The following is a transcribed excerpt from "Fox News Sunday," Aug. 24, 2003

TONY SNOW, FOX NEWS: Now joining us from Istanbul, Turkey, with more insight into the situation in Iraq and the region, Senator Lindsey Graham. He and some of his colleagues were meeting in Baghdad last week with Ambassador L. Paul Bremer when terrorists bombed the U.N.'s Iraq headquarters.

Senator Graham, your colleague Senator John McCain says that we need more U.S. troops in Iraq. General David Abizaid, the head of Central Command says, no, we don't, we just need to deploy them differently.

Who's right?

SEN. LINDSEY GRAHAM, R-SC: I think a little of both. We're having a skill mix problem. We need more civil affairs people.

We've flown on C-130s throughout the theater, Tony. And every C- 130 crew we've flown with has been a Guard or Reserve crew, and their 180-day statutory tour is about to close.

So I would agree with the idea we need more, not necessarily more combat troops, but more people to help get Afghanistan and Iraq into decent shape so that we can turn the corner on what's happening over here with the public.

SNOW: All right. So we need to deal with replacement of Guard and Reserve troops. Do we need more regular ground combat forces in Iraq?

GRAHAM: Well, the commanders tell me they have the resources they need. And the type activity we are talking about is random shootings, attacking a car, attacking a few soldiers. It's a low- intensity campaign -- car bombing. You could probably have a million people and never solve that problem.

The only way we're going to solve the problem of containing terrorists in Afghanistan -- and by the way, the public needs to know that Al Qaida and Taliban that are left are regrouping on the Pakistan-Afghan border to try to destabilize Afghanistan as they go into their democratic elections. So we need more combat aircraft in that area, the commanders tell me.

Iraq, we just need more infrastructure. You've got a frustrated public. You have some foreign fighters coming into the area. But the type conflict we're talking about, Tony, you can't stop just with tanks and big armor. You've got to have good intelligence, and you've got to hit them before they hit you.

And our combat teams over here are capturing people by the day. The intelligence has gotten better since the two sons have been killed. And the ground commanders tell me they've got more information the last month about the old regime than they've had since they've been here. So I'm optimistic, but we've got a long way to go.

And money -- I want all of my constituents to know that I am a fiscal conservative and we're in debt, but the infrastructure needs in Afghanistan and Iraq are billions. We are underestimating the cost of this conflict, and we in the House and the Senate need to appropriate a lot more money.

SNOW: How much more?

GRAHAM: Well, the infrastructure needs in Iraq in the short term are $15 billion. The oil refinery that's the lifeblood of the Iraqi people hasn't been upgraded in 30 or 40 years because Saddam Hussein's raped the country.

Afghanistan needs a tremendous amount of ministry support in their education and health ministries.

We either spend the money now, we make the sacrifices now, or we pay much greater later.

This has been a bloody week. We've lost people from the U.N. We've lost soldiers in Basra. We've lost a SEAL in Afghanistan. And the likelihood of casualties will continue. The frequencies of attacks have gone down, but they've become bloodier.

The only thing I can tell people back home, in spite of polling, that if we don't get this right, if we don't spend the money and we don't clean up these 2,000 or 3,000 terrorists that exist on the Afghan-Pakistani border and we don't show a resolve, we're going to regret it later.

And I am confident that the soldiers have got it. The one thing I have learned on this trip, not only are they well-trained and motivated, morale is high because they know why they're here. From the three-star general to the private, they are here for a purpose. And their number-one comment is, "I'd rather do it on my watch than have my kid come over here and have to do it."

SNOW: You've mentioned Afghanistan several times. Do you think the Taliban now has sufficient strength and forces coming over the Pakistani border that, if unchecked, they could bring down the regime of Hamid Karzai?

GRAHAM: I don't know if they can bring down the regime, but they can keep us in a position of where we're not moving forward. If you're not moving forward in this region, you're moving backward.

The number of Taliban, Al Qaida forces that we're talking about are 2,000 or 3,000 in number. Not a large group, but they'll use any tactic to destabilize Afghanistan.

