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On the Story

Scott Peterson Found Guilty of Murder; A look at the battle for Falluja

Aired November 13, 2004 - 10:00   ET

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

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


CATHERINE CALLAWAY, CNN ANCHOR: After seven days of deliberations and two jurors dismissed in two days, Scott Peterson is found guilty of murdering his wife and unborn son. The same jury begins deliberating Peterson's fate November 22.
A somber scene in Ramallah as a steady stream of mourners file past the tomb of Yasser Arafat. Palestinian legislator Hanan Ashrawi joined other officials in laying wreaths at Arafat's grave. Elections for a new leader are planned for January 9.

Iraq's national security adviser says the battle for Falluja is almost over. He says most of the city now liberated from insurgents. Officials report a thousand insurgents have been killed, 200 captured during the seven-day battle.

Two senior Bush administration officials say Rod Paige plans to leave his post as education secretary. Earlier this year, Paige apologized for calling the National Education Association a terrorist organization. Paige would be the third cabinet member planning to leave his post for the president's second term.

I'm Catherine Callaway. And now ON THE STORY.

BARBARA STARR, CNN ANCHOR: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we covered this week. I'm Barbara Starr, ON THE STORY of the battle for Falluja: the cost, the gain, the lessons learned.

KIMBERLY OSIAS, CNN CORRESPONDENT: I'm Kimberly Osias, ON THE STORY in Redwood City, where in just seven hours jurors found Scott Peterson guilty of murder. Now the question is will they spare his life?

ELAINE QUIJANO, CNN CORRESPONDENT: I'm Elaine Quijano, ON THE STORY of how we saw the first changes in the Bush cabinet this week and preparations for the first battle with Congress.

ANDREA KOPPEL, CNN STATE DEPT. CORRESPONDENT: I'm Andrea Koppel, ON THE STORY of how the death of Yasser Arafat poses risks but also opportunities for Mideast peace.

CHRISTINE ROMANS, CNN CORRESPONDENT: And I'm Christine Romans, ON THE STORY of why the Fed decided to raise interest rates again but by just a fraction. Also coming up, we'll go to Falluja and our Jane Arraf about the fiercest block-to-block fighting of the war.

E-mail us at onthestory@cnn.com.

Now straight to Kimberly Osias and the Scott Peterson trial.

OSIAS: A number of twists and turns in this trial that was five months long, two years in the making. And in just seven hours jurors found Scott Peterson guilty of first-degree murder for killing his pregnant wife Laci and guilty of second-degree murder in the death of their fetus they planned to name Conner.

It was an absolutely electric moment here outside the courtroom. You could hear the cheers all the way up where I am standing, where I was live. And I am told by my colleague, Rusty Dornin, inside you could absolutely hear a pin drop. Scott Peterson, in fact, stared straight ahead and was motionless when the verdict came down.

KOPPEL: Kimberly, how much of a surprise was this to those of you following the to-ing and fro-ing, knowing that this was mostly a circumstantial case?

OSIAS: Andrea, I tell you, it was quite a surprise. In fact, many of us thought it would be a hung jury, or if they came down very quickly with a verdict that it would be an acquittal. So we weren't expecting it at all. But again, nothing has been expected in this trial. It has taken so many twists and turns.

ROMANS: Kimberly, let me ask you a little bit about what the -- what the public thought about this whole trial. You know, there were more than just one murder in 2002. This one somehow is the murder of 2002 that everyone will remember. Why is the public so fascinated with this story?

OSIAS: Well, you know, I think this is a case where there is something that everybody can latch onto. I mean, whether it's sort of a more highbrow component of the legal machinations, whether it will go to appeal, or those sorts of things, or the sheer emotionality of it.

I mean, this was a couple seemingly bound for great things, had it all very, very telegenic and things went horribly, horribly wrong. And here and, of course, in Modesto, I mean, people have been absolutely riveted.

I mean, there's been an outpouring of affection, there have been flowers that have come out. Mark Geragos had a boat, sort of a replica of that 14-foot game fisher that was out. And people were coming, sort of making it a makeshift shrine a while back. So I think there's just -- there's a lot of components in this story that really are riveting to many people.

STARR: Now Kimberly, even though we haven't yet even got to the penalty phase of the try, we don't know what punishment Scott Peterson will receive, people are already talking about whether there's grounds for appeal.

OSIAS: Barbara, you are absolutely right. I mean, as a matter of fact, Judge Alfred Delucci himself said this case is rife for appellate lawyers. He actually said it was sort of tantamount to a petri dish.

You know, I think a lot is going to depend on what happened behind closed doors. I mean, so much went on behind the scenes that we really don't know about. And I think it will really come down to what kind of record it was when the jurors were ousted.

QUIJANO: And Kimberly, along those lines, there's so much drama really coming at the end of the trial, not even with just the verdict, but in the days leading up to it. And we heard about that jury foreman being dismissed, also another juror. What are we hearing about what happened? What are some of the reasons behind these last- minute developments?

OSIAS: Well, Elaine, my sources tell me that there was really a lot of dissension within the jury when number five was the foreperson. And it would stand to reason because, of course, after the ousting of him with a new foreperson, they came to a verdict and a decision very quickly.

Again, my sources have really said that basically this guy, of course he was an attorney and a physician as well. That he tried to really take the reins too much so, and said that they really had to go through all the evidence first before they even took a count.

KOPPEL: Kimberly, I know you weren't in the courtroom, but what did you hear about Scott's reaction, and what have people been reading into that reaction?

OSIAS: Very stone-faced, Andrea, as a matter of fact. "Motionless" was the word that I heard used. And, you know, Jackie Peterson, his mother, when she left court -- and I actually saw videotape of this -- she was really greeted with a number of jeers from the crowd saying, "Well, are you proud of your son now?" And "How do you feel?" And she mouthed that she was.

ROMANS: It's so interesting, Kimberly, because some of the things that -- that some media organizations are saying about this -- this trial, I mean, it's just this fascinating murder trial and people have been covering it wall to wall. And, of course, you know, on the program that I mostly work on, "LOU DOBBS TONIGHT," we barely mentioned it.

It is just a murder. Murders are local news stories.

You know, what do you think happens next once we get beyond the Scott Peterson trial? Do you think the media is going to continue to cover it just breathlessly, minute-by-minute through the appeals process?

OSIAS: Well, Christine, I think you bring up a very important point in that there are so many murders that happen, and this was one that happened to be incredibly engaging for many people, and as I sort of alluded to, for many, many reasons. I think now after the penalty phase the media attention, sort of the fracas, if you will, will die off and dissipate. So it will be interesting to watch as it moves forward.

STARR: Kimberly, at the end of the day, how is it that the prosecution, after a lot of questions that they had missed opportunities, knitted it all together and made their case?

OSIAS: You know, Barbara, having been in there for the closing arguments, I think it was really Rick Distaso's shining moment. I mean, he really sort of brought it all together.

He was very impassioned. He made a plea to jurors, of course. That is the last thing that they hear before they go back to make their deliberations, and I think he really hammered it home. He sort of pointed and ID'd Scott Peterson as the murderer, in fact.

And really, you know, the defense had made so many promises, basically saying, you know, look, this is a case, and I'm not only going prove that Scott Peterson is innocent, but I'm going to prove that he is stone-cold innocent. They also said they were going to turn it into an eyewitness case. And really, they never did any of those things. So I think that was really the downfall of Mark Geragos and his team.

QUIJANO: And Kimberly, this is such a long, drawn-out process, I heard Rusty saying she had been on this really for two years, along with her colleague, Ted Rowlands. For everybody involved it's been such an ordeal. Are the jurors who were dismissed, are they talking about their experience at all?

OSIAS: Well, Elaine, you, of course, have covered this story as well. I think you were actually in Modesto when some of those item of furniture were removed. So it was certainly an emotional time then.

But speaking about the jurors, you know, of course they're all under a gag order, and attorneys are under a gag order as well. But actually, one juror, number seven, who was ousted spoke out to affiliate KTVU a little while earlier. Let's take a listen to what Fran Gorman had to say.

(BEGIN VIDEO CLIP)

FRAN GORMAN, DISMISSED JUROR: I was surprised it came this quickly. I was just surprised it came this quickly. I thought with two new people on the jury that it would take a little bit of time to get the new folks up to speed. So I am somewhat surprised that it came this week.

(END VIDEO CLIP)

OSIAS: She is again under a gag order from Judge Alfred Delucci, so it is very interesting that she spoke out. Again, that was to our affiliate KTVU. STARR: Well, Kimberly, it does look indeed like it's going to be a beautiful sunny morning in southern -- in California. Thank you. All of us will be watching the final part of the trial.

Now, from California, to the danger streets of Falluja in Iraq, what next for the fight against the insurgents? I'm back on that story after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, DEFENSE SECRETARY: If Iraq is to be free and a peaceful society, one part of the country cannot remain under the rule of assassins, terrorists and the remnants of Saddam Hussein's regime.

