• This is a partial transcript from "Your World with Neil Cavuto," January 26, 2006, that was edited for clarity.

    NEIL CAVUTO, HOST: Hamas already battling with fellow Palestinians, after a stunning and most unexpected Election Day victory — the extremist party, as it's known, clashing with Fatah supporters outside the Palestinian parliament, violence erupting when members of Hamas tried to put their flag on the parliament building. And that provoked Fatah supporters, who, well, responded in kind. Hamas is a political party on record saying that it will not coexist with Israel — and Israel, only moments, ago saying it cannot enter into peace talk if that remains the case.

    So, the future of Israel's leadership is itself very much in question. Keep in mind, Prime Minister Ariel Sharon himself still incapacitated, after that massive stroke.

    So, what does all of this mean? There are growing questions as well about stability in the Middle East, with growing intentions from Iran and its own nuclear ambitions, something we are going to bring up with former Israeli Prime Minister Benjamin Netanyahu, who joins us out of Israel...

    Mr. Netanyahu, can you hear me now?

    BENJAMIN NETANYAHU, FORMER ISRAELI PRIME MINISTER: Yes, I can hear you fine.

    CAVUTO: What do you think of Hamas' position, essentially, that it has not changed on the destruction of Israel?

    NETANYAHU: I think Hamas' victory is a great setback for peace.

    We all want peace for Israel and peace for the Palestinians, for our children and theirs. And that is not a peace that will be purchased by the rise of Hamas. The rise of Hamas is a result of two causes. One is the endemic corruption within the Palestinian Authority.

    But, equally, and most forcefully recently, it is the result of the unilateral withdrawals of Israel, in the face of terror, which communicated weakness and that Hamas' terror works, and, therefore, more terror can work. And the forces of terror got emboldened.

    This is something that I and others warned against. And, unfortunately, it has come to pass. So, we have to stop the policy of unilateral withdrawals, which rewards terror, and go back to the policy of strength and deterrence, which blocks terror and blocks the rise of Hamas.

    CAVUTO: Still, Mahmoud Zahar, a top Hamas official, was quoted today, sir, as saying that the group would extend its year-old truce if Israel reciprocates. What do you think?

    NETANYAHU: Well, look, I think that Hamas will put on a lot of makeup now.

    They're quite conscious of the fact that they're in the limelight, and they might get a lot of funding cut and other things that they don't want to get international pressure and the like. So, they want to deflect that.

    But Hamas is incapable of truly abandoning the goal of destroying Israel without disintegrating, because the whole purpose of Hamas is the liquidation of the state of Israel, and pursuing it through terror.

    Remember that people said that, if the ayatollahs comes to power, then government will restrain them, that, if the Taliban come to power, then the responsibility of government will restrain them.

    It didn't happen there in either case. And it's not going to happen here, I'm afraid, because Hamas is constitutionally wedded to the concept of destroying Israel. It's a very, very bad setback for peace. But I think what we have to do now is restore the policy of being very tough with terrorist regime, giving them no time of day, certainly giving them no additional territory, because any territory that we will give will be used against us, if you pardon the expression.

    It will be used as a base for future terrorist attacks against Israel. I would change that policy and bring back the policy of peace through strength that effectively purchased peace for us during the three years that I was prime minister. We hardly had any terror attacks from Hamas. It wasn't because they liked me. It was because they respected the policy of strength that my government put forward.

    That's the policy that Israel and the free world needs today.

    CAVUTO: Now, Hamas, by simply saying that it wouldn't strange its structure or overall referendum, did not unequivocally say that it wouldn't revisit it.

    If Hamas came back and said, Mr. Prime Minister, look, we're no longer supporting the destruction of Israel, would you negotiate? Should Israel negotiate?

    NETANYAHU: I don't think Israel or America or any right-minded state in the world that is now facing global terror should negotiate politically with a regime that is committed, heart and soul, to terror.