Pakistan and Afghanistan are finger-pointing at each other about how to secure the border. That needs to end.

We've got 18 aircraft here to take care of the American contingent in terms of helicopter resources. We need more combat air power in Afghanistan in my opinion, but we can contain these 2,000 or 3,000 people if we're a team.

But they're going to hit us. They're going to do everything they can to destabilize Afghanistan. This is a gut-check moment for the American people. President Bush is very right. We can't let 2,000 or 3,000 people dictate the course of millions in this region and compromise our own security. We're in it. We can't leave till the job's done.

SNOW: Tell us what it's like in Baghdad right now. We get differing reports. It's either the Wild West, or it's safe, or it is safe during the daylight and Wild West at night. What is it?

GRAHAM: The thing that struck me the most, Tony, about Baghdad is how intact the city is. Our munitions that were delivered in a precision way really did the job. When you fly over Baghdad, I'm astonished with how developed it is and how intact it is.

But there are -- we need to get the Iraqi people more involved in governing themselves. I'm frustrated by the implementation of the civil affairs part of this war. The ministries in Afghanistan and Iraq don't have the money and the resources they need to govern themselves.

But generally speaking, the population centers in Baghdad, Basra and other main areas, you've got most people wanting us to succeed, with a handful of people that are trying to destabilize us. But Baghdad is a dangerous place because a handful of people are trying to drive us out of here. So every soldier, sailor, airman and Marine that's receiving combat pay in this region is earning it.

SNOW: Senator, let's switch to the Middle East. Earlier this week, Secretary of State Colin Powell made a comment about the recent bombings and who ought to take the responsibility. We're going to play a clip. Listen.

(BEGIN VIDEO CLIP)

COLIN POWELL, U.S. SECRETARY OF STATE: ... call on Chairman Arafat to work with Prime Minister Abbas, and to make available to Prime Minister Abbas those security elements that are under his control.

(END VIDEO CLIP)

SNOW: Should the United States be making direct pleas to Yasser Arafat, in your opinion?

GRAHAM: We asked Prime Minister Abbas directly, is Yasser Arafat undermining your capabilities? He said yes.

Prime Minister Abbas was a very frank, genuine man. He has limited power.

I asked him a question: How can you do a peace treaty or have a truce with Hamas and Islamic Jihad, whose goal it is to destroy Israel? His answer was, we've got to try to make it a democratic process, get them in the democratic process, give up their arms.

I am convinced that when you will find peace in this region, you will see one thing happen. You will have Palestinian security forces united by -- under a man like Prime Minister Abbas -- going into the streets with a force of arms, trying to de-arm or put in prison Hamas and Islamic Jihad.

We will never have peace in this region until Hamas and Islamic Jihad are dealt with militarily. And the best route to do that is not the Israelis, it's not the United States, is good people like Prime Minister Abbas saying, "Enough already, we're going to turn our attention on you. We will not accept you using our land to disrupt the peace process."

And it's going to take a bold effort on his part. But if he doesn't do it, we will fail. And Yasser Arafat is the problem, not the solution.

SNOW: So in your opinion, Mahmoud Abbas has to win a political power struggle with Yasser Arafat before there can be peace?

GRAHAM: He has got to win a political power struggle with Yasser Arafat because he's holding onto the old way of dealing with Israel. He doesn't really want a two-state solution; Abbas does. And Abbas has got to make the decision to declare war, politically and militarily, against Hamas and Islamic Jihad.

The Israelis have not lived up to their end of the bargain totally. That is absolutely true. But the road map to peace has many bridges to it. And the Hamas and the Islamic Jihad element of this region are trying to blow these bridges up.

Until they're neutralized, you're never going to have peace. The day they're neutralized, the silent majority, the Palestinian people, will rise up and, I think, do a peace treaty with Israel that will be good for all of us.

But until they're disarmed and dealt with, you will never have peace, and Yasser Arafat will never deliver. And Abbas needs to rise to the occasion, or someone like him.

SNOW: All right, Senator Lindsey Graham, thanks for joining us.

GRAHAM: Thank you.