(END VIDEO CLIP)

STARR: Defense Secretary Donald Rumsfeld spelling out the administration's case for the fight for Falluja. An earlier military attempt failed, a political solution failed. And now U.S. forces with some Iraqi help are fighting their way to complete control of the city.

QUIJANO: You know, Barbara, I wanted to ask you about -- we heard so much about sort of the run-up, that this was really the center of the insurgency, that they were looking at it as a place really as this hotbed of activity, of violence, the source of this violence. Where does the situation stand right now?

STARR: Well, today, we are hearing that U.S. forces are continuing to battle their way south, that they've got pretty much control of the city. That they've killed hundreds of insurgents, that they have captured a good number, and they're continuing to work their way house by house, street by street, as we hear.

The question, I think, is going to be what happens in Falluja next? They can defeat the insurgents, but will Iraqi forces really be able to take long-term control of the city?

What we're beginning to hear more and more is this is a fight for terrain, getting control of that city and maintain control so that Falluja, so that the Sunnis participate in the January elections. That's the long-term goal once this campaign is done.

ROMANS: Barbara, how do we know how many insurgents are already out of the city? How many left before the -- you know, the American advance? And where do they go? It's almost as if, you know, you put out this fire and there's another one smoldering somewhere else, you know, trying to figure out where the insurgents have gone.

STARR: Well, that's it. They talk about it being like that boardwalk game, Whack-a-Mole.

ROMANS: Whack-a-Mole. STARR: They keep, you know, popping up everywhere. That's what a lot of military people say, is they have to stop doing the so-called body count.

They think in Falluja they may have killed 600 insurgents, they may have killed 1,000 insurgents. But is that really going to matter when we've already seen insurgents pop up again this week in places like Mosul? You -- can you -- you know, difficult to say. Can you can kill enough people to kill the insurgency? It's two different questions.

KOPPEL: Barbara, I want to know about how Iraqi forces are doing. This is really their second test, I guess, in recent weeks does. Does the U.S. military feel they're up to the task? Are they -- have they improved?

STARR: It depends who you talk to, Andrea. When you talk to U.S. military commanders, they give a very cheery picture of Iraqi participation, that the Iraqis are take charge, they're the ones going into sensitive areas, like mosques. We've also had our embedded reporters talk to soldiers on the frontline who say, well, the Iraqis are, you know, OK, but they're not -- you know, it's not like fighting alongside another U.S. Marine.

But then look at other place like Mosul. Mosul erupted in violence this week, insurgents moved in. They overran the police stations, and by all accounts the Iraqi police in Mosul have left the streets.

They're -- you know, understandably, they're afraid. They don't want to be killed by the insurgents.

So you still have this very fluid situation. No senior U.S. military commander at this point is really totally counting on the Iraqi security forces. No one says or believes that they're completely ready. Everyone believes U.S. forces are going to have to remain there for sometime.

QUIJANO: And how has all of that impacted sort of the insurgents' strategy? I mean, we've heard about the U.S.' approach and what they're -- you know, looking at the Whack-a-Mole game that you mentioned. But have the insurgents now modified their own tactics?

STARR: By all accounts, the insurgents also, you know, they're not -- they're not unawares. They are watching, they are modifying their tactics.

If you look at Baghdad this week, which probably -- what happened in Baghdad was probably one of the most under-reported stories. Prime Minister Ayad Allawi now has instituted a nighttime curfew until further notice. The airport remains closed. Some of Prime Minister Allawi's relatives were kidnapped.

All indications that insurgents are able to operate in Baghdad with some sense of impunity. That they feel they can strike at any time. And, of course, the old saying goes they only have to get lucky once. Car bombs, suicide bombs, IEDs, all still their tools of choice.

KOPPEL: Barbara, I know at the State Department this week spokesman Richard Boucher was out there talking about the U.S. strategy. That even as the fighting is going on, the U.S. wants to get reconstruction moving in Falluja because they want to show people that life after the insurgents will be tangibly better.

STARR: That it will be better. And already the Iraqis say that they are -- they have signed contracts, they have 100 million, 150 million set aside for reconstruction. They hope, they say, to start reconstruction on the northern side of the city even if the fighting is still going on in the south.

But make no mistake, there has been tremendous destruction of Falluja to make this victory happen. The insurgents pretty much chased out the civilians, they had booby trapped, you know, all of the -- many of the streets.

They booby trapped houses, they had all kinds of explosives set. And U.S. forces really had very little choice, they say, other than to go in and blow things up as they found them, as they found booby traps. So a lot of reconstruction work to be done, a lot of confidence-building to be done people of Falluja.

KOPPEL: Barbara, thank you so much. We'll have more, of course, on the Falluja story later in the hour with Jane Arraf, who is embedded with U.S. forces in Falluja.

The other big international story this week, of course, the death of Palestinian leader Yasser Arafat. Is there a new opportunity for peace? I'm back on that story right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I believe we've got a great chance to establish a Palestinian state. And I intend to use the next four years to spend the capital of the United States on such a state.

(END VIDEO CLIP)

KOPPEL: President Bush yesterday again committing the U.S. to a democratic Palestinian state. And with British Prime Minister Tony Blair at his side, Mr. Bush says the months ahead offer what he called, "a new opportunity for a lasting peace."

Welcome back. We're ON THE STORY.

STARR: Now Andrea, one of the players we haven't heard from in all of this, of course, is Israel. What does President Bush does to have to get Israel engaged in this new opportunity? KOPPEL: Sure. Certainly that's one -- one ace that the U.S. has had up its sleeve. The U.S. has a tremendous amount clout with the Israeli government. And the Arab world, U.S. allies in Europe, have been calling on United States for the last several years to urge Mr. Bush to press -- impress upon the Israelis the importance of doing several things.

And the reason right now that there's a window of opportunity to empower the current prime minister, Ahmed Qorei, and the former prime minister, Mahmoud Abbas, also known as Abu Mazen, to give them the credibility with -- with the Palestinian people. For instance, they could release Palestinian funds that they have in Israeli banks. They could release some Palestinian prisoners. They could also ease up on some of the closures.

The problem with some -- with the current leadership, the interim leadership right now, post-Arafat, is that these guys have -- they're known as moderates. The U.S. and Europeans feel that these are people that they could do business with, that want to bring peace with Israel. But they don't have really the (UNINTELLIGIBLE) on street. They don't have the same stature as Arafat, the same charisma.

They have the revolutionary credentials. They were there pretty much from the beginning of the founding of Khalil (ph). But Hamas, Palestinian Islamic Jihad, these militant groups have really grown in power and in membership over the last four years.

ROMANS: You talk about sort of the deathbed scene at Yasser Arafat's side. You know, you've got the grieving wife who's trying to control the flow of information, then you've got these -- these moderates, these men who are going to, at least in the interim, succeed and take over the operation of the Palestinian Authority. Give us a little sense of what all of that was like and the jockeying and sort of the drama at the bedside.

KOPPEL: It was. You took the words out of my mouth.

It was such a drama. And I know Elaine and I are sitting at our computers this week and we're seeing all of these bulletins, you know, the wire services flashing red on the screen.

ROMANS: Right.

KOPPEL: "Arafat is dead." "Arafat is alive." "Arafat is in a coma." "Arafat is on life support."

What is the story? And the reason for all the mixed messages and all of these false alarms and rumors and speculation was that, as you just alluded to, Suha Arafat -- Arafat was 75 years old when he passed away -- his 41-year-old wife is at his bedside, and under French law Arafat was in a military hospital in Paris. She has ultimate control over the flow of information.

Finally, the Palestinian Authority leadership, the guys who were running the shop while Arafat was in hospital said this is ridiculous. They were furious. She had a big outburst on one of the Arab satellite networks in which she accused them of trying to put Arafat in his grave. They flew to Paris, the drama of almost forcing their way into the hospital room. And with a couple of days Arafat passed away.

Now, you know, this is just terrible. It's one of the black humor that was circulating around the State Department this week was that Suha Arafat was keeping Arafat alive. Again, this was just what some U.S. officials were saying. That she was keeping him alive until she could get the pin numbers for his bank accounts, but she was really just after the money. I mean, it was really an awful joke.

ROMANS: There's a grain of truth in there, though. There's a lot of money that nobody knows where it is.

KOPPEL: Exactly. And she has been getting a lot.

ROMANS: Right.

KOPPEL: She has been getting a lot. And this comes from a third party, one of the nonprofit organizations that in the last several years, since they brought in this former World Bank official, Fayed Salaam (ph) to run the Palestinian Authority money, we know for a fact that Suha Arafat was receiving between $100,000 to $200,000 a month.

ROMANS: Which is a drop in the bucket from what -- they're trying to figure out how much he had. I mean, it was a lot of money and kept, you know, compartmentalized so that different aides knew where different stashes were. But nobody really knows the whole picture, right?

KOPPEL: And the only one who held the key to all of that was Yasser Arafat. And some say the secret or the answers to where all that money is, money that should have gone to the Palestinian people, died with him.

