The following is a transcribed excerpt from FOX News Sunday, Oct. 26, 2003.

TONY SNOW, FOX NEWS: Joining us now to talk about the expensive and arduous task of rebuilding Iraq, L. Paul Bremer, the U.S. civil administrator in Iraq.

Ambassador Bremer, first let's begin with the question of the Al Rashid. Will troops be going back in there and personnel, and should they?

PAUL BREMER, U.S. CIVIL ADMINISTRATOR IN IRAQ: Well, I've asked for a complete investigation into this, obviously, and my security people are looking at it. The general in charge of the area, in whose area this took place, Marty Dempsey, will be holding a press conference later in the day to tell, at least, what the initial impressions are. Let's wait and see what the investigation shows, and then we'll make our decisions.

Obviously, the security of our people — and I have several hundred people who work for me staying in the Rashid — has got to be an important factor in what we do next.

SNOW: It appears it's a pretty obvious target at this point.

Let me read a quote to you from Lieutenant General Ricardo Sanchez a couple of weeks ago. He was talking about the evolving security situation and said, "The enemy has evolved a little bit more lethal, a little bit more complex, a little bit more sophisticated. As long as we are here, the coalition needs to be prepared to take casualties."

BREMER: Well, I think that's right. We have to recognize that there are people in Iraq, the "enemies of freedom" President Bush calls them, who do not agree with the vision we have for a free and democratic Iraq. And as long as we are there, and we have this job of putting security back in place there, we will have people attacking us.

SNOW: Give us a sense of — well, let's talk about sources of trouble. One is Baathist loyalists of Saddam Hussein. One of the questions a lot of people have is, is there — to the best of your knowledge, was there and is there an Al Qaeda-Saddam link?

BREMER: Well, there's no question that there were connections between Iraqis and Al Qaeda over the last decade. I think the intelligence is quite clear. And we know that we had a major Al Qaeda affiliate, Ansar al-Islam, with a big base in the north of Iraq before the war.

Those people, many of whom we killed in the war, have now started to reinfiltrate back into Iraq. We have captured people who are Al Qaeda terrorists.

We have a major terrorist problem in Iraq. We are on the front, unfortunately, of the war on terrorism now. It's there, and we're going to have to defeat the terrorists there.

SNOW: How much of a source and how much of a concern is Iran for you?

BREMER: Well, the Iranians have not — neither have the Syrians — neither of them have controlled the border as well as we would like to see them control it. And the Iranians have involved themselves in the internal affairs of Iraq in a way that the Iraqis do not find helpful. And I must say, I agree, I don't think it's very helpful.

SNOW: Meaning that they're letting people through? Is that a matter of deliberate — are they trying deliberately, in your opinion, to destabilize Iraq?

BREMER: It's a bit hard to know what their overall policy is, but their actions are such that they are using the revolutionary guards and elements of their intelligence agencies in Iraq not in a responsible way, in our view.

SNOW: Are they also supporting people like Muqada al-Sadr (ph), who's one of the clerics who is openly preaching resistance to the United States?

BREMER: He appears to have some Iranian support, that's right. And one of the reasons why I think he's not that popular among most Iraqis is that he is operating, really — he appears to be operating, at least in some way, on behalf of the Iranians.

SNOW: Do you think that Iraq can be made stable without some sort of change in behavior on the part of the Iranians? And if so, is it going to require more American vigilance or pressure on the Iranian government?

BREMER: Well, this reconstruction is a tough job under the best of circumstances. And it certainly is made a lot more difficult if the neighbors do not agree with the general proposition of a unified, stable Iraq.

And Iraq, of course, as we move forward now, has more and more representative government than anybody in the neighborhood, except for the Turks. It is really on the road to becoming a democracy under the president's vision.

And that will be uncomfortable for her neighbors, and I think we're going to have to just persuade the neighbors they're going to have to go along with that because that's our goal.

SNOW: I want to get to some reconstruction details in a minute, but just a couple of more notes on security.

There is a piece in today's Washington Post by Gary Schmitt and Tom Donnelly talking about the need for vigorous counterinsurgency. What they say is you need to pull together local and U.S. troops and, neighborhood by neighborhood, clean them out, city by city, be prepared to have chaos in one place but create order in another.

Is that a sensible strategy?

