising his head now about Gordon Brown, but it's from some years ago. Many people asking the question, if he knew back then, why then he say something now, then of course, Wolf?

BLITZER: Yes, because obviously a lot of people are suggesting he like so many other British politicians were scared of retaliation by these tabloids and media empires, if you will.

ANDERSON: And that is the great unanswered question. Who was scared of whom at this point? Many people in the U.K. will suggest that Rupert Murdoch and his CEO at "News International," former editor of "News of the World."

They really wielded so much power that politicians both of the former ruling labor party here in the U.K. and now the current administration, the conservative party have cozied up to these guys way too much.

And there is talk and allegations now that really things might have come out in the past about -- which might have helped investigations, which are ongoing by the met police at the time never did. Wolf --

BLITZER: Becky Anderson, thanks. Thanks very much. We'll have much more on the story later in THE SITUATION ROOM. My interview with the former British Prime Minister Tony Blair, was he ever hacked, his phone, his voicemail? What did folks do about stories involving his wife, that interview coming up here in THE SITUATION ROOM with Tony Blair.

The U.S. is now withholding $800 million in aid to Pakistan. Is there a deepening rift between the two countries in the wake of Osama Bin Laden's death? I'll speak with the Pakistani ambassador to the United States. That's coming up.

Plus, how did a stun gun end up on a Jetblue airplane? We have details right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: New evidence of just how much U.S. relations with Pakistan has deteriorated since Osama Bin Laden was found hiding there. The Obama administration is now confirming that it's holding $800 million in military aid to Pakistan.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now Pakistan's Ambassador to the United States, Husain Haqqani. Mr. Ambassador, welcome back to THE SITUATION ROOM.

HUSAIN HAQQANI, PAKISTANI AMBASSADOR TO U.S.: Thank you for inviting me.

BLITZER: This crisIS, and I think it's fair to say there's a crisis in U.S.-Pakistani relations. The United States withholding $800 million in promised military aid to Pakistan because the U.S. is not happy with what you're doing, what do you do about it?

HAQQANI: First of all, I don't think that's a correct characterization. The $800 million includes $300 million in reimbursements that have just been slowed down. We haven't received a reimbursement since December 2010. So basically, it's just something that's already slow, having been slowed down more. The fact is that --

BLITZER: Are you saying this is not a big deal? The $800 million of aids has been suspended.

HAQQANI: Both sides are working together on a number of things and Pakistan is not happy with the pace of delivery of assistance. Americans are not happy with the pace of delivery of certain deliverables from Pakistan.

It happens sometimes. Right now because Pakistan is a fledgling democracy and everything that happens there hits the media and similarly, of course, there's an American domestic political context in which everything becomes an issue because of the way people react to your administration. This has become --

BLITZER: The reaction in Pakistan to the U.S. decision to suspend at least for now $800 million in promised aid, a spokesman for the Pakistani military saying in the past, we have not been dependent -- we have not been dependent on any external support for these operations and they will continue. Basically suggesting, you know what, keep money, we don't need it.

HAQQANI: Well, I think what needs to be understood is that Pakistan and the United States have a relationship that goes beyond aid from 1990 to 1999. There was no aid relationship.

You remember the Presler (ph) amendment and so even though the U.S. and Pakistan continued to work together albeit in a limited manner. I think the Americans also need to understand that vanishing aid as weapon of influence all the time is not a good idea. It insults the people of Pakistan.

BLITZER: So you know $800 million is a lot of money that can be used to build schools here in the United States.

HAQQANI: First of all, the format of this discussion doesn't allow me to give you a breakdown of that $800 million, how they come up with that figure.

So all I'm saying is we cannot have a conversation and a dialogue that's just aid centered. Secondly, the United States needs Pakistan for a stable Afghanistan and Pakistan needs the United States to beat terrorism, which we consider to be a menace for our own people.

So we need to work together and both sides are working together. The only problem is whenever there's a disagreement or the pace of things, it always becomes a much bigger story. My understanding is that the United States government is continuing with all civilian assistance to Pakistan.

BLITZER: But military is a different matter.

HAQQANI: Which as you know is more than $1 billion in promises.

BLITZER: Let's talk about what's deeply irritated U.S. officials. I know this because they've told me this, that on a couple of occasions at least they gave intelligence information top your government about terrorists building bombs, secret locations.

Within a few days, when your troops went there to do something about it, all the folks were gone. All the bad guys -- somebody tipped off the bad guys about the information.

HAQQANI: The important thing is that the troops went there to take action.