QUIJANO: Andrea, one thing that people have been saying -- sort of shifting gears a little bit, but the great game in Washington, sort of speculating where everybody is going to be, kind of has turned to Secretary Powell and his future. What are you hearing in the -- you know, in the halls at the State Department about what might be next for him?

KOPPEL: Absolutely. Well, certainly, before the election, and for the last number of months, the -- the general understanding was that Secretary Powell was tired, he was burned out. He was seen as the -- as the lone voice of moderation in the cabinet, constantly butting heads with your --with the guy you cover, Barbara, Secretary Rumsfeld, with Vice President Cheney.

And, in fact, the president was asked specifically about whether or not he had made a decision regarding Secretary Powell's future this week. Let's listen to what he had to say.

(BEGIN VIDEO CLIP)

BUSH: I'm proud of my secretary of state. He's done a heck of a good job.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

COLIN POWELL, SECRETARY OF STATE: I've been the president at least, oh, eight or nine times since the election, and we've talked about many, many things, but my conversations with the president are private.

(END VIDEO CLIP)

KOPPEL: OK. These are -- that's all from earlier this week. But I can tell you that in an interview, a couple of interviews Secretary Powell gave yesterday, the indications are much more so that the president may have reached a decision, and Secretary Powell may not be staying beyond that.

That is all, again, reading the tea leaves, reading the nuance of these statements, which is our bread and butter. No official announcement has been made, but it certainly does seem to indicate that Secretary Powell may not be around much longer. Among the speculation out there as to whom might replace him, of course, a woman who's near and dear to your heart, the national security adviser, Condoleezza Rice. But it's not even clear if she wants the job.

QUIJANO: Exactly.

ROMANS: All right. Well, let's move from the international to the domestic, and how interest rate hikes in the U.S. hit home for you and me. I'm back on the story in a moment.

Also coming up, we'll talk to Jane Arraf about what she's seeing today in the fight for Falluja.

And Elaine Quijano is ON THE STORY of the president changing his cabinet.

Plus, a check of what's making news right now all coming up.

(COMMERCIAL BREAK)

CALLAWAY: Hello, everyone. I'm Catherine Callaway in Atlanta. Here's an update on news today.

Scott Peterson awakes this morning with his life now in the hands of a jury. The same 12 people who found him guilty yesterday of murdering his wife and their unborn son will begin the sentencing phase in just over a week. Peterson could receive the death penalty.

In the West Bank town of Ramallah, Palestinian officials are among those gathering at the burial site of leader Yasser Arafat. Many people, including Arafat's successors, have laid wreaths at the grave at the Palestinian headquarters. Arafat died Thursday in a Paris hospital. And Secretary of State Colin Powell says that he's been in contact with the Palestinian leaders who have succeeded Arafat, and he says that they could meet soon to discuss the resumption of the Middle East peace process. There have been no talks in the last several years of Arafat's Palestinian leadership.

And in Iraq, government officials say there are no immediate plans to reopen Baghdad International Airport to commercial traffic. Officials closed it earlier this week fearing reprisals from the Falluja offensive. Security has been high around the country as a result.

I'm Catherine Callaway in Atlanta. And now ON THE STORY.

ROMANS: When the Federal Reserve pushed up interest rates this week it was a vote of confidence in the economy, and it was a move that hits many Americans on everything from their home mortgage to their credit cards.

Welcome back. We're ON THE STORY.

KOPPEL: You know, Christine, there is this big disconnect. The stock market is doing great, but then you have these huge budget and trade deficits. How do you square the two?

ROMANS: It's something that a lot of people on the street are talking about now. You're talking about budget deficits and trade deficits that are growing every day.

Robert Rubin this week, the former Treasury secretary, very concerned about them, painting a very black outlook for the U.S. economy. In fact, after he spoke to financial journalists in New York this week, one CNN staffer turned to another and said, "Should I slit my wrists now or later?" You know, it was that sort of dire.

So big long-term problems going. At the same time, the stock market, after the Bush reelection, the S&P is at the highest since before the September 11 attacks. So there is this big disconnect going on.

The Fed is raising interest rates. That's a vote of confidence in the economy. At the same time, you've got some big long-term problems that need to be tackled immediately.

QUIJANO: Speaking of the president's reelection, you know, he has made it clear that he wants to simplify the tax code and also implement Social Security reform. And we all have heard this on the campaign trail, when he would talk about privatizing Social Security or at least allowing younger workers to put a portion of their withholdings into the stock market.

You know, that's gotten some cheers from some people. What do the numbers actually bear out?

ROMANS: Well, it definitely bears out a fiery debate about whether it's a good idea to start tinkering with Social Security. The fact is Social Security needs to be -- needs to be overhauled. Almost everybody agrees.

When you look at the numbers, depending on what kind of re- overhaul you're going to get, basically for people like us and for older people it doesn't look as though benefits are going to be cut. But our children, our grandchildren are probably going to have to see some sort of scaleback in benefits, maybe pretty substantial, 45 to 65 percent for children who aren't even born yet.

And you're probably going to have to raise the retirement age. Alan Greenspan has said that several times, that you are going to have to start thinking about working a little bit longer.

So my advice to people is save more money. We don't save enough money as Americans, we have negative savings. We're all going to be gray haired and with our little canes covering our beads (ph) so that we can save enough money to retire. And plan to -- you know, plan to last until you're 90 because you're going to need that much money.

Don't count on Social Security.

KOPPEL: Either that, or the flip side is, just eat incredibly unhealthy food and...

(CROSSTALK)

STARR: Well, we'll all make an appointment for being on this set when we're 90 with our little canes.

ROMANS: Absolutely. Cane, no.

But as Andrea sort of hints, there is another business story we should see some fireworks on this week on Capitol Hill. The drug industries and the FDA.

ROMANS: Which also has an awful lot to do with aging, I guess, right?

STARR: Yes. Are going to have a few discussions.

ROMANS: Right. You've got it. The drug industry, $153 billion worth of drugs were sold last year, triple of only 10 years ago.

And now you're starting to hear these concerns about how aggressively drug companies have been pushing these drugs, how aggressively they have been putting aside unfavorable clinical data. How aggressively they have been marketing, say, in the case of Pfizer, it's under investigation for marketing a powerful adult antidepressant, Zoloft, to children. It's not approved for use in children.

There are some big concerns about to what lengths drug companies will go to push these sales. I talked to a lot of different doctors this week who said basically you're talking about an industry that has become much more commercial than it has science-based. I want to listen to what one of these doctors had to say.

(BEGIN VIDEO CLIP)

JERRY AVORIN, AUTHOR, "POWERFUL MEDICINES": We have allowed the use and manufacture and regulation of medicines to be treated as if it's just another commodity out there in the marketplace like cars or computers or shampoo. And many of us in medicine feel that that's really not the best way to approach it. That there is something special, almost sacred about medicines and about health care in general.

(END VIDEO CLIP)

STARR: We see these commercials on TV all the time. Half the time I don't even know what the drug is used for. It's all very mysterious to me. It's got to be costing money. I mean, it's got to -- this ad budget has got to be costing money.

ROMANS: They spend more on advertising on image and aura- building than they do on science now in the drug industry. And you talk about, you know, long lines to get a flu shot, yet you talk about the profits in drugs like Bextra from Pfizer that, you know, is for knee pain, or whatever. You know, why can't we get a flu shot, but anybody can go into their doctor with any kidn of random ache and pain and there are five or six different things that they can ask for?

STARR: So what does the FDA have to say about all of this? What are they up to?

ROMANS: Well, the FDA is going to be sitting in front of the Senate Finance Committee next week, answering some very tough questions. There will be hearings on the Hill about this next week. A lot of the doctors that I talked to this week, and the authors, the people who talk about rebuilding the health care system say the health care system, say the Food & Drug Administration is definitely on the hot seat and you would not want to be one of those commissioners next week.

STARR: Well, from the financial and business world, we're going to turn back to the war in Iraq. In a moment, Jane Arraf is ON THE STORY of the fight for Falluja.

(COMMERCIAL BREAK)

STARR: A glimpse of the fighting in recent days in Falluja between U.S. forces and insurgent holdouts 30 miles west of Baghdad.

Welcome back. We're ON THE STORY.

And joining us from the frontlines, our colleague, Jane Arraf, is on the phone.

Jane, I know we have a serious satellite delay here. So we'll chat with you for a few minutes. Can you tell us what you are seeing out in Falluja today? How it's all going?

ROMANS: Barbara, I think that obviously it's so tough to get a connection with Falluja. So we're going to try to work on that with Jane.

But let me ask you about what you think is happening on the ground. We talked about all the destruction that's likely going on in Falluja, that we know is going on in Falluja. Civilians, many of them have already left the area, but there are people who are in parts of the city who, you know, obviously are going to need aid. What's happening from what you're hearing in the halls of the Pentagon there?

