To watch "the memo" click here .

Hi, I'm Bill O'Reilly.  Thank you for watching us tonight.

We would like to welcome our new viewers in Chicagoland on AT&T Cable.  We hope you like The Factor.

"Talking Points" memo this evening is about President Bush's most vexing problem.

Everybody knows that Yasser Arafat embraces terrorism.  Mr. Bush certainly knows that.  The PLO chief has been encouraging suicide bombers and stockpiling weapons from Iran and other terrorist-friendly countries.  Yet Mr. Bush can not label Arafat a terrorist because the other Arab states would stop cooperating with the USA.

Not that they're cooperating all that much now.  They're not.  But we do have some influence in the region.  That influence would vanish if Mr. Bush threw in with the Israelis, and much of Europe would turn against us, as well.

The hatred of Israel is so intense and worldwide, it is an irrational hatred.  As the Israelis will bend, they will negotiate.  The PLO will not, at this point, anyway.  They had a great deal from Ehud Barak, they walked away and resumed attacking women and children.

How any person on this earth can support a cause that slaughters civilians is beyond me.  It is incomprehensible.  You can make all the excuses you want, but only barbarians attack women and children.

There's no question that some Palestinians will never stop the violence, so deep is their hatred for Israel.  It is Arafat's duty to control these fanatics, but, in my opinion, he's one of them.  He is the top terrorist in the region.

President Bush knows Arafat is a liar and a fraud.  That's why he hasn't met with him.  But he also knows the Arab world supports Arafat, so the dilemma is acute.

What do you do?

Well, the Bush administration should float a peace plan, as we discussed yesterday, much like the Barak deal that fell through.  With something concrete on the table, both sides are given an opportunity to fall back and take a breath.  Maybe some kind of compromise can be reached, and United Nations dispatched to the hot spots.

I know this might sound like a pipe dream, but it's the only solution right now.

As for Arafat, what can anyone do?  If you kill him, the war escalates and he becomes a martyr.  If you banish him, there's no one else to negotiate with.

So the terrorist Arafat stays in place even as more babies are killed and maimed.

Israel has done wrong as well, but there are no suicide bombers coming out of Tel Aviv.  There are no Arab cafes being blown up by young fanatics.  The army can be brutal, no question, but at this point most Israelis, I believe, want peace.

Not so for the fanatical PLO terrorists, who are endangering the entire world.  They want to kill every Jew.  The Israelis understand that, and therein lies their desperation.

President Bush is facing a problem more than 2000 years old.  It may be unsolvable.

And that's the memo.

The Most Ridiculous Item of the Day

Time now for "Most Ridiculous Item of the Day."

Word is that our competitor, MSNBC, is looking to sign our pal, Phil Donahue to do a program.  And they want to put Phil up against The Factor.  Uh-oh.

As we said when CNN announced that Connie Chung would compete with us, we like the competition.  Connie, Phil and Bill, how about that?  There is no truth to the rumor, however, that communist China said it would show NBC nationwide if Mr. Donahue signed on.  That of course would be ridiculous only of rumor.

— You can watch Bill O'Reilly's Talking Points and "Most Ridiculous Item" weeknights at 8 & 11p.m. ET on the Fox News Channel. Send your comments to: oreilly@foxnews.com