BLITZER: But it was too late.

HAQQANI: Previously, we always heard Pakistan is not taking action. Here's the problem. When Pakistan takes action --

BLITZER: But they take action after somebody tipped off the bad guys.

HAQQANI: There is no evidence that anybody tipped anybody off. What we need to do -- and that's how governments function. They need to talk to each other and we are talking to each other at every level. We have an understanding that we will solve these problems together.

BLITZER: You know U.S. officials don't necessarily believe it's a coincidence that by the time your forces reach those locations, the bad guys were gone.

HAQQANI: Wolf, my point is that you can -- U.S. officials can say anything behind my back.

BLITZER: They can say it publicly, basically.

HAQQANI: No one has said it officially and no one has said it to us, that you deliberately tipped them off. They just said they're concerned this happened and there's a way to resolve issues.

And that's a way we're all working on. What has happened to the U.S.- Pakistan relationship in my opinion is that everybody's got an opinion on it. And when everybody has an opinion, there are television talk shows in Pakistan. There are about 30 channels.

There are your evening shows every time, everybody talks about it. In private, the U.S. officials and Pakistani officials are working things out. In public, everything that is negative gets amplified.

BLITZER: Here's something that's very negative and caused a huge uproar in Pakistan and you do have a robust journalistic community in Pakistan. There's a journalist who is named Shahzad. You're familiar with this journalist.

HAQQANI: He was a personal friend of mine.

BLTIZER: All right, so he was brutally tortured and killed. And Admiral Mike Mullen, the chairman of the Joint Chiefs of Staff publicly had accused elements of the Pakistani government of being involved in the killing of this courageous journalist in Pakistan.

HAQQANI: Please read the transcript of what he said. He said, I have read, I have heard. He never said --

BLITZER: He says he had reason to believe.

HAQQANI: He has reason to believe based on what he has heard and --

BLITZER: That's a pretty strong statement from the chairman of the Joint Chiefs.

HAQQANI: And the government of Pakistan has appointed a Supreme Court judge no less to head the Commission of Inquiry. You cannot put a nation or its government or its state machinery on trial through newspaper articles.

If there is going to be --

BLITZER: Who do you suspect killed this young journalist?

HAQQANI: I am not going to suspect somebody on television. I'm only going to say that once there is a commission of inquiry, if the U.S. side has any intelligence on the matter, they need to provide it to that commission of inquiry, if there is intelligence.

BLITZER: Here was the chain of the events. This is a journalist who was writing critical articles of the ISI, your intelligence service. And then, all of a sudden, two days after a major article appears, he disappears and his body is later found tortured.

HAQQANI: Wolf, if something like that happened in another country and there wasn't a kind of political environment about that country that exists right now here, somebody would have said, in that manner and getting whatever number you're getting, is a conspiracy theory. Let us let the commission of inquiry inquire into the matter.

Look, Pakistan has a history. I'm familiar with that history as much as you are.

BLITZER: You're much more familiar with it than I am.

HAQQANI: There are issues that need to be resolved, but they will be resolved over time. Holding a gun to our heads, saying that this is going to be about breaking off ties or cutting off of aid, et cetera, is not conducive. And senior American officials understand that.

The U.S. State Department has said today that we are working towards a cooperative relationship. My only request is that the American media also needs to understand that diplomacy takes its course, and there's a time for diplomacy and a manner of diplomacy. Screaming and shouting and raising voices, and putting a nation in the dark, is not the way forward.

(END VIDEOTAPE)

BLITZER: Husain Haqqani, the Pakistani ambassador to the United States.

The Obama administration, meanwhile, is warning Syria that it had better protect the United States Embassy in Damascus from violence. There was an attack on the U.S. Embassy. And a stern message for the president of Syria, Bashar al-Assad, coming from Washington.

And an overloaded ship leads to a deadly disaster.

(COMMERCIAL BREAK)

BLITZER: An extended mission for the space shuttle Atlantis.

CNN's Deborah Feyerick is monitoring that, some of the other top stories in THE SITUATION ROOM right now.

What's going on here, Deb?

FEYERICK: Well, Wolf, NASA says the mission is being extended one day, meaning it will now return to Earth July 21st. Plans have been made for the additional day if supplies allowed. NASA is also tweeting that Atlantis' critical heat shield will not require any focused inspection. The shuttle made its final launch to space Friday.

And first lady Michelle Obama, as well as Secretary of State Hillary Clinton and former president Bill Clinton will be among the dignitaries attending tomorrow's memorial service for former first lady Betty Ford. The service in Palm Desert, California, is one of two being held this week.