STARR: Well, as we work to get Jane back on the phone, that is really the crux where things are now, that are embedded reporters like Jane, like Nic Robertson, like Karl Penhaul are really on the frontlines right with the troops, in danger, moving along with them. And Jane has been reporting all week long, as she moves with U.S. Army troops, about the level of destruction they're seeing.

Her unit that she is with has moved through a number of industrial areas of Falluja. And they have seen, according to Jane, massive destruction.

Jane has been describing it, as we look at some of these pictures, as a surreal scene, that civilians are largely gone. They've been chased away by the insurgents, or they -- you know, most of the city was deserted before the fighting began.

There certainly are people probably still hiding in their homes, trying to get food, water, medical care. There have been people who have assembled at mosques, trying to surrender to Iraqi forces, to say, we are not fighters, give us safe passage out of the city.

Many of Jane's reports this week, of course, if you've watched, have focused on why the destruction? They're having to blow up everything that they come across because they don't know what's booby- trapped. And if they don't, they are taking casualties. There have been about two dozen U.S. troops killed in the action in Falluja, dozens and dozens wounded, sniper fire throughout the city.

KOPPEL: How are they securing the areas as they go through? Are they leaving soldiers behind or are they just having to move on?

STARR: They are leaving some soldiers behind in some areas. As we continue to see some of this fighting, the pictures that the pools -- the reporting pools have shot during the week, you can see something very interesting there.

This is urban warfare. This is just the slugfest. What's happening is they stay in these areas, they secure them. But what they've seen in the last couple of days is small bands of insurgents come back in.

You know, there's some rat lines, if you will, throughout the city. They come back in, they stir up again they start -- the insurgents start firing in small, two, three-man sniper teams.

And what the U.S. troops are faced with is what they call the 360-degree battlefield. They don't even know where the frontlines are because there are no frontlines in Falluja. The fire, the sniper fire, he can be on a rooftop behind you, he can be barricaded in someone's deserted house. It can come from anywhere.

KOPPEL: I don't know if you can answer this, but from your many years of experience covering the Pentagon, how do they find safe places to sleep at night? And do you have any idea how much sleep these -- these men are operating on?

STARR: Well, the soldiers and, again, yes, our reporters, people like Jane and Nic Robertson and Karl Penhaul, they -- you -- I don't know anybody that gets a good night's sleep in Iraq. I mean, that's the first thing.

They -- you can talk to soldiers, and what you find is these kids are experts at a cat nap. They can become so tired. They're so -- they're so pumped that, when they get a few minutes to sit down, they pass out, they're gone.

Any time you're in a frontline situation, you will find some soldiers standing guard, some on patrol, some working, some operating, and then a little bit back from them there will always be a group of soldiers totally sacked out, trying to grab a few minutes' sleep. Very, very tough business.

I mean, look at what we know is going on. No -- you know, very doubtful they're getting hot meals, that they're getting sleep, that they're getting showers, what kind of sanitation. These guys are moving through a battle zone, and it's been going on for a week. Very tough.

QUIJANO: Well, unfortunately, we were not able to reestablish our connection with Jane Arraf. But from Iraq to changes inside the Bush administration, I'm back on that story after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ALBERTO GONZALES, ATTORNEY GENERAL NOMINEE: When I talk to people around the country, I sometimes tell them that within the Hispanic community there is a shared hope for an opportunity to succeed. "Just give me a chance to prove myself," that is a common prayer for those in my community.

Mr. President, thank you for that chance.

(END VIDEO CLIP)

QUIJANO: Alberto Gonzales after President Bush nominated him to be attorney general. He's in line to be the first Hispanic to hold the nation's top law enforcement post.

Welcome back. We're ON THE STORY.

ROMANS: The conservatives a little nervous about Alberto Gonzales. Why?

QUIJANO: Absolutely. Because it dates back to his time on the Texas Supreme Court, when he sided with a majorities of justices in dealing with an abortion case. And what it was, a pregnant girl, basically that the court ruled that she did not have to notify her parents about this abortion, and conservatives were up in arms about that.

And, you know, in fact, during that process, in rendering that decision, he talked about judicial activism. And, in fact, we've heard President Bush talk about judicial activism and talking about the gay marriage issue. But here you have another perspective that conservatives are very nervous about.

They think perhaps this is somebody who will seem to fall in line at first with their -- with their thinking on abortion, and also things like affirmative action. But at the same time, they think to themselves, look, there is an element here that makes distrustful. We're just not sure about him.

KOPPEL: He has a really heartwarming story of...

QUIJANO: His own personal story.

KOPPEL: ... his own pulling up from poverty to holding one of the highest offices in the land.

QUIJANO: Right, absolutely. He is the son of a migrant worker, and they, growing up, did not have a lot. Alberto Gonzales really is, as you said, one of those sort of American success stories of pulling yourself up by your bootstraps.

I mean, they didn't have much growing up. They didn't have running water. They lived, you know, a very kind of impoverished situation growing up in Texas.

And the situation that he finds himself now in, obviously, where he not only represents the president as White House counsel, but he also has the trust of the president as well in that very small sort of inner circle. It really sort of speaks to the level of which he was able to come up.

So there's an interesting personal story as well. And, in fact, President Bush in making that announcement said, you know, "I'm sure your parents must be very proud," as I'm sure any parents would be.

STARR: There's been other rounds of cabinet shuffles sort of under the radar a little bit this week?

QUIJANO: There have. You know, there -- this was not a surprise, Commerce Secretary Don Evans leaving, because we had heard that, you know, his family had moved back to Texas and it was really just sort of time for him to go home. But there again is another person that really is a trusted confidant of the president, deciding that he would not stay on for a second term.

ROMANS: And a man very much on message. I have to say, covering commerce and the markets and the economy, he is someone who I have tried and tried to move off that message and have failed. So I'm looking forward to a new -- a new challenge.

(LAUGHTER)

QUIJANO: Well, it's intnteresting you say that, though, but that is exactly why. I mean, the loyalty, as we all know, is so prized with the Bush administration. And, you know, for you to say he's on message, it's completely in line with other administration officials out there.

ROMANS: Absolutely.

QUIJANO: But -- yes, but he's saying it's time to leave.

We also know that Andy Card, White House chief of staff, was asked last weekend to stay on for a second term. And he has accepted.

We know that Education Secretary Rod Paige will not be staying on. So a little bit of reshuffling. But still some big names out there.

We talked about Secretary Powell. We don't know yet about Condoleezza Rice. So still a lot of speculating to keep the pundits happening.

STARR: And some shuffling at the CIA?

QUIJANO: That is interesting. Because this is a story that is still developing, Barbara. And you know a little bit more about this.

But the situation, as it stands, is that yesterday, John McLaughlin, who's the deputy CIA director, announced that he would be retiring. There was an announcement, a statement that was put out by McLaughlin, and he basically said that it was personal reasons. At the same time, the CIA put out its own statement, saying, you know, he's going to be retiring, moving into the retirement program with the agency.

And then today...

KOPPEL: Is that an old folks home for former CIA?

(LAUGHTER)

QUIJANO: You know, I'm not sure about that. That would be an interesting story, don't you think? The -- but the front page of "The Washington Post" has a story citing former officials, talking about how this was not a retirement, but more a resignation announcement.

STARR: Make no mistake, John McLaughlin is one of the great spy masters of the United States government. He is one of the -- he is one of the guys who knows where all the bodies are buried. Let's just face it.

He -- for those of us that cover this, he's a very quiet individual. One of the most fun things about John is that he is a professional magician. No joke. He does... QUIJANO: Spy and magician.

STARR: Spy and magician.

He has carried the agency through some of the crisis points of the last many months when George Tenet left. George, a tremendous charismatic figure; John operating much more below the horizon but doing the day-to-day business.

Sources we have in the agency says there has been tremendous stress since Porter Goss came in. Although it should be noted, every time a new director comes in the guys at Langley get nervous, they get upset. They think that, you know, anybody is impinging on their god- given territory.

So there is always stress. But it looks right now like under the horizon there is a lot of bad feelings emerging.

QUIJANO: Yes, because, I mean, does it seem like there is maybe more than just, OK, we have new folks coming in and that makes anybody nervous? Is there more sort of under the surface? I mean, Porter Goss, the president's man that he has put in place to replace George Tenet, really, you know, a lot of pressure to reform that agency.

STARR: Well, that's what's at stake right now. You know, a lot of people don't pay too much attention, but this whole notion of reorganization of the intelligence community, there's going to be winners and losers. And by all accounts, starting with Porter Goss, there's a lot staking out of territory.

Everybody wants to make sure they have a job or, you know, a deck chair on the Titanic, if you will, when the music stops. So there's a lot of what's going on underneath now in Washington.

ROMANS: All right. When the music stops, we're back ON THE STORY after this.

(COMMERCIAL BREAK)

STARR: Thanks to my colleagues. And thank you for watching ON THE STORY. We'll be back next week.

Coming up, CNN's "PEOPLE IN THE NEWS" focusing this week on Scott and Laci Peterson, and Yasser Arafat.