    Remember, Hamas is an Iranian operation. It has been funded by Iran and directed by Iran for several years now. And now Iran has three enclaves. It has the Hezbollah enclave in Lebanon. It has the Hamas enclave in Gaza, which has grown stronger.

    And it now has a Hamas enclave in the West Bank. These three enclaves are encircling Israel on behest of the mother regime, Iran, which is committed to Israel's destruction.

    You are not going to see a change. You might see some to-ing and fro-ing in language, but that's not going to materially alter. How would you know if something really alters? How would you know if there's a real change? They would have to stop the Hezbollah — or, rather, the suicide kindergarten camps they have for little children.

    They would have to stop, you know, the sermons that they're giving in the mosques. They would have to change the textbooks that they're teaching in the schools. They would have to dismantle the terrorist organizations, collect the illegal weapons, jail their own people, their own terrorists. That's a pretty tall order.

    CAVUTO: So, you would have to see all that before you even entertain talking to them, if you were prime minister?

    NETANYAHU: I want to tell you something, Neil. The answer is, I don't think we're going to talk to them, and we shouldn't. But I want to tell you something else. You know, we have been predicting things and saying what would happen. And, when things happen, I think we should tell the people the truth.

    The withdrawal from Gaza was something that many people wanted, because many people, including myself, wanted to disengage from the heartland of the Palestinian population. But I said at the time that the way we withdrew, the fact that we just went out and didn't take anything elsewhere, that is, didn't use the policy of defensible borders in areas which are empty of Palestinians, but are necessary for our defense, that would have been seen as a withdrawal of Israel to a redrawing of the lines on national interests.

    The way we left communicated a policy of weakness. And weakness purchases more terror and gives rise to the forces of terror. I think we have to understand that the first thing we have to do is communicate to the Hamas not that we're going to talk to them, not that we're going to buy their glib lines, and their convoluted language, and their various maneuvers.

    We are going to tell them, you are illegitimate. The fact that you won in a democratic election doesn't make you legitimate. That may be a necessary, but insufficient condition for legitimacy. Hitler got elected in democratic elections. Democratic elections are an important part of the process, but they're insufficient, if those who get elected are committed to the destruction of freedom, of democracy, in fact, to the destruction of a people, to genocide.

    So, it doesn't make any difference if the ayatollahs get elected democratically, if they pursue terror around the world and if they're committed to the destruction of Israel or America or America's allies. In fact, what we need to demand of any government, however elected, is that it abandon terror and abandon the goal of genocide. I think that's important for peace. I think that's the only way we are going to get peace.

    CAVUTO: Well, let me be clear, then, because it is a slightly different position, as you know, sir, from the Bush so-called road map to peace, that included this Gaza pullout, that prompted you to resign from the Sharon government.

    Now, does this mean that the likelihood of the Israeli state and the Palestinian state living side by side in peace is out the window?

    NETANYAHU: If that neighboring state is a mini-Tehran, then you're just going to have another base committed to our destruction. Then that's, of course, doesn't advance peace.

    In fact, what we need to see is a change of policy altogether, a change of not merely declared policy, but actual policy tested over time, a real revolution inside Palestinian society.

    Unfortunately, the revolution we're seeing in Palestinian society is going in the other direction. It goes away from peace, away from our direction, away from co-existence. And I think this can be changed back to where it was.

    I think we got here because of the policies that communicated to them perhaps a misguided impression that Israel is fleeing under terrorist fire. I think we have to show them the exact opposite. In the face of tremendous terror, in the face of a tremendous surge in the belief that Israel will be destroyed by Iran and its subordinate regimes here in the Middle East, I think we have to tell them, we're not going to buckle under. We are not going to negotiate with you. We are not going to give you any concessions, so you can further the war against terror.

    We will stand firm. We will deter and punish terror. We will also be, I would say, responsive to positive acts, that is, for the populations. What is in the benefit of the two populations is something that I think should be pursued, disease control, water, sewage control, and so on.

    CAVUTO: I see.