This is a partial transcript from "THE O'REILLY FACTOR," Aug. 2, 2004, that has been edited for clarity.

BILL O’REILLY, HOST: Now for the top story tonight. New York City, Washington, D.C., parts of New Jersey, have been warned about a possible al Qaeda attack. Joining us now from Washington with the latest is National Security Adviser Condoleezza Rice.

All right, Doctor, what should Americans know right now about this?

CONDOLEEZZA RICE, NATIONAL SECURITY ADVISER: Well, Americans should know that, as the president has said many times, the Al Qaeda network has been hurt, but not hurt badly enough to the point that they can’t attack again. This country is safer than we were on 9/11 but we’re not yet safe.

And there is no doubt that we have been receiving over the last really several weeks a lot of information that Al Qaeda might try and make an attack prior to the U.S. election. That information had been out before.

But what happened over the last few days is that that information has become more specific as to place and that is why Tom Ridge felt it necessary yesterday to go out and talk about rather the specific targets in New York and in New Jersey and in Washington, D.C.

O’REILLY: OK. Now does this information come from this guy Mohammed Khan (ph) who was arrested in Pakistan, is that who is giving you this stuff?

RICE: Well, it’s coming from multiple sources, Bill, not just from one source. And I want to be careful not to do anything that might hurt us operationally. And we do have still a lot of operations on tap.

But let me just remind everybody that we are -- because we are on the offensive in places like Pakistan, we are gaining and gleaning information into the plans of the attackers that I think we would not have were we not on the offense.

So this is a very good example of why you conduct offensive operations abroad so that you can better defend yourself at home.

O’REILLY: OK. Now there was a woman named Farida Ahmed arrested a couple of weeks ago in Texas with a phony passport, about $7,000 in cash, some gold, Krugerrands. Is she a part of Al Qaeda? I mean, we’re getting mixed reports on this?

RICE: Well, it’s being investigated, Bill. I think that we’re looking into every angle and that’s one of the angles that we’re clearly looking into. And we’re working with our liaison partners around the world, including liaison partners in South Africa and other places to see what we can find out, but that particular issue is being investigated.

O'REILLY: All right. Now, the reason I mention them, this Ahmed (ph) is because she snuck across the border, and as you probably know, 16,000 people a week are caught currently trying to come across illegally into the United States from Mexico, a week. That's what they're getting, and you can imagine how many get across. Now, we've said on this program, and you know, because we've talked about this before, that because the Bush administration really has not sealed down the border, that I don't know if Homeland Security can guarantee any American's safety with the amount of people coming across that Mexican border. What say you?

RICE: Well, Bill, we've done [more] to try and secure our borders than has been done really in the entire history of the United States. We've done that since 9/11. Tom Ridge has engaged in very intensive action plans and worked with his counterpart in Mexico, with his counterpart in Canada.

We have a program called Smart Borders, where we're trying to improve the technology. Of course, these are very long and very porous borders, and there have long been problems of penetration across those borders.

But we have better cooperation between Mexico, Canada and the United States than we've ever had before, and (UNINTELLIGIBLE).

O'REILLY: But 16,000 a week? I mean, the numbers are staggering. They're staggering. And it seems to me if you're not going to put the National Guard on the border, which is what I would do, with all due respect. I mean, you know more than I do, and I'm not trying to run policy for the Bush administration. But you know, in my book, I clearly lay out that if you do want to solve the problem, the Border Patrol can't do it alone, and they know that. But you've got to put some military presence down there. But 16,000 a week, that's just very disturbing. It must disturb you as well, Doctor.

RICE: Well, of course, we do not want people to be able to penetrate our borders, but these are very long borders, they are porous borders, and we're doing everything that we can to improve the border security. In order to improve the border security, you really have to have the cooperation of the governments on both sides of the border, and that's what improved so much, is the cooperation with Mexico, the cooperation with Canada. We're doing all kinds of things, like increasing the use of biometric data in documents that get people across borders.