Straight ahead, a check of what's making news right now.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com


Aired November 13, 2004 - 10:00   ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CATHERINE CALLAWAY, CNN ANCHOR: After seven days of deliberations and two jurors dismissed in two days, Scott Peterson is found guilty of murdering his wife and unborn son. The same jury begins deliberating Peterson's fate November 22.
A somber scene in Ramallah as a steady stream of mourners file past the tomb of Yasser Arafat. Palestinian legislator Hanan Ashrawi joined other officials in laying wreaths at Arafat's grave. Elections for a new leader are planned for January 9.

Iraq's national security adviser says the battle for Falluja is almost over. He says most of the city now liberated from insurgents. Officials report a thousand insurgents have been killed, 200 captured during the seven-day battle.

Two senior Bush administration officials say Rod Paige plans to leave his post as education secretary. Earlier this year, Paige apologized for calling the National Education Association a terrorist organization. Paige would be the third cabinet member planning to leave his post for the president's second term.

I'm Catherine Callaway. And now ON THE STORY.

BARBARA STARR, CNN ANCHOR: Welcome to CNN's ON THE STORY, where our journalists have the inside word on the stories we covered this week. I'm Barbara Starr, ON THE STORY of the battle for Falluja: the cost, the gain, the lessons learned.

KIMBERLY OSIAS, CNN CORRESPONDENT: I'm Kimberly Osias, ON THE STORY in Redwood City, where in just seven hours jurors found Scott Peterson guilty of murder. Now the question is will they spare his life?

ELAINE QUIJANO, CNN CORRESPONDENT: I'm Elaine Quijano, ON THE STORY of how we saw the first changes in the Bush cabinet this week and preparations for the first battle with Congress.

ANDREA KOPPEL, CNN STATE DEPT. CORRESPONDENT: I'm Andrea Koppel, ON THE STORY of how the death of Yasser Arafat poses risks but also opportunities for Mideast peace.

CHRISTINE ROMANS, CNN CORRESPONDENT: And I'm Christine Romans, ON THE STORY of why the Fed decided to raise interest rates again but by just a fraction. Also coming up, we'll go to Falluja and our Jane Arraf about the fiercest block-to-block fighting of the war.

E-mail us at onthestory@cnn.com.

Now straight to Kimberly Osias and the Scott Peterson trial.

OSIAS: A number of twists and turns in this trial that was five months long, two years in the making. And in just seven hours jurors found Scott Peterson guilty of first-degree murder for killing his pregnant wife Laci and guilty of second-degree murder in the death of their fetus they planned to name Conner.

It was an absolutely electric moment here outside the courtroom. You could hear the cheers all the way up where I am standing, where I was live. And I am told by my colleague, Rusty Dornin, inside you could absolutely hear a pin drop. Scott Peterson, in fact, stared straight ahead and was motionless when the verdict came down.

KOPPEL: Kimberly, how much of a surprise was this to those of you following the to-ing and fro-ing, knowing that this was mostly a circumstantial case?

OSIAS: Andrea, I tell you, it was quite a surprise. In fact, many of us thought it would be a hung jury, or if they came down very quickly with a verdict that it would be an acquittal. So we weren't expecting it at all. But again, nothing has been expected in this trial. It has taken so many twists and turns.

ROMANS: Kimberly, let me ask you a little bit about what the -- what the public thought about this whole trial. You know, there were more than just one murder in 2002. This one somehow is the murder of 2002 that everyone will remember. Why is the public so fascinated with this story?

OSIAS: Well, you know, I think this is a case where there is something that everybody can latch onto. I mean, whether it's sort of a more highbrow component of the legal machinations, whether it will go to appeal, or those sorts of things, or the sheer emotionality of it.

I mean, this was a couple seemingly bound for great things, had it all very, very telegenic and things went horribly, horribly wrong. And here and, of course, in Modesto, I mean, people have been absolutely riveted.

I mean, there's been an outpouring of affection, there have been flowers that have come out. Mark Geragos had a boat, sort of a replica of that 14-foot game fisher that was out. And people were coming, sort of making it a makeshift shrine a while back. So I think there's just -- there's a lot of components in this story that really are riveting to many people.

STARR: Now Kimberly, even though we haven't yet even got to the penalty phase of the try, we don't know what punishment Scott Peterson will receive, people are already talking about whether there's grounds for appeal.

OSIAS: Barbara, you are absolutely right. I mean, as a matter of fact, Judge Alfred Delucci himself said this case is rife for appellate lawyers. He actually said it was sort of tantamount to a petri dish.

You know, I think a lot is going to depend on what happened behind closed doors. I mean, so much went on behind the scenes that we really don't know about. And I think it will really come down to what kind of record it was when the jurors were ousted.

QUIJANO: And Kimberly, along those lines, there's so much drama really coming at the end of the trial, not even with just the verdict, but in the days leading up to it. And we heard about that jury foreman being dismissed, also another juror. What are we hearing about what happened? What are some of the reasons behind these last- minute developments?

OSIAS: Well, Elaine, my sources tell me that there was really a lot of dissension within the jury when number five was the foreperson. And it would stand to reason because, of course, after the ousting of him with a new foreperson, they came to a verdict and a decision very quickly.

Again, my sources have really said that basically this guy, of course he was an attorney and a physician as well. That he tried to really take the reins too much so, and said that they really had to go through all the evidence first before they even took a count.

KOPPEL: Kimberly, I know you weren't in the courtroom, but what did you hear about Scott's reaction, and what have people been reading into that reaction?

OSIAS: Very stone-faced, Andrea, as a matter of fact. "Motionless" was the word that I heard used. And, you know, Jackie Peterson, his mother, when she left court -- and I actually saw videotape of this -- she was really greeted with a number of jeers from the crowd saying, "Well, are you proud of your son now?" And "How do you feel?" And she mouthed that she was.

ROMANS: It's so interesting, Kimberly, because some of the things that -- that some media organizations are saying about this -- this trial, I mean, it's just this fascinating murder trial and people have been covering it wall to wall. And, of course, you know, on the program that I mostly work on, "LOU DOBBS TONIGHT," we barely mentioned it.

It is just a murder. Murders are local news stories.

You know, what do you think happens next once we get beyond the Scott Peterson trial? Do you think the media is going to continue to cover it just breathlessly, minute-by-minute through the appeals process?

OSIAS: Well, Christine, I think you bring up a very important point in that there are so many murders that happen, and this was one that happened to be incredibly engaging for many people, and as I sort of alluded to, for many, many reasons. I think now after the penalty phase the media attention, sort of the fracas, if you will, will die off and dissipate. So it will be interesting to watch as it moves forward.

STARR: Kimberly, at the end of the day, how is it that the prosecution, after a lot of questions that they had missed opportunities, knitted it all together and made their case?

OSIAS: You know, Barbara, having been in there for the closing arguments, I think it was really Rick Distaso's shining moment. I mean, he really sort of brought it all together.

He was very impassioned. He made a plea to jurors, of course. That is the last thing that they hear before they go back to make their deliberations, and I think he really hammered it home. He sort of pointed and ID'd Scott Peterson as the murderer, in fact.

And really, you know, the defense had made so many promises, basically saying, you know, look, this is a case, and I'm not only going prove that Scott Peterson is innocent, but I'm going to prove that he is stone-cold innocent. They also said they were going to turn it into an eyewitness case. And really, they never did any of those things. So I think that was really the downfall of Mark Geragos and his team.

QUIJANO: And Kimberly, this is such a long, drawn-out process, I heard Rusty saying she had been on this really for two years, along with her colleague, Ted Rowlands. For everybody involved it's been such an ordeal. Are the jurors who were dismissed, are they talking about their experience at all?

OSIAS: Well, Elaine, you, of course, have covered this story as well. I think you were actually in Modesto when some of those item of furniture were removed. So it was certainly an emotional time then.

But speaking about the jurors, you know, of course they're all under a gag order, and attorneys are under a gag order as well. But actually, one juror, number seven, who was ousted spoke out to affiliate KTVU a little while earlier. Let's take a listen to what Fran Gorman had to say.

(BEGIN VIDEO CLIP)

FRAN GORMAN, DISMISSED JUROR: I was surprised it came this quickly. I was just surprised it came this quickly. I thought with two new people on the jury that it would take a little bit of time to get the new folks up to speed. So I am somewhat surprised that it came this week.

(END VIDEO CLIP)

OSIAS: She is again under a gag order from Judge Alfred Delucci, so it is very interesting that she spoke out. Again, that was to our affiliate KTVU. STARR: Well, Kimberly, it does look indeed like it's going to be a beautiful sunny morning in southern -- in California. Thank you. All of us will be watching the final part of the trial.

Now, from California, to the danger streets of Falluja in Iraq, what next for the fight against the insurgents? I'm back on that story after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, DEFENSE SECRETARY: If Iraq is to be free and a peaceful society, one part of the country cannot remain under the rule of assassins, terrorists and the remnants of Saddam Hussein's regime.

