• This is a rush transcript from "The Journal Editorial Report," December 30, 2006.

    PAUL GIGOT, FOX HOST: This week on the "Journal Editorial Report," the big stories of 2006 that will continue to shape your world in the New Year.

    With conventional wisdom calling the war a failure, is there a way forward in Iraq? And can President Bush find it?

    Plus, Hillary Clinton and John McCain may be the frontrunners now, but who will lead the pack as we an approach the primaries?

    And will the go-go economy of 2006 go bust under the policies of the 110th Congress?

    But first, these headlines.


    GIGOT: Welcome to the "Journal Editorial Report." I'm Paul Gigot.

    From war in the Middle East to a political sea change here at home, it was a remarkable year. So for our final show of 2006, we thought we would look at how the big events of this year are going to shape the news of 2007 and beyond.

    We'll begin with the biggest story of 2006 — Iraq.

    Joining the panel this week, "Wall Street Journal" Columnist and Deputy Editor Dan Henninger, OpinionJournal.com Editor James Taranto, Editorial Board Member Steve Moore and our taste and culture guru Naomi Schaefer Riley.

    Dan, this week the president said victory is still attainable in Iraq, juxtaposed against the Iraq Study Group report saying it isn't. Is there a way forward the president can find?

    DAN HENNINGER, WSJ COLUMNIST AND DEPUTY EDITOR: Well, let's put it this way, Paul. I think a way forward is a lot better than a way backward. Which is to say, the way backward, suggesting something like a pullout, would be simply catastrophic for the region.

    Now, I think, in retrospect, the Iraq Study Group served one useful purpose. It was a wake-up call to everyone. I think the Iraq government was treading water. I think the Bush administration and the White House was also treading water on Iraq. This is kind of like a big stone into the water. Everyone has had to pull back.

    I think that what we're going to see now is — you know President Talabani of Iraq denounced the report. You will see more movement among the political factions inside Iraq. When Sadr withdrew from the government, Muqtada al-Sadr...

    GIGOT: The radical cleric.

    HENNINGER: The radical cleric — pulled out of the government, those that remained started to form a new governing coalition that excluded him. And just this past week, he decided he would come back into the government. So I think we are having more movement now than we have seen in long time.

    GIGOT: James, one thing that struck me, as you look at the president give his speeches and he had that listening tour, went to the State Department, the Pentagon and listened, had his generals in to talk about — to give him options for Iraq. He isn't projecting a lot of confidence that he knows the way forward in Iraq. Do you get the same sense?

    JAMES TARANTO, OPENIONJOURNAL.COM EDITOR: I do. It has been a rough year beginning, I guess, in February, with the attack on the mosque. That kind of set off all the sectarian violence.

    But at the same time, I think it is important that we take the long view. A lot of very good things happened in 2005. We had a series of elections. We had other reverberations in the region, with the Seder Revolution in Lebanon and so forth. And at that point, it was easy to be triumphal and to say everything is going our way.