But we also have to remember too that these are borders that traffic a lot of commerce, and we don't want to get to a place that we shut down the important commercial traffic across...

O'REILLY: No, I understand that.

RICE: ... our Mexican and Canadian borders. So...

O'REILLY: (UNINTELLIGIBLE) people out there (UNINTELLIGIBLE).

RICE: Right. But my only point, Bill, is that this is a balance between trying to keep those commercial activities alive, and well, which is very important to our economy, very important to our trade, and making reasonable and important and indeed urgent changes to the way that we manage the border.

O'REILLY: OK.

RICE: I think you would find it's a very different border than it was before 9/11.

O'REILLY: Howard Dean, the top bomb thrower on the Democratic side, says this today, and I want you to react to it, Doctor, if you would. And he's talking about your terror alert that comes out of the White House.

"It's just impossible to know," Dean says, "how much of it is real and how much of it is politics. I suspect there's some of both in it."

So Dean -- and he's said this before -- he's basically saying every time the Bush administration is down in the polls, it trots out the al Qaeda danger to try to get back up. How do you respond?

RICE: Well, I wish he could have been here to look at the intelligence that all of us spent our weekend looking at, that the last several weeks has been concerning us, the conversations that we've had with liaison services abroad, from Great Britain to South Africa to Pakistan. Anyone who thinks that there isn't a terrorist threat to this country just has forgotten the lessons of 9/11, and anyone who believes that the terrorists are not trying to hurt us every day and that sometimes you happen to get specific information which gives you the opportunity to go on the offense, in terms of ways to protect the country, simply doesn't understand this business.

O'REILLY: What's the good of what you're doing right now, warning people? Because here in New York, a lot of people stayed home from work today. I don't know whether you know that or not, but people got scared.

So what is the good to alert the public of these specific threats?

RICE: Well, there are several levels of alert. First of all, the Homeland Security Department works with local officials and with state officials to make certain that they are doing everything that they can to try and protect the areas that appear to be under threat. It's also important to work with the private sector, the owners of buildings that may be targeted, so that they can enhance their security profile, their security presence, make certain that people are vigilant.

And then, in terms of the general population, I could tell you many, many times when ordinary citizens have simply spotted something a little bit unusual, and that's given leads to law enforcement or to state and local officials, who have then been able to follow up those leads. So it's very important to...

(CROSSTALK)

O'REILLY: ... intimidate al Qaeda, once it gets out, that they would abort a plan? I mean, is that part of the tableaux?

RICE: Well, I don't know if they would be intimidated. I would hope that what we're doing is communicating to the American people that we are doing what is needed to try and disrupt these plans, and we are working, not just here, but abroad as well to try and disrupt their plans.

O'REILLY: OK. We've got to take a quick break. When we come back, I want to talk a little Iraq and Iran with you, and we appreciate Dr. Rice taking time out of her busy schedule to talk with us.

And then a brand new poll says Senator Kerry actually lost some ground after the convention, while another says he bounced a few points. We'll analyze it ahead.

(COMMERCIAL BREAK)

O'REILLY: Continuing now with Dr. Condoleezza Rice in Washington, D.C. Iran apparently says, look, we're going to develop the nuclear activity and we're going to do what we want to do, and the West can go you know what. How are you guys going to handle it?

RICE: Well, Iran is clearly in the process of isolating itself further and further from the international community. We have been concerned about Iran for a long time, and this administration was in the forefront of telling other nations that Iran had nefarious purposes behind its efforts to have what they called civilian nuclear power. And so we are working with the European three, the British, the Germans and the French, with other members of the International Atomic Energy Agency, and Iran is going to be confronted I think with a very tough set of resolutions that tell them that they must be involved and must allow the international community to oversee...

O'REILLY: When will that...

(CROSSTALK)

RICE: ... or they're going to be isolated.

O'REILLY: When will that happen?