(END VIDEO CLIP)

STARR: Defense Secretary Donald Rumsfeld spelling out the administration's case for the fight for Falluja. An earlier military attempt failed, a political solution failed. And now U.S. forces with some Iraqi help are fighting their way to complete control of the city.

QUIJANO: You know, Barbara, I wanted to ask you about -- we heard so much about sort of the run-up, that this was really the center of the insurgency, that they were looking at it as a place really as this hotbed of activity, of violence, the source of this violence. Where does the situation stand right now?

STARR: Well, today, we are hearing that U.S. forces are continuing to battle their way south, that they've got pretty much control of the city. That they've killed hundreds of insurgents, that they have captured a good number, and they're continuing to work their way house by house, street by street, as we hear.

The question, I think, is going to be what happens in Falluja next? They can defeat the insurgents, but will Iraqi forces really be able to take long-term control of the city?

What we're beginning to hear more and more is this is a fight for terrain, getting control of that city and maintain control so that Falluja, so that the Sunnis participate in the January elections. That's the long-term goal once this campaign is done.

ROMANS: Barbara, how do we know how many insurgents are already out of the city? How many left before the -- you know, the American advance? And where do they go? It's almost as if, you know, you put out this fire and there's another one smoldering somewhere else, you know, trying to figure out where the insurgents have gone.

STARR: Well, that's it. They talk about it being like that boardwalk game, Whack-a-Mole.

ROMANS: Whack-a-Mole. STARR: They keep, you know, popping up everywhere. That's what a lot of military people say, is they have to stop doing the so-called body count.

They think in Falluja they may have killed 600 insurgents, they may have killed 1,000 insurgents. But is that really going to matter when we've already seen insurgents pop up again this week in places like Mosul? You -- can you -- you know, difficult to say. Can you can kill enough people to kill the insurgency? It's two different questions.

KOPPEL: Barbara, I want to know about how Iraqi forces are doing. This is really their second test, I guess, in recent weeks does. Does the U.S. military feel they're up to the task? Are they -- have they improved?

STARR: It depends who you talk to, Andrea. When you talk to U.S. military commanders, they give a very cheery picture of Iraqi participation, that the Iraqis are take charge, they're the ones going into sensitive areas, like mosques. We've also had our embedded reporters talk to soldiers on the frontline who say, well, the Iraqis are, you know, OK, but they're not -- you know, it's not like fighting alongside another U.S. Marine.

But then look at other place like Mosul. Mosul erupted in violence this week, insurgents moved in. They overran the police stations, and by all accounts the Iraqi police in Mosul have left the streets.

They're -- you know, understandably, they're afraid. They don't want to be killed by the insurgents.

So you still have this very fluid situation. No senior U.S. military commander at this point is really totally counting on the Iraqi security forces. No one says or believes that they're completely ready. Everyone believes U.S. forces are going to have to remain there for sometime.

QUIJANO: And how has all of that impacted sort of the insurgents' strategy? I mean, we've heard about the U.S.' approach and what they're -- you know, looking at the Whack-a-Mole game that you mentioned. But have the insurgents now modified their own tactics?

STARR: By all accounts, the insurgents also, you know, they're not -- they're not unawares. They are watching, they are modifying their tactics.

If you look at Baghdad this week, which probably -- what happened in Baghdad was probably one of the most under-reported stories. Prime Minister Ayad Allawi now has instituted a nighttime curfew until further notice. The airport remains closed. Some of Prime Minister Allawi's relatives were kidnapped.

All indications that insurgents are able to operate in Baghdad with some sense of impunity. That they feel they can strike at any time. And, of course, the old saying goes they only have to get lucky once. Car bombs, suicide bombs, IEDs, all still their tools of choice.

KOPPEL: Barbara, I know at the State Department this week spokesman Richard Boucher was out there talking about the U.S. strategy. That even as the fighting is going on, the U.S. wants to get reconstruction moving in Falluja because they want to show people that life after the insurgents will be tangibly better.

STARR: That it will be better. And already the Iraqis say that they are -- they have signed contracts, they have 100 million, 150 million set aside for reconstruction. They hope, they say, to start reconstruction on the northern side of the city even if the fighting is still going on in the south.

But make no mistake, there has been tremendous destruction of Falluja to make this victory happen. The insurgents pretty much chased out the civilians, they had booby trapped, you know, all of the -- many of the streets.

They booby trapped houses, they had all kinds of explosives set. And U.S. forces really had very little choice, they say, other than to go in and blow things up as they found them, as they found booby traps. So a lot of reconstruction work to be done, a lot of confidence-building to be done people of Falluja.

KOPPEL: Barbara, thank you so much. We'll have more, of course, on the Falluja story later in the hour with Jane Arraf, who is embedded with U.S. forces in Falluja.

The other big international story this week, of course, the death of Palestinian leader Yasser Arafat. Is there a new opportunity for peace? I'm back on that story right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I believe we've got a great chance to establish a Palestinian state. And I intend to use the next four years to spend the capital of the United States on such a state.

(END VIDEO CLIP)

KOPPEL: President Bush yesterday again committing the U.S. to a democratic Palestinian state. And with British Prime Minister Tony Blair at his side, Mr. Bush says the months ahead offer what he called, "a new opportunity for a lasting peace."

Welcome back. We're ON THE STORY.

STARR: Now Andrea, one of the players we haven't heard from in all of this, of course, is Israel. What does President Bush does to have to get Israel engaged in this new opportunity? KOPPEL: Sure. Certainly that's one -- one ace that the U.S. has had up its sleeve. The U.S. has a tremendous amount clout with the Israeli government. And the Arab world, U.S. allies in Europe, have been calling on United States for the last several years to urge Mr. Bush to press -- impress upon the Israelis the importance of doing several things.

And the reason right now that there's a window of opportunity to empower the current prime minister, Ahmed Qorei, and the former prime minister, Mahmoud Abbas, also known as Abu Mazen, to give them the credibility with -- with the Palestinian people. For instance, they could release Palestinian funds that they have in Israeli banks. They could release some Palestinian prisoners. They could also ease up on some of the closures.

The problem with some -- with the current leadership, the interim leadership right now, post-Arafat, is that these guys have -- they're known as moderates. The U.S. and Europeans feel that these are people that they could do business with, that want to bring peace with Israel. But they don't have really the (UNINTELLIGIBLE) on street. They don't have the same stature as Arafat, the same charisma.

They have the revolutionary credentials. They were there pretty much from the beginning of the founding of Khalil (ph). But Hamas, Palestinian Islamic Jihad, these militant groups have really grown in power and in membership over the last four years.

ROMANS: You talk about sort of the deathbed scene at Yasser Arafat's side. You know, you've got the grieving wife who's trying to control the flow of information, then you've got these -- these moderates, these men who are going to, at least in the interim, succeed and take over the operation of the Palestinian Authority. Give us a little sense of what all of that was like and the jockeying and sort of the drama at the bedside.

KOPPEL: It was. You took the words out of my mouth.

It was such a drama. And I know Elaine and I are sitting at our computers this week and we're seeing all of these bulletins, you know, the wire services flashing red on the screen.

ROMANS: Right.

KOPPEL: "Arafat is dead." "Arafat is alive." "Arafat is in a coma." "Arafat is on life support."

What is the story? And the reason for all the mixed messages and all of these false alarms and rumors and speculation was that, as you just alluded to, Suha Arafat -- Arafat was 75 years old when he passed away -- his 41-year-old wife is at his bedside, and under French law Arafat was in a military hospital in Paris. She has ultimate control over the flow of information.

Finally, the Palestinian Authority leadership, the guys who were running the shop while Arafat was in hospital said this is ridiculous. They were furious. She had a big outburst on one of the Arab satellite networks in which she accused them of trying to put Arafat in his grave. They flew to Paris, the drama of almost forcing their way into the hospital room. And with a couple of days Arafat passed away.

Now, you know, this is just terrible. It's one of the black humor that was circulating around the State Department this week was that Suha Arafat was keeping Arafat alive. Again, this was just what some U.S. officials were saying. That she was keeping him alive until she could get the pin numbers for his bank accounts, but she was really just after the money. I mean, it was really an awful joke.

ROMANS: There's a grain of truth in there, though. There's a lot of money that nobody knows where it is.

KOPPEL: Exactly. And she has been getting a lot.

ROMANS: Right.

KOPPEL: She has been getting a lot. And this comes from a third party, one of the nonprofit organizations that in the last several years, since they brought in this former World Bank official, Fayed Salaam (ph) to run the Palestinian Authority money, we know for a fact that Suha Arafat was receiving between $100,000 to $200,000 a month.

ROMANS: Which is a drop in the bucket from what -- they're trying to figure out how much he had. I mean, it was a lot of money and kept, you know, compartmentalized so that different aides knew where different stashes were. But nobody really knows the whole picture, right?

KOPPEL: And the only one who held the key to all of that was Yasser Arafat. And some say the secret or the answers to where all that money is, money that should have gone to the Palestinian people, died with him.