BREMER: Well, it's a sensible strategy. It's really the strategy we're already following, in many ways. Most of the country is, in fact, orderly. The north is quiet. The south, south of Baghdad all the way to the Kuwait border, is quiet. The attacks on coalition forces have been largely concentrated, something like 90 percent of them, in a small area north of Baghdad and west of Baghdad.

Now, when you get to the city level, urban level, it is clear we need the help of the Iraqis. And we're trying to do that as much as we can, getting the Iraqi police. We now have 40,000 Iraqi police on duty. Getting the Iraqis to man a civil-defense force. We've got five battalions of the Iraqi civil-defense force now helping us.

I mean, the proposition is quite simple, Tony, that the Iraqis will be able to tell who the bad guys are easier than we. They know the language...

SNOW: And is the cooperation improving?

BREMER: Yes. Oh, absolutely. It started, really, in the middle of July. Much better cooperation, not just from these forces, but from the average Iraqi who's willing to come in and tell either an Iraqi policeman or sometimes one of our coalition forces that they're suspicious about three guys who are in a house, you know, four houses down, and we take action on that kind of intelligence.

SNOW: What are you hearing about Saddam's whereabouts?

BREMER: Well, we hear lots of things all the time. I think he's still in Iraq, he's still alive. And we will get him. We will find him. We follow these leads as best we can.

We don't have any immediate intelligence as to exactly where he is. As soon as we have it, we obviously will take action, and we will get him.

SNOW: And what kind of a difference will that make?

BREMER: I think it will be helpful. It won't end the attacks, as General Sanchez pointed out, but it will be helpful because it will sort of finally pull the curtain down on the dream that some of these dead-enders have that Saddam is going to come back. He's not coming back, there's no future for him here, but we have to prove that.

SNOW: Defense Secretary Donald Rumsfeld sent a memo that made a lot of news this week, describing the war in Afghanistan and Iraq as, quote, "a long, hard slog." Interpret that.

BREMER: Look, the terrorists declared war on us on September 11th, and the president said then in his great speech to the nation four or five days later, and he said consistently, this is going to be a long, difficult war against terrorists. We are at the forefront of the war on terrorism. It is not going to end soon, and we're going to have to be persistent and consistent and tough-minded to beat them.

SNOW: One of his key points was he was worried that perhaps recruiters were recruiting terrorists more rapidly than we were dispatching them. Number one, what is your sense?

BREMER: I think if you look at the secretary's memo, he's talking probably not so much about Iraq, but places where you have these madrassas producing, effectively, people who hate the West.

This is not the case in Iraq. We don't have those. What we have in Iraq is terrorists coming into the country, because, as we talked earlier, lack of effective control over the borders. That is a problem.

SNOW: The numbers we've heard are fairly small, though. What is your best-guess estimate of how many have come across the borders?

BREMER: Well, we don't — I mean, you have to look at intelligence here and figure out what you believe. But I think we have got several hundred hardcore terrorists from the Al Qaida- and Ansar al-Islam-type groups in the country. That is a lot of hardcore terrorists, when you think that 9/11 probably involved just a couple of score of people. This is a lot of people.

SNOW: The Army has published an after-action report that is critical of its own intelligence-gathering techniques, saying that many of the officers charged either with dispatching people to collect intelligence or responsible for passing intelligence on to you haven't been trained for the job

BREMER: Well, you know, there's no such thing as too much intelligence in the fight against terrorism. I've been involved in it now for 20 years.

It's very tough to get good intelligence. I'm sure we can do better in training our people. I'm sure we can do better with our technical collection. All of these things have to happen.

I have established a fusion cell in Iraq, about two months ago, to bring together all the elements of the intelligence community in one place, so we bring it all to bear and we get all of the analytical capability, because a lot of it is also brain power. You've just got to have people really working on it.

We've beefed up the number of people doing counterterrorist intelligence on the ground in Iraq, and that has begun to pay off. But this is going to be a long, difficult war.

SNOW: You have said that, the president has said it, the defense secretary said it. Colin Powell has said today that the resistance lasted, nevertheless, longer than we though it would. Is that true?

BREMER: Well, I frankly don't know how long we thought it would, because, as you may recall, I was happily engaged in the private sector until 10 days before I arrived in Baghdad.

But the fact of the matter is, we have resistance there. We have resistance from some of the killers that were trained by Saddam. We have now got terrorists there. We have to deal with both elements of those.