Ford co-founded the legendary Betty Ford Treatment Center for Addiction. She died Friday at the age of 93.

And at least 55 people are dead, dozens missing, after a ship sank in Russia. Authorities say the Bulgaria, which went down yesterday, was overloaded and didn't have a license to transport passengers. Russian President Dmitry Medvedev has ordered an investigation into the accident. He is declaring tomorrow a day of mourning for the victims.

And authorities are trying to determine how a stun gun ended up on a JetBlue airplane. Crews cleaning the aircraft found the gun in a seat back pocket after it landed Friday night in Newark. Officials say the flight originated in Boston but made several other stops that day. The FBI is investigating, but does not suspect it is part of any sort of attack -- Wolf.

BLITZER: All right, Deb. Thanks very much.

It's being called a mob attack on the U.S. Embassy in Syria, and it's prompting harsh new words from top officials of the Obama administration about the legitimacy of Syria's president.

(COMMERCIAL BREAK)

BLITZER: The Obama administration says it's investigating attacks by Syrian protesters on the United States Embassy in Damascus to determine who was behind them. Just a little while ago, the secretary of state, Hillary Clinton, condemned the Syrian government for failing to protect the United States Embassy, and she offered her strongest remarks yet about the embattled president, Bashar al-Assad.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, SECRETARY OF STATE: From our perspective, he has lost legitimacy, he has failed to deliver on the promise he's made. He has sought and accepted aid from the Iranians as to how to repress his own people. And there's a laundry list of actions that have been certainly concerning.

(END VIDEO CLIP)

BLITZER: All right. Let's bring in CNN's Arwa Damon. She's in the Syrian capital.

Arwa, what do we know about the people who attacked the U.S. Embassy in Damascus?

ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: Well, the State Department is describing them as being thugs numbering around 300, saying that they were perhaps incited by state-run Syrian intelligence. The Syrian government, we did reach out to them for comment. They are not saying anything at this point.

But most certainly, it would appear as if this demonstration in front of the U.S. Embassy, one also taking place in front of the French Embassy, coming about as a direct reaction to a trip taken by both ambassadors to Hama last week. The Syrian government has been really quite vocal in exactly how upset it was by that trip, saying that it was taken without the proper authorization.

The Ministry of Interior, Wolf, had issued a statement accusing the U.S. ambassador of meeting with saboteurs and of inciting the demonstrations in Hama. And the government, as well as its supporters, have been pointing to this trip taken by the two ambassadors as being direct evidence of how foreign Western countries, namely the United States and France, are interfering in Syria's internal affairs, deliberately trying to destabilize this regime.

BLITZER: We know that the Syrian government has a responsibility to protect all foreign embassies in Damascus. What is the evidence, though, that the Syrian government may have been behind this attack on the embassy?

DAMON: Well, there's no direct evidence that the Syrian government was directly behind this attack. But the U.S. has, however, been very critical of the Syrian security forces, saying that they were slow in responding. And also, speculating and saying that this is a government that uses excessive force against peaceful demonstrators taking olive branches, and yet appears to be sitting back idly watching while anti-U.S. demonstrations take place, allowing those to go forward.

Most certainly, if anything, we do know that this is a regime, when it choose to do so, does have the capability to clamp down on demonstrations fairly quickly and fairly violently -- Wolf.

BLITZER: You're there back in Damascus, Arwa, for what the government is calling this national dialogue conference. But is it fair to say that there are any real opposition figures participating in this so- called dialogue?

DAMON: Well, Wolf, most of the prominent opposition figures have boycotted, and there's absolutely no representation of the street demonstrators. What is interesting though is that those opposition figures who were present were, in fact, voicing the demands of those who were absent.

They were saying that for this type of dialogue to even begin to succeed, the violence against demonstrators has to stop. They were very vocally critical of the excessive use of force by the government against these anti-government demonstrators, but there wasn't any real opposition representation.

And even though the government is billing this as being the framework to begin implementing these reforms, there is a severe trust deficit that exists between the government and the opposition. The opposition, quite simply, does not believe that the regime intends to reform. And there's only one way that they can prove that, and that is if they stop shooting peaceful demonstrators.

BLITZER: Arwa Damon, in Damascus for us.

In the next hour I'll be speaking with Tony Blair, the former British prime minister. He's got some very strong words for Bashar al-Assad. He goes beyond the U.S. government statements, basically saying it's over for Bashar al-Assad, it's time for him to simply go away.

