This is a partial transcript from On the Record with Greta Van Susteren, March 7, 2002. Click here to order last night's entire transcript.

GRETA VAN SUSTEREN, HOST: The violence is spiraling out of control in the Middle East. Tonight Israeli troops entered the West Bank town of Bethlehem in retaliation for the killing of four people and the wounding of 20 more after a Palestinian infiltrated a Jewish settlement and opened fire.

The military wing of the militant Hamas group has claimed responsibility for the attack. In response, President Bush has decided to send Mideast envoy Anthony Zinni back to the region.

(BEGIN VIDEOTAPE)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I once again call upon Chairman Arafat to make maximum effort to end terrorism against Israel, which undermines the prospects for peace. And as we move forward, I'm counting on all parties in the region — Prime Minister Sharon included — to do everything they can to make these efforts a success.

The violence and tragic loss of Israeli and Palestinian lives must end. Families on both sides of the conflict share this goal. And so does my country.

(END VIDEO CLIP)

VAN SUSTEREN: Earlier, I spoke with former Israeli Prime Minister Benjamin Netanyahu and asked him if peace is an impossibility.

BENJAMIN NETANYAHU, FORMER ISRAELI PRIME MINISTER: It's perfectly possible, but I think it's impossible with Arafat, who is committed to the destruction of Israel and to the waging of terror. You know, he was in Jordan, he made that into a terror factory. He was booted out, went to Lebanon, made that into a terror factory. He was booted out of there, got into the West Bank, made that into a horrific terror factory.

This is what this man is about, terrorism and the destruction of Israel that he preaches to his people every day in his state-controlled media. So as long as he's there, no, I don't think there will be peace. But I think once he is removed — and by that, I mean left the territories — once his terror regime is brought down, then I think that peace is perfectly possible with a new, more pragmatic Palestinian leadership that we would be eager to negotiate with.

VAN SUSTEREN: I've heard you say that Israel must remove Arafat from the scene. Is that sort of a polite way to say that Israel is intending to kill Arafat? Because he's not going to move out of there.

NETANYAHU: Well, I don't advocate that and I think that would actually be a mistake. But I think there are plenty of ways to get him out and — well, he's asked to leave, I would oblige, to let him leave.

VAN SUSTEREN: But with the stepped-up...

NETANYAHU: And not come back.

VAN SUSTEREN: ... with the stepped-up bombing that Israel has had in the last few days — in fact, missiles hit Arafat's headquarters within the last few hours, just moments before he had been there — it seems to me that Israel is moving in that direction. Or am I wrong?

NETANYAHU: No, I don't think it is, frankly. I think they keep talking about these signals and messages, but I don't think anyone seriously intends to kill Mr. Arafat.

Again, I think the issue really is not him personally but bringing down his regime, which I think is the main issue.

In fighting terrorism, you don't go after the individual terrorist. And in any case, 90 percent of the terrorism we've been experiencing in recent weeks has come from the forces that report directly to Yasser Arafat. The other 10 percent are from the Islamic groups that are affiliated with him.

So it's only when we bring down this regime, allow Mr. Arafat, through a number of possible ways, to join his good friend Mohamar Kadaffi in Tripoli, or his other friends elsewhere, that we will allow the emergence of two things. One, the principle of deterrence, if you bomb Israel, seven times in per capita terms, the bombing that you've received in the World Trade Center — just imagine that for a second, imagine that you had first the World Trade Center being bombed in the U.S., and then the Sears Tower in Chicago, then the towers in San Francisco, then some apartment blocks in Miami, and so on, in seven cities.

This is what Israel has sustained in a proportional basis. We have only a 6 million population. We've had the equivalent of 20,000, 21,000 Americans killed in this year of terror.

So I think that it's unsustainable. No nation would allow this. I think this regime has to go. And that's the only way that there'll be an opening for peace. It's just not going to happen any other way.

VAN SUSTEREN: As a tactical matter, though, if Arafat is, "removed from the scene," as you described, does he then become sort of martyr and some sort of hero in a sense? Doesn't that sort of fuel the problem, or is he really that important to sort of the movement against Israel that his removal really would mean a possibility for peace?