And we've got a group of basically convicted criminals who Saddam let loose, 100,000 of them that he let loose before the war. We've got to deal with that too.

So there are three elements we have to deal with, and we are dealing with them.

SNOW: Let's talk about reconstruction, but first I want to read to you a quote from the New York Times. The New York Times was actually under the auspices of describing what was going on with the donors' conference. Said, "The United States won commitments on Friday of at least $13 billion over five years for reconstruction of water power, health care and other systems devastated by the American invasion six months ago."

Were they devastated by the American invasion?

BREMER: No, I don't know where the New York Times got that idea.

In fact, when you travel around Iraq, you're struck by two things. Number one, how very little collateral damage there was in the war. If you visit Baghdad, you can see very precise use of bombing against basically government facilities like the Ministry of Interior and the police.

The devastation that has been done in Iraq is 35 years of total economic mismanagement and cronyism and theft. The problems in the water and electricity systems that the New York Times is talking about have been there for 40 years. They've been underinvested in.

And that's really what the money that we got in Madrid, which turned out to be a very successful conference, that's what that money's going toward.

SNOW: Somebody identified as one of your associates told this to Newsweek: "We're in a race. There's a rising tide of resentment of the occupation among ordinary Iraqis. We know that. Against that, we are trying to demonstrate with electricity and water and everything that the benefits of our presence outweigh the humiliation of occupation."

BREMER: Look, it can't be fun to be occupied. And it's not very much fun, frankly, being an occupying power. But the fact is, life is much better for the Iraqis today than it was six months ago and much better than it was a year ago. And they know that.

Of course, it grates on them a bit that we're still there, and of course one of the ways to fix that is to get the Iraqis more in charge of their own country, through political and security processes — we're doing that — to show them that the essential services are coming back.

Electricity is now back, above what it was before the war. All of the schools are open. All of the hospitals are open. Health care is better now than it was before the war.

We have to continue to provide them the basic services, precisely to show them that there is an alternative to the life of despair they led under Saddam.

SNOW: The French were pressing for a date certain for the Iraqi Governing Council to become a bona fide government. How soon, in your judgment, can that Governing Council become a government?

BREMER: We have laid out very clearly the steps that need to be taken, and we're halfway there.

The next step is to convene a constitutional conference to write a constitution. Once that is done, elections will be held for a sovereign government, and we will turn full sovereignty gladly back to the Iraqi people.

This could be done in the course of the next year. The president of the Governing Council has said he thinks elections can be held in the year 2004. I think, if the Governing Council moves quickly now, to convene the constitutional conference, he is right, we could do it next year.

SNOW: You've talked about occupying power. The Iraqi Governing Council has voted now unanimously against accepting Turkish troops on their soil. Should we simply say to the Turks, keep your troops home?

BREMER: Well, as a matter of fact, they haven't taken a decision — have not yet taken a decision. They did not vote a resolution. They have basically said...

SNOW: But they have said unanimously...

BREMER: They have said they don't want them, this is true, but anyway, they haven't voted it as a parliamentary fact.

What they've done is suggested that they should have a dialogue with the Turks directly, so the Turks can sit directly with the Governing Council and they can go over it.

This is a sensitive subject for the Iraqis. The Turks were there from 1533 to the end of the First World War, 400 years, and so it's sensitive, understandably.

And I think we need to have a dialogue together, and see if they can find some way to take everybody's sensitivities and interests into account. We think we should have Turkish troops there, but we obviously have to pay some attention to what the Iraqis think.

SNOW: At the donors' conference this week, a number of nations decided they would advance loans rather than strict grants to the Iraqis. Now, it is this government's opinion that you need to do grants, so that Iraq is not groaning under a large debt burden, as, say, Germany did after World War I.

SNOW: If the United States Congress insists on loans, would that make your job more difficult?

BREMER: Yes, it will.

You know, I was back testifying on this subject — I testified for 60 hours in nine separate hearings, when I was back at the end of September — and I was pretty consistent on this. consistent on this.

BREMER: I think loans from the United States would be a mistake. I don't think you — you know, if you've got a drowning man, you throw him a life preserver, you don't throw him a millstone. And it does not make sense to add more loans on top of, basically, what is unpayable debt.

So, I hope, as the Senate and the House consider the bill this week, we'll see that the loans will not be the way we go forward, as the president has suggested.

SNOW: Ambassador Bremer, thanks for joining us today.

BREMER: It's nice to see you.