QUIJANO: Andrea, one thing that people have been saying -- sort of shifting gears a little bit, but the great game in Washington, sort of speculating where everybody is going to be, kind of has turned to Secretary Powell and his future. What are you hearing in the -- you know, in the halls at the State Department about what might be next for him?

KOPPEL: Absolutely. Well, certainly, before the election, and for the last number of months, the -- the general understanding was that Secretary Powell was tired, he was burned out. He was seen as the -- as the lone voice of moderation in the cabinet, constantly butting heads with your --with the guy you cover, Barbara, Secretary Rumsfeld, with Vice President Cheney.

And, in fact, the president was asked specifically about whether or not he had made a decision regarding Secretary Powell's future this week. Let's listen to what he had to say.

(BEGIN VIDEO CLIP)

BUSH: I'm proud of my secretary of state. He's done a heck of a good job.

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

COLIN POWELL, SECRETARY OF STATE: I've been the president at least, oh, eight or nine times since the election, and we've talked about many, many things, but my conversations with the president are private.

(END VIDEO CLIP)

KOPPEL: OK. These are -- that's all from earlier this week. But I can tell you that in an interview, a couple of interviews Secretary Powell gave yesterday, the indications are much more so that the president may have reached a decision, and Secretary Powell may not be staying beyond that.

That is all, again, reading the tea leaves, reading the nuance of these statements, which is our bread and butter. No official announcement has been made, but it certainly does seem to indicate that Secretary Powell may not be around much longer. Among the speculation out there as to whom might replace him, of course, a woman who's near and dear to your heart, the national security adviser, Condoleezza Rice. But it's not even clear if she wants the job.

QUIJANO: Exactly.

ROMANS: All right. Well, let's move from the international to the domestic, and how interest rate hikes in the U.S. hit home for you and me. I'm back on the story in a moment.

Also coming up, we'll talk to Jane Arraf about what she's seeing today in the fight for Falluja.

And Elaine Quijano is ON THE STORY of the president changing his cabinet.

Plus, a check of what's making news right now all coming up.

(COMMERCIAL BREAK)

CALLAWAY: Hello, everyone. I'm Catherine Callaway in Atlanta. Here's an update on news today.

Scott Peterson awakes this morning with his life now in the hands of a jury. The same 12 people who found him guilty yesterday of murdering his wife and their unborn son will begin the sentencing phase in just over a week. Peterson could receive the death penalty.

In the West Bank town of Ramallah, Palestinian officials are among those gathering at the burial site of leader Yasser Arafat. Many people, including Arafat's successors, have laid wreaths at the grave at the Palestinian headquarters. Arafat died Thursday in a Paris hospital. And Secretary of State Colin Powell says that he's been in contact with the Palestinian leaders who have succeeded Arafat, and he says that they could meet soon to discuss the resumption of the Middle East peace process. There have been no talks in the last several years of Arafat's Palestinian leadership.

And in Iraq, government officials say there are no immediate plans to reopen Baghdad International Airport to commercial traffic. Officials closed it earlier this week fearing reprisals from the Falluja offensive. Security has been high around the country as a result.

I'm Catherine Callaway in Atlanta. And now ON THE STORY.

ROMANS: When the Federal Reserve pushed up interest rates this week it was a vote of confidence in the economy, and it was a move that hits many Americans on everything from their home mortgage to their credit cards.

Welcome back. We're ON THE STORY.

KOPPEL: You know, Christine, there is this big disconnect. The stock market is doing great, but then you have these huge budget and trade deficits. How do you square the two?

ROMANS: It's something that a lot of people on the street are talking about now. You're talking about budget deficits and trade deficits that are growing every day.

Robert Rubin this week, the former Treasury secretary, very concerned about them, painting a very black outlook for the U.S. economy. In fact, after he spoke to financial journalists in New York this week, one CNN staffer turned to another and said, "Should I slit my wrists now or later?" You know, it was that sort of dire.

So big long-term problems going. At the same time, the stock market, after the Bush reelection, the S&P is at the highest since before the September 11 attacks. So there is this big disconnect going on.

The Fed is raising interest rates. That's a vote of confidence in the economy. At the same time, you've got some big long-term problems that need to be tackled immediately.

QUIJANO: Speaking of the president's reelection, you know, he has made it clear that he wants to simplify the tax code and also implement Social Security reform. And we all have heard this on the campaign trail, when he would talk about privatizing Social Security or at least allowing younger workers to put a portion of their withholdings into the stock market.

You know, that's gotten some cheers from some people. What do the numbers actually bear out?

ROMANS: Well, it definitely bears out a fiery debate about whether it's a good idea to start tinkering with Social Security. The fact is Social Security needs to be -- needs to be overhauled. Almost everybody agrees.

When you look at the numbers, depending on what kind of re- overhaul you're going to get, basically for people like us and for older people it doesn't look as though benefits are going to be cut. But our children, our grandchildren are probably going to have to see some sort of scaleback in benefits, maybe pretty substantial, 45 to 65 percent for children who aren't even born yet.

And you're probably going to have to raise the retirement age. Alan Greenspan has said that several times, that you are going to have to start thinking about working a little bit longer.

So my advice to people is save more money. We don't save enough money as Americans, we have negative savings. We're all going to be gray haired and with our little canes covering our beads (ph) so that we can save enough money to retire. And plan to -- you know, plan to last until you're 90 because you're going to need that much money.

Don't count on Social Security.

KOPPEL: Either that, or the flip side is, just eat incredibly unhealthy food and...

(CROSSTALK)

STARR: Well, we'll all make an appointment for being on this set when we're 90 with our little canes.

ROMANS: Absolutely. Cane, no.

But as Andrea sort of hints, there is another business story we should see some fireworks on this week on Capitol Hill. The drug industries and the FDA.

ROMANS: Which also has an awful lot to do with aging, I guess, right?

STARR: Yes. Are going to have a few discussions.

ROMANS: Right. You've got it. The drug industry, $153 billion worth of drugs were sold last year, triple of only 10 years ago.

And now you're starting to hear these concerns about how aggressively drug companies have been pushing these drugs, how aggressively they have been putting aside unfavorable clinical data. How aggressively they have been marketing, say, in the case of Pfizer, it's under investigation for marketing a powerful adult antidepressant, Zoloft, to children. It's not approved for use in children.

There are some big concerns about to what lengths drug companies will go to push these sales. I talked to a lot of different doctors this week who said basically you're talking about an industry that has become much more commercial than it has science-based. I want to listen to what one of these doctors had to say.

(BEGIN VIDEO CLIP)

JERRY AVORIN, AUTHOR, "POWERFUL MEDICINES": We have allowed the use and manufacture and regulation of medicines to be treated as if it's just another commodity out there in the marketplace like cars or computers or shampoo. And many of us in medicine feel that that's really not the best way to approach it. That there is something special, almost sacred about medicines and about health care in general.

(END VIDEO CLIP)

STARR: We see these commercials on TV all the time. Half the time I don't even know what the drug is used for. It's all very mysterious to me. It's got to be costing money. I mean, it's got to -- this ad budget has got to be costing money.

ROMANS: They spend more on advertising on image and aura- building than they do on science now in the drug industry. And you talk about, you know, long lines to get a flu shot, yet you talk about the profits in drugs like Bextra from Pfizer that, you know, is for knee pain, or whatever. You know, why can't we get a flu shot, but anybody can go into their doctor with any kidn of random ache and pain and there are five or six different things that they can ask for?

STARR: So what does the FDA have to say about all of this? What are they up to?

ROMANS: Well, the FDA is going to be sitting in front of the Senate Finance Committee next week, answering some very tough questions. There will be hearings on the Hill about this next week. A lot of the doctors that I talked to this week, and the authors, the people who talk about rebuilding the health care system say the health care system, say the Food & Drug Administration is definitely on the hot seat and you would not want to be one of those commissioners next week.

STARR: Well, from the financial and business world, we're going to turn back to the war in Iraq. In a moment, Jane Arraf is ON THE STORY of the fight for Falluja.

(COMMERCIAL BREAK)

STARR: A glimpse of the fighting in recent days in Falluja between U.S. forces and insurgent holdouts 30 miles west of Baghdad.

Welcome back. We're ON THE STORY.

And joining us from the frontlines, our colleague, Jane Arraf, is on the phone.

Jane, I know we have a serious satellite delay here. So we'll chat with you for a few minutes. Can you tell us what you are seeing out in Falluja today? How it's all going?

ROMANS: Barbara, I think that obviously it's so tough to get a connection with Falluja. So we're going to try to work on that with Jane.

But let me ask you about what you think is happening on the ground. We talked about all the destruction that's likely going on in Falluja, that we know is going on in Falluja. Civilians, many of them have already left the area, but there are people who are in parts of the city who, you know, obviously are going to need aid. What's happening from what you're hearing in the halls of the Pentagon there?

