This is a partial transcript of "Special Report With Brit Hume," Aug. 9, 2004, that has been edited for clarity.
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BRIT HUME, HOST: Here we go again with Muqtada al Sadr (search), whose Mehdi militia was supposedly put down months ago, and here again there's suspicion that neighboring Iran may be behind him. What do these developments tell us about how things are going in Iraq?
Well, for answers, we turn to Fox News military analyst retired Air Force General Thomas McInerney.
Tom, welcome back. Nice to see you.
GEN. THOMAS MCINERNEY (RET), U.S. AIR FORCE: Thanks, Brit.
HUME: So what's happening there in Najaf (search)? You heard the president say they're putting the rebellion down there, or making progress. It looks from the pictures that we see and from past experience with al Sadr that his army is a ragtag collection of boys, it looks like. So what's the situation?
MCINERNEY: Well, we've got a perfect storm developing, Brit. You've got our election coming up in 2, November, their election in January. There's a window of vulnerability here; Iran is behind it all. When Muqqi Sadr, Muqqi is what the troops call him, when he does anything, it's because Iran tells him. Iran is funding at least 30,000 Iraqis that are inside Iraq today, so they are behind what's going on.
HUME: Wait. Wait a minute. You mean that they are paying 30,000 specific people or they're putting enough money in the hands of people like al Sadr to fund 30,000 people?
MCINERNEY: Enough money in the hands to fund people. The check isn't coming from the Iranian bank to an individual, but enough to fund 30,000 people.
HUME: You're talking 30,000 indigenous Iraqis...
MCINERNEY: That's correct. Yes.
HUME: It looks like they just go out and fight and get killed.
MCINERNEY: That's correct. And that's our problem. You see, they want to create this instability now in this window of vulnerability that I'm talking to about right now. So we can expect a lot more action going on there because the Iranian objective is to sheer off the Shia part of Iraq and make that a province of Iran and take that oil wealth that they'll have. And then they would love to see Syria sheer off the Sunni part and then the Kurds could go their way.
So what we have got there is a problem on keeping Iraq together. And Iran is the problem, we have to go and put action on Iran.
HUME: What kind of action?
MCINERNEY: I would be taking covert action right now, which Condi Rice mentioned yesterday and others have hinted. We to start putting pressure on the mullahs and let them know that we'll, No. 1, not accept them to go nuclear, and you saw what they did today. They announced the IAEA that, in fact, they were developing fissile material for dual use. Which means nuclear weapons. And, No. 2, creating this instability there. So we've got two major problems developing with Iran. The instability they're creating in Iraq and their nuclear weapons efforts.
HUME: Let's step back for a moment. It appeared not long ago that Sadr had been dealt with, neutralized, that they had come to terms with him. They let him slip and they've not moved in and killed him. This is our forces.
HUME: Because the Iraqi officials didn't want to. Was that a mistake?
MCINERNEY: But the fact is that you've got to listen...
HUME: Should we do now what we didn't do then? Go in there and just kill this guy?
MCINERNEY: What we have to do is get Prime Minister Allawi (search) to agree we've got to take him out. And I think they realize now...
HUME: Well, Allawi went down there and made an appeal. And apparently, it fell on deaf ears, correct?
MCINERNEY: Yes, made an appeal. Yes, it is. Because again, Sadr is taking his direction from Iran and so no matter what Allawi says, all they did last time was they refitted. They were creamed, they took heavy losses, they we went in, they did a negotiated truce because they were losing and they refitted.
Now we can't let them refit. We can't let them refit like we let the Sunnis up in Fallujah. You see, we're two days away from the complete victory up there. And because again, the Governing Council said let's see if we can negotiate this. So we're now going to have to pay the price in both locations, by the way, in Najaf...
HUME: So we keep hitting Fallujah with bombs and blowing up buildings, and has that diminished that place as a hotbed or not?
MCINERNEY: Well, it is certainly diminishing it. It has not stopped it. All these cars that have come with car bombs and truck bombs are coming out of the Fallujah area. And so it still is a cancer in our problem for stability up there. Fallujah in the south...
HUME: The instinct of this administration, though, seems to be more and more to let the Iraqis have to deal with it however they can or perhaps not if they can't. Is that consistent with what you are advising?
MCINERNEY: Absolutely. And we don't have much choice. What we've got to do is make sure we're on the same frequency. They have got to pick up this responsibility, Brit.
Now, one of the major weaknesses is we have a problem where we're still sitting at 50 to 60 percent unemployment over there. And we have not developed a human intelligence system over there that can defeat and pick away at an insurgency. We still have not done that yet.
HUME: Well, we've got a chicken and egg problem on the unemployment, don't we?
HUME: The reconstruction money isn't going in there until the companies that are going to do the job feel safe going in there. And they're not going to feel safe going in there until the violence dies down. And the violence may not die down until the unemployment picture picks up.
MCINERNEY: Well, we're going to have to get the dollars in there and get Iraqi companies involved. And the foreign companies, a lot of these big companies, are going to have to subcontract to Iraqis to get Iraqi companies doing it. Help them and get Iraqi employees doing it. That's going to help in both cases. The other case we have got to set up really a security — an intelligence security apparatus up there that is first class.
HUME: All right. Tom McInerney, great to have you. Thank you.