This is a partial transcript from "Your World with Neil Cavuto," August 18, 2004, that was edited for clarity.

NEIL CAVUTO, HOST: Al-Sadr (search) signs on, but growing concerns whether we can believe him. The radical Shiite cleric accepting a peace plan to end the fighting in Najaf (search), he agrees to disarm his militia. We agree not to kill him or his militia. The devil right now, quite literally, in the details.

Muqtada al-Sadr blinked today. But he has supposedly blinked before, ultimately ending up stronger later. Wall Street breathed a huge sigh of relief on the news. The Dow up better than 100 points.  But it has done that before too. What to make of the man some call our single biggest impediment to peace in Iraq? Here to make sense of that and much more on the military front today, Nation Security Adviser Condoleezza Rice (search), who joins us out of Washington.

Dr. Rice, good to have you.

CONDOLEEZZA RICE, NATIONAL SECURITY ADVISER: Nice to be with you.

CAVUTO: Can we trust al-Sadr?

RICE: I don’t think we can trust al-Sadr. I think we have to see action, not just words. We have seen many, many times al-Sadr assume or say that he is going to accept certain terms and then it turns out not to be the case. I should just say that this is really a matter that the now-sovereign Iraqi government is handling and we are being supportive of them. But they will make the decisions here, and I think that they understand that Sadr is someone who you have to see what he does, not just what he says.

CAVUTO: But Prime Minister Allawi has said, as I’m sure you are aware of, Doctor, that he first wanted to get tough with al-Sadr, then he wanted to hold back, that he is giving inconsistent vibes here. What do you think of the way he handled this?

RICE: I think that the Iraqi government is doing extremely well under very difficult circumstances. They clearly have sent some important messages to Sadr, for instance, that he really does have to leave the mosque. And by the way, the Shia community, including those who were at the conference, are echoing that important statement, that he has to leave the mosque. But I think you will see an Iraqi government that waits to see if he does what he says he is going to do.

CAVUTO: If the government does indeed, as it has indicated now, ma’am, grant him amnesty, when we had wanted him on charges of murder, how would that go down in this country?

RICE: The important thing is that the Iraqi government has to run its country. And they understand the threat from Sadr. The threat from Sadr is his militia, and the fact that he wants to be a law unto himself, the fact that he is occupying and has arms inside the holy shrine in Shia. And the Iraqi government is handling this, it is handling it, I think, with some skill and we will be supportive of what they decide to do.

CAVUTO: Marines on the ground in Najaf had indicated that they wanted to go through, raid the shrine, get the guy, maybe even kill the guy, ultimately their wishes were not met. Are we going to rue this day, Doctor?

RICE: Well, I think we have to be careful in talking about who thinks he ought to do what. It has always been the case that we have felt it better that the Iraqis would handle something as sensitive as going into one of the holiest shrines in all of Shiadom. And so we are there to support the Iraqis in their efforts, let’s wait and see what they do here. They have been very tough. They have been very clear with Sadr that he cannot continue on the path that he is on.

CAVUTO: Personally do you think we’d be better with this guy dead?

RICE: I can’t make a judgment of that kind. I think we would certain be better — the Iraqis would certainly be better if he lays down his arms, if his militia lays down its arms, if its understood that there cannot be a law unto itself down in southern Iraq. I think that what is the residents of Najaf are saying. That is what the leaders of the Shia community are saying, and, sooner or later, Sadr is going to have to comply.

CAVUTO: Let me switch gears if you don’t mind, Dr. Rice. Senator Kerry was making a speech to the Veterans of Foreign Wars today, saying that our whole approach and the president’s approach to Iraq, not to mention his plan to move 70,000 troops around the world, they are twin mistakes, saying of Iraq, first off, that nearly 90 percent of all coalition forces are Americans, more than 90 percent of the coffins we have seen coming out of Iraq have American flags on them. Does he have a point?

RICE: Well, I don’t understand what Senator Kerry is suggesting that we do. We are making sacrifices in Iraq and that is well understood. Sacrifices in the goal of getting a stable and democratic Iraq, which will then make the United States safer by making the Middle East a different kind of place, a different place than the Middle East that helped to launch the terrorist attacks, the ideologies of hatred that ended up in the September 11 attacks.

But the fact of the matter is that the way that we will win in Iraq, the way that we will create that stable government, is to stay the course. That means not making false promises that we might be able to remove X number of American forces by some specific date. What a terrible message to the Iraqis who are sacrificing, what a terrible message to the enemies of a democratic Iraq who then only have to wait until we remove forces that we have said we would remove on an artificial timetable.

And so the president knows how to get this done, that is to stay the course, to be clear that we are going to finish the job and not to set artificial deadlines about removing X number of American forces on some pre-prescribed day. As to the coalition...

CAVUTO: But, he is saying about the coalition, though, ma’am, that the mistake there is that we are putting ourselves at great risk in places like Korea, by removing 12,000-15,000 troops.  What do you say to that?

RICE: Well, let me address that, but first, let me say that I don’t understand how one builds a coalition by continually denigrating the contributions of our dear allies like the British and the Japanese and the South Koreans and the Italians and the Poles and the Ukrainians who have lost people in this conflict in Iraq and minimizing the support and the contributions they’ve made.

Now, as to the president’s troop redeployment plans, it makes no sense to stay with a Cold War posture, a posture that, frankly, the president realized all the way back before he was elected, needed to be reformed, a Cold War posture that has forces looking as if we’re looking the Soviet Union to come over the German plains, against an army that no longer exists, against the Warsaw Pact, which was the alliance against which NATO fought. And by the way, most of the members of the Warsaw Pact of course are now members of NATO, defending an inter-German border that no longer exists, because Germany is unified? No, it was time, high time to make changes in the American force posture to be reflective of the new realities that we face. And that means...

CAVUTO: But does that mean in Korea, too, though, Dr. Rice?

RICE: Of course.

CAVUTO: I think your point was that since that is a real hot spot and we are dealing with a nut there in North Korea who does have nuclear technology, that by disarming some of our people there, we are really opening up potential trouble there.

RICE: No. The American commitment to the Korean peninsula remains strong and the alliance between the United States and South Korea could not be stronger. It has been, of course, 50 years since the ends of the Korean War as well, and so you have to constantly look at force posture. What we are doing there is consolidating some of the many facilities that are no longer needed. We are moving our forces to places where they will be not so close to Seoul and, therefore, not an irritant to the population of South Korea.

And, yes, the numbers will come down but that is more than made up for with the capability that we have in air capability, in land — in sea capability, and in the fact that our ground forces are now more capable technologically than they were 50 years ago.

You have to update your forces. It doesn’t make sense to stay with a Cold War force posture and to keep American forces where they are no longer needed.

CAVUTO: Dr. Condoleezza Rice, thank you for taking the time to join us, we appreciate it.

RICE: You’re welcome.

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