RICE: Well, I think that if we continue down this path, we're looking at some pretty tough language probably in September.

O'REILLY: And you think Jacques Chirac is going to go along with this?

RICE: Well, the French and the Germans and the British have been very clear to the Iranians that the activities that they're currently engaged in or say that they are going to resume are unacceptable, and we just have to keep working with the French and the British and the Germans to make certain that they stick to that position. It's been our position all along, that the Iranians are dangerous in this regard, and that the international community has got to be tough and steadfast here.

O'REILLY: Does it hurt the position of the United States vis-a-vis Iran that we have so much trouble in Iraq, you know? If Iraq wasn't there, we could certainly deal with Iran in a much tougher way, could we not?

RICE: Well, I actually think Iraq helps us with Iran, because first of all, Iran has a new neighbor, and they're aware of that. They're aware that trends in Iraq toward a government that would be democratic, that would not be theocratic, like the Iranian regime -- would be Islamic, but not theocratic -- would expose some of the weaknesses of the Iranian regime. I think they fear nothing more; the mullahs fear nothing more than their own people, and they fear nothing more therefore than when the voices of the people of the Middle East start to be heard by their governments, that the Iranian people are going to demand the same.

O'REILLY: Well, you and the president believe that right now, Iran is harboring top al Qaeda people?

RICE: We do believe that there are top al Qaeda people who are in Iran.

The Iranians say they are detaining them. We say that if they are, then they should return them to their countries of origin. We have not said they have to return them to us. They should return them to their countries of origin. We’ve gotten no response so far from the Iranians.

The Iranians have been trouble for a very long time. And it’s one reason that this regime has to be isolated in its bad behavior, not quote-unquote, "engaged."

O’REILLY: Yes, well, I hope you’re able to do it, because I see them as the biggest threat to the world right now.

Last question for you. The election hinges in a large part on whether President Bush can convince the American people, the undecided voters particularly, that Iraq has been a worthy endeavor. How is he going to do that with so much controversy, so much propaganda flying around. How is he going to do it?

RICE: First of all, the president has been steadfast in his belief that Saddam Hussein was a threat and that he was a threat that had to be dealt with. This president had to make a difficult decision in a post-9/11 environment in which you do not let threats materialize and then hurt you.

This president also understands that a stable, free and democratizing Iraq is going to be the lynchpin of a different kind of a Middle East.

And he understands that by overthrowing this tyrant, who, by the way, the United States had had all the way since 1998 a policy that said we needed regime change in Iraq.

The president just followed -- finally carried it out.

O’REILLY: Yes, but a lot of Americans aren’t on board with it anymore. They were in the beginning but because it has been so messy over there, they’re not on board. Can he turn them around? I don’t know if he can.

I’ll give the last word on it.

RICE: Well, Bill, I believe that Americans understand that anything worth doing is sometimes difficult. And it requires sacrifice. But this president is not one who just, when the going gets tough, decides that, well, we’re just going to give up.

What we’re going to do is we’re going to stay the course. Iraqis every day are taking more and more responsibilities. They have a good interim government in place. They’re moving toward elections. This Iraqi government will hold elections. And the American people will have a good democratic partner in Iraq that will be stable and that will not be threat to this region.

Because after all, to have Saddam Hussein, this terrible tyrant who used weapons of mass destruction, cavorted with terrorists, we’d gone to war against him before, that was a threat that you could not leave; the most dangerous man in the middle of the world’s most dangerous region.

O'REILLY: All right, Doctor. We really appreciate you talking the time out to put forth your point of view. You're welcome anytime. Thank you.

RICE: Thank you. Great to be here.

Copy: Content and Programming Copyright 2004 Fox News Network, L.L.C. ALL RIGHTS RESERVED. Transcription Copyright 2004 eMediaMillWorks, Inc. (f/k/a Federal Document Clearing House, Inc.), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, L.L.C. and eMediaMillWorks, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.