Other news we're following. The Republican presidential candidate Michele Bachmann is feeling some new heat from her opponents on the campaign trail. Is it a sign she's now emerging as one of the toughest competitors in the race for the White House?

And an escalating hacking scandal tainting even more British newspapers. Just how easy is it to break into a phone and check your voicemail? We'll show you.

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

(COMMERCIAL BREAK)

BLITZER: All right. Let's get right to our "Strategy Session."

Joining us, our CNN political contributors, the Republican strategist, Mary Matalin, and the Democratic strategist, Donna Brazile.

Guys, thanks very much for coming in.

Tim Pawlenty, the former governor of Minnesota, he's really getting tough on Michele Bachmann, who is emerging as one of the front-runners right now for the Republican presidential nomination.

Listen to what Pawlenty said on "Meet the Press" yesterday.

(BEGIN VIDEO CLIP)

TIM PAWLENTY (R), PRESIDENTIAL CANDIDATE: I like Congresswoman Bachmann. I've campaigned for her, I respect her. But her record for accomplishment in Congress is nonexistent. It's nonexistent.

And so we're not looking for folks who, you know, just have speech capabilities, we're looking for people who can lead a large enterprise in a public setting and drive it to conclusion. I've done that and she hasn't.

(END VIDEO CLIP)

BLITZER: And he doubled down this morning on Fox, really going after her in very similar words.

Her record in Congress, Mary, nonexistent. Are you surprised that he's getting this tough on Michele Bachmann?

MARY MATALIN, REPUBLICAN STRATEGIST: No, he has to. The linchpin of his strategy is Iowa, and by geography and philosophy, at least relative to those caucus-goers, she is besting him.

She's obviously besting him in the polls, so he has no choice. He also has to make up for the whip (ph) on the John King debate which hurt him worst than anybody -- I think any strategist, or certainly his home team, expected. So now when he takes a shot, he's got to follow up on the shot, lest he confirm that the whip (ph) in the John King debate was his Constitution, which I don't think it is.

BLITZER: Because she's referring to when he really went after Mitt Romney, saying that Mitt Romney's health care plan in Massachusetts was basically the forerunner for President Obama's health care plan nationally, and then when he had a chance to really back that up, he sort of wimped out, if you will, Donna, which obviously hurt him, as Mary says, because he seemed to maybe too nice of a guy.

DONNA BRAZILE, CNN POLITICAL CONTRIBUTOR: Well, for Governor Pawlenty, it's time crunch, Wolf. With about 30 days to go before the important straw poll, Tim Pawlenty knows that Michele Bachmann is the person to beat.

She's leading the polls in Iowa. She has a terrific organization. She's a hometown girl. I know she was born there, in Waterloo.

But you know what? She is really rallying the faithful. That's why Tim Pawlenty is criticizing Michele -- I keep wanting to say Michele Obama. God bless Michele Obama.

But Michele Bachmann, right now, has organization, she has money, and she has a lot of energy. And she's leading in the polls in the Hawkeye State.

BLITZER: Also has as her campaign strategist Ed Rollins, our former CNN contributor, a former Ronald Reagan political director. He ran Mike Huckabee's campaign four years ago. He's obviously put together a good team for Michele Bachmann, and she's doing very well right now.

But let's talk, Mary, about Sarah Palin for a moment.

She's on the cover of "Newsweek" magazine. In the interview with "Newsweek," she says this: "I believe that I can win a national election. The people of America are desperate for positive change and deserving of positive change to get us off this wrong track. I'm not so egotistical as to believe that it has to be me or it can only be me to turn things around, but I do believe that I can win."

Do you believe, Mary Matalin -- and you're a great Republican strategist, you know all the players out there -- is Sarah Palin getting ready to jump into this race?

MATALIN: There are more people today who believe that that is the case, but she always has -- by necessity and unique skill sets, she has her own templates, her own tactics. She can start later and catch up with everyone. And I can't believe -- I feel it more today than I did last week, that she probably is going to get in.

BLITZER: Wow. Yes. That's pretty amazing.

What do you think, Donna?

BRAZILE: Well, I think Sarah Palin clearly wants to run. Bristol, her daughter, had said something to the effect that her mother has made up her mind. But Sarah Palin is, of course, waiting for that moment where she can tweet us and let us know all about it.

Look, I think she's in it until another deal comes up, and maybe she will step aside. But Sarah Palin has to deal with some pretty tough issues.