STARR: Well, as we work to get Jane back on the phone, that is really the crux where things are now, that are embedded reporters like Jane, like Nic Robertson, like Karl Penhaul are really on the frontlines right with the troops, in danger, moving along with them. And Jane has been reporting all week long, as she moves with U.S. Army troops, about the level of destruction they're seeing.

Her unit that she is with has moved through a number of industrial areas of Falluja. And they have seen, according to Jane, massive destruction.

Jane has been describing it, as we look at some of these pictures, as a surreal scene, that civilians are largely gone. They've been chased away by the insurgents, or they -- you know, most of the city was deserted before the fighting began.

There certainly are people probably still hiding in their homes, trying to get food, water, medical care. There have been people who have assembled at mosques, trying to surrender to Iraqi forces, to say, we are not fighters, give us safe passage out of the city.

Many of Jane's reports this week, of course, if you've watched, have focused on why the destruction? They're having to blow up everything that they come across because they don't know what's booby- trapped. And if they don't, they are taking casualties. There have been about two dozen U.S. troops killed in the action in Falluja, dozens and dozens wounded, sniper fire throughout the city.

KOPPEL: How are they securing the areas as they go through? Are they leaving soldiers behind or are they just having to move on?

STARR: They are leaving some soldiers behind in some areas. As we continue to see some of this fighting, the pictures that the pools -- the reporting pools have shot during the week, you can see something very interesting there.

This is urban warfare. This is just the slugfest. What's happening is they stay in these areas, they secure them. But what they've seen in the last couple of days is small bands of insurgents come back in.

You know, there's some rat lines, if you will, throughout the city. They come back in, they stir up again they start -- the insurgents start firing in small, two, three-man sniper teams.

And what the U.S. troops are faced with is what they call the 360-degree battlefield. They don't even know where the frontlines are because there are no frontlines in Falluja. The fire, the sniper fire, he can be on a rooftop behind you, he can be barricaded in someone's deserted house. It can come from anywhere.

KOPPEL: I don't know if you can answer this, but from your many years of experience covering the Pentagon, how do they find safe places to sleep at night? And do you have any idea how much sleep these -- these men are operating on?

STARR: Well, the soldiers and, again, yes, our reporters, people like Jane and Nic Robertson and Karl Penhaul, they -- you -- I don't know anybody that gets a good night's sleep in Iraq. I mean, that's the first thing.

They -- you can talk to soldiers, and what you find is these kids are experts at a cat nap. They can become so tired. They're so -- they're so pumped that, when they get a few minutes to sit down, they pass out, they're gone.

Any time you're in a frontline situation, you will find some soldiers standing guard, some on patrol, some working, some operating, and then a little bit back from them there will always be a group of soldiers totally sacked out, trying to grab a few minutes' sleep. Very, very tough business.

I mean, look at what we know is going on. No -- you know, very doubtful they're getting hot meals, that they're getting sleep, that they're getting showers, what kind of sanitation. These guys are moving through a battle zone, and it's been going on for a week. Very tough.

QUIJANO: Well, unfortunately, we were not able to reestablish our connection with Jane Arraf. But from Iraq to changes inside the Bush administration, I'm back on that story after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

ALBERTO GONZALES, ATTORNEY GENERAL NOMINEE: When I talk to people around the country, I sometimes tell them that within the Hispanic community there is a shared hope for an opportunity to succeed. "Just give me a chance to prove myself," that is a common prayer for those in my community.

Mr. President, thank you for that chance.

(END VIDEO CLIP)

QUIJANO: Alberto Gonzales after President Bush nominated him to be attorney general. He's in line to be the first Hispanic to hold the nation's top law enforcement post.

Welcome back. We're ON THE STORY.

ROMANS: The conservatives a little nervous about Alberto Gonzales. Why?

QUIJANO: Absolutely. Because it dates back to his time on the Texas Supreme Court, when he sided with a majorities of justices in dealing with an abortion case. And what it was, a pregnant girl, basically that the court ruled that she did not have to notify her parents about this abortion, and conservatives were up in arms about that.

And, you know, in fact, during that process, in rendering that decision, he talked about judicial activism. And, in fact, we've heard President Bush talk about judicial activism and talking about the gay marriage issue. But here you have another perspective that conservatives are very nervous about.

They think perhaps this is somebody who will seem to fall in line at first with their -- with their thinking on abortion, and also things like affirmative action. But at the same time, they think to themselves, look, there is an element here that makes distrustful. We're just not sure about him.

KOPPEL: He has a really heartwarming story of...

QUIJANO: His own personal story.

KOPPEL: ... his own pulling up from poverty to holding one of the highest offices in the land.

QUIJANO: Right, absolutely. He is the son of a migrant worker, and they, growing up, did not have a lot. Alberto Gonzales really is, as you said, one of those sort of American success stories of pulling yourself up by your bootstraps.

I mean, they didn't have much growing up. They didn't have running water. They lived, you know, a very kind of impoverished situation growing up in Texas.

And the situation that he finds himself now in, obviously, where he not only represents the president as White House counsel, but he also has the trust of the president as well in that very small sort of inner circle. It really sort of speaks to the level of which he was able to come up.

So there's an interesting personal story as well. And, in fact, President Bush in making that announcement said, you know, "I'm sure your parents must be very proud," as I'm sure any parents would be.

STARR: There's been other rounds of cabinet shuffles sort of under the radar a little bit this week?

QUIJANO: There have. You know, there -- this was not a surprise, Commerce Secretary Don Evans leaving, because we had heard that, you know, his family had moved back to Texas and it was really just sort of time for him to go home. But there again is another person that really is a trusted confidant of the president, deciding that he would not stay on for a second term.

ROMANS: And a man very much on message. I have to say, covering commerce and the markets and the economy, he is someone who I have tried and tried to move off that message and have failed. So I'm looking forward to a new -- a new challenge.

(LAUGHTER)

QUIJANO: Well, it's intnteresting you say that, though, but that is exactly why. I mean, the loyalty, as we all know, is so prized with the Bush administration. And, you know, for you to say he's on message, it's completely in line with other administration officials out there.

ROMANS: Absolutely.

QUIJANO: But -- yes, but he's saying it's time to leave.

We also know that Andy Card, White House chief of staff, was asked last weekend to stay on for a second term. And he has accepted.

We know that Education Secretary Rod Paige will not be staying on. So a little bit of reshuffling. But still some big names out there.

We talked about Secretary Powell. We don't know yet about Condoleezza Rice. So still a lot of speculating to keep the pundits happening.

STARR: And some shuffling at the CIA?

QUIJANO: That is interesting. Because this is a story that is still developing, Barbara. And you know a little bit more about this.

But the situation, as it stands, is that yesterday, John McLaughlin, who's the deputy CIA director, announced that he would be retiring. There was an announcement, a statement that was put out by McLaughlin, and he basically said that it was personal reasons. At the same time, the CIA put out its own statement, saying, you know, he's going to be retiring, moving into the retirement program with the agency.

And then today...

KOPPEL: Is that an old folks home for former CIA?

(LAUGHTER)

QUIJANO: You know, I'm not sure about that. That would be an interesting story, don't you think? The -- but the front page of "The Washington Post" has a story citing former officials, talking about how this was not a retirement, but more a resignation announcement.

STARR: Make no mistake, John McLaughlin is one of the great spy masters of the United States government. He is one of the -- he is one of the guys who knows where all the bodies are buried. Let's just face it.

He -- for those of us that cover this, he's a very quiet individual. One of the most fun things about John is that he is a professional magician. No joke. He does... QUIJANO: Spy and magician.

STARR: Spy and magician.

He has carried the agency through some of the crisis points of the last many months when George Tenet left. George, a tremendous charismatic figure; John operating much more below the horizon but doing the day-to-day business.

Sources we have in the agency says there has been tremendous stress since Porter Goss came in. Although it should be noted, every time a new director comes in the guys at Langley get nervous, they get upset. They think that, you know, anybody is impinging on their god- given territory.

So there is always stress. But it looks right now like under the horizon there is a lot of bad feelings emerging.

QUIJANO: Yes, because, I mean, does it seem like there is maybe more than just, OK, we have new folks coming in and that makes anybody nervous? Is there more sort of under the surface? I mean, Porter Goss, the president's man that he has put in place to replace George Tenet, really, you know, a lot of pressure to reform that agency.

STARR: Well, that's what's at stake right now. You know, a lot of people don't pay too much attention, but this whole notion of reorganization of the intelligence community, there's going to be winners and losers. And by all accounts, starting with Porter Goss, there's a lot staking out of territory.

Everybody wants to make sure they have a job or, you know, a deck chair on the Titanic, if you will, when the music stops. So there's a lot of what's going on underneath now in Washington.

ROMANS: All right. When the music stops, we're back ON THE STORY after this.

(COMMERCIAL BREAK)

STARR: Thanks to my colleagues. And thank you for watching ON THE STORY. We'll be back next week.

Coming up, CNN's "PEOPLE IN THE NEWS" focusing this week on Scott and Laci Peterson, and Yasser Arafat.

Straight ahead, a check of what's making news right now.

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