NETANYAHU: Well, I also talked about to bring down the regime, which means dismantling the fighting force there, and also creating a physical barrier between Israel and the Palestinian area, so that you physically — you've done two things. You've created, in military terms, deterrence, but you've also created a physical barrier against additional terrorist penetration.

I think what this will do is engender, with Arafat's departure, basically a succession process from other forces, other elements in Palestinian society who don't have a chance of coming to the fore when Arafat has the armed power and the police and guns to knee-cap, if you're lucky, that is, to be knee-capped, or to murder any opposition voices.

I myself have received, Greta, over the last six weeks several calls — several approaches, I should say — from Palestinians, primarily in the business community. I've not responded to them because I thought these people would be put in jeopardy. But it's an indication to me of how desperate many in the Palestinians' community are. They know that Arafat is leading them to oblivion. They want a different future for themselves and their children, as we do.

And they know that it will only happen when he's gone. And it's like saying, Will Cuba have a different future, can it have a different future? Not right now. But when the present leadership is gone, you know that it will. And can the Middle East and the Palestinian-Israeli conflict have a different future? Not as long as Arafat is here. But as soon as he's gone, I would think that we have a good chance of working a peace process.

VAN SUSTEREN: Mr. Prime Minister, in terms of the United States — you know, we sit and we watch all that goes on in the Middle East, which seems in many ways so far away from us, but we've now had terrorism on our soil. What is it that Israel expects from the United States, what is it the United States could do to help the peace process? And do you think the United States is doing what is needed to resolve some of the issues there?

NETANYAHU: I think the current administration has got it right. A, they do not see a moral symmetry between a terrorist, corrupt terrorist dictatorship like Arafat, and the Middle East's only democracy, Israel, which has been a faithful and loyal ally to the United States all these years. Arafat sided openly and enthusiastically with Saddam Hussein in the Gulf War. He sent a congratulatory message to the procommunist coup in the Soviet Union when they tried to bring down Yeltsin's revolution.

This is what this man is really about. He himself has murdered so many Americans, including in the recent year, dozens of American citizens here in Israel have died because of Yasser Arafat's terror...

VAN SUSTEREN: But let me...

NETANYAHU: ... so I think this administration first recognizes that Yasser Arafat is — the last thing he is is a friend of America, and that Israel is America's best friend in the Middle East.

VAN SUSTEREN: Let me ask you one final...

NETANYAHU: I think they understand that.

VAN SUSTEREN: Let me ask you one final question, sir. In terms of the Saudi suggestion, would Israel ever agree to go back to the 1967 borders in an effort to resolve the problems in the Middle East, and releasing the property Israel seized in '67?

NETANYAHU: Well, Greta, we were in the '67 boundaries, and we didn't get peace, we got, in fact, a three-front war because Israel was so vulnerable, it was 10 miles wide, the Arabs could see the sea, and they couldn't resist the temptation to try to slice us in two.

In fact, these were the borders of war. I think that peace is possible, but two things are required. One, a new leadership for the Palestinians that they deserve and we deserve after so many years of bad leadership, and secondly, Israel must maintain territorial buffers that can allow us to defend the peace. Because in the Middle East, you never know what you're going to encounter on the other side.

I think a deal is workable. I think we can have sufficient territorial continuity for the Palestinians and self-government for them, and sufficient territorial buffers for us and the powers to defend ourselves.

The self-government I'm talking about for the Palestinians would include the ability to govern themselves, but not to have, say, the power to bring into their ports weaponry that could jeopardize our existence.

So I think a balance between the Palestinians' need for self-government and Israel's need for security is workable in a future deal, but without Arafat.

As for the Saudis, I must tell you that I'm very skeptical. They try to get on the good side of the U.S. after bank rolling terrorism for so many years. I would be very careful about the truthfulness and sincerity of Saudi peace proposals.

VAN SUSTEREN: All right, Mr. Prime Minister, thank you very much for joining us. I hope you'll come back to On the Record.

NETANYAHU: Thank you, Greta. Bye-bye.

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