I think she will have the money. I think she will pull together the organization. But she has high disapproval ratings among Independents, and one-third of Republican voters also disapprove of her performance.

You know, Wolf, right now in the state of Alaska, Sarah Palin's disapproval ratings are almost 48 percent. So even in her home state of Alaska she's having a tough time.

She has to show more discipline. She has to demonstrate that she can pull together a good staff. More importantly, she has to demonstrate that she's willing to listen to other people as well.

BLITZER: What do you think, Mary?

MATALIN: I think all of what Donna said is true, but what's also true, and everybody is underestimating, is the weakness of Barack Obama. So she's not running in a vacuum.

She's not running for the governor of Alaska. And when you win, you win, and you cannot underestimate the anger amongst Independents and the absolute commitment of conservatives to beat Barack Obama. And they are spread out now, but when we have a nominee, you're going to see a kind of cohesion and a fight the likes of which we haven't seen since 1980.

BRAZILE: Well, you know what, Mary? It's true that conservatives dislike the president. But you what's also true? The country right now really would like to see us come together to get this debt situation under control, to look long term and not just at the next election, but to look at how we sustain our economy in the face of other threats that we have as Americans.

But Barack Obama is going to do very well next year. The Republicans need to deal with the weaknesses that they see in their own candidates -- Mitt Romney, the front-runner, who has flip-flopped more than anybody I've ever seen, Tim Pawlenty, who can't seem to get his gas and his tank to really fuel a major campaign in Iowa. But right now the Republicans are really disappointed with the set of candidates that they have before them. That's why Sarah Palin is looking at coming in through the back door pretty soon.

BLITZER: But the headline right now, at least over the past few minutes, Mary Matalin is open -- is suggesting that Sarah Palin is seriously considering a run for the White House.

I'm not exaggerating, right, Mary?

MATALIN: I think she's giving signals that she's -- more than she has in the past. And this is not about liking or not liking Barack Obama. This is not about the president.

He continues to enjoy the likability numbers. He -- nobody likes his policies. Not just conservatives, Independents. And the debt ceiling argument right now is a good example to focus on the differences between the parties, and Sarah can articulate those differences as well as anybody in the field.

BLITZER: We'll see what happens, guys.

BRAZILE: But if better deals come up, Mary, all -- she will drop it and she will go back to selling books and tweeting.

BLITZER: We'll see what she does, but she's on the cover of "Newsweek" magazine right now.

Guys, thanks very much.

And as we've been reporting, President Obama is pushing lawmakers to try to reach a deal. Stand by for more on his strategy to raise the debt limit and whether default is really even an option.

And two more newspapers are being sucked into the scandal that shut down a British tabloid. I'll ask the former British prime minister Tony Blair whether he and his family ever had their phones hacked.

(COMMERCIAL BREAK)

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

CAFFERTY: The question this hour: Treasury Secretary Geithner says that hard times in this country are going to continue for some time to come. Is he right?

Cheryl in South Carolina, "He's right, Jack. American corporations are sitting on $2 trillion in profits they made from laying people off and sending jobs overseas. Unless you're a CEO or a major stockholder, you're either doing the work of three people or you're unemployed. Hard times indeed."

Pete writes, "Even a broken clock is right twice a day. Finally, it's Geithner's turn. Actually, it's a very disingenuous forecast by Geithner given that he and his peers, like those in the financial sector and on Wall Street, have done very well over the last two years and will continue to do so. Eighty percent or more of our citizens are barely treading water or have already drowned, but as long as the wealthy and the special interests are safe in their yachts, who cares?"

John writes from Louisiana, "He's right, and it's going to get a hell of a lot worse if the Republicans let the country default just to help their rich friends get richer."

Carol in Massachusetts, "Yes, the economy has changed. It's not a recession like others in the past. A lot of jobs eliminated will never exist again in this country. So, yes, it's going to take a long time for the skill sets to match the new reality."

Jayne writes, "Of course he's right. Nobody mentions our lousy trade deals, and until they are revised or revoked, jobs will continue to be outsourced by American companies. Why pay an American worker a living wage and you're not penalized for having work done for pennies by foreign employees?"

"It's not just manufacturing either. Your taxes might be done in India, next to the office of the radiologist who reads your x-ray. And you never know."

And Rima from Texas, "Treasury Secretary Geithner is hardly credible. None of his policies have worked in the past. Why would I believe him now?"

If you want to read more on this, go to my blog, CNN.com/caffertyfile -- Wolf.

BLITZER: Jack, thank you.