This is a partial transcript of "The Big Story With John Gibson," Sept. 22, 2004, that has been edited for clarity.

Watch "The Big Story With John Gibson" weeknights at 5 p.m. ET!

JOHN GIBSON, HOST: John Kerry's (search) been hitting President Bush (search) hard on Iraq the past few days. Kerry says the President has "steered us wrong. We need to change course."

Earlier I spoke with National Security Adviser Condoleezza Rice (search). She, of course, disagrees with Sen. Kerry's assessment. I asked her, "Are the critics right? Are we losing the war in Iraq?"

CONDOLEEZZA RICE, NATIONAL SECURITY ADVISER: We are certainly not losing the war in Iraq. The Iraqi people are on their way to a stable and better future. We have traded the false sense of security of having a terrible dictator there, who was oppressing his own people and destabilizing the region, for the promise of a far better future for Iraq, in which you have a democratic state there and a line on the war on terrorism.

Sure, it's tough. The terrorists want to do everything that they can to derail the progress there. They want to do everything that they can to undermine the confidence of the American people, the international community, the Iraqi people that elections can be held on time.

But Prime Minister Allawi and his government have been very strong in saying that it isn't going to happen. They are going to have elections. And they're going to make their next steps toward democratic development.

And so, the United States needs to express confidence in these people rather than skepticism.

GIBSON: Candidate Kerry also says the United States is now at a greater risk; we're less secure because of this war. Again, how would you respond to him?

RICE: I thought we learned this lesson on Sept. 11: that the status quo in the Middle East is not sustainable, that the idea that places where dictators deny to their people freedoms are not more stable. There's a false stability there.

And the idea that you would somehow prefer the false stability of dictatorship to the promise of the Iraqi people finally having a chance to live in freedom is very odd to me. The truth of the matter is we know that when freedom and liberty spread, we are more secure. We've seen it in Europe, we've seen it in Asia, we've seen it all over the globe.

And the Middle East is no different. And Iraq is the first and perhaps most important step toward a different kind of Middle East.

GIBSON: Nonetheless, as you well know, the insurgency is growing; the attacks are on the rise. I think even the number of American dead this month in September appears to be running ahead of months past. And only yesterday, another American beheaded by Zarqawi. Why can't we get hold of this insurgency?

RICE: Well, there's no doubt that everybody mourns every sacrifice and the especially horrific deaths of the Americans over the last couple of days. And our prayers are with their families and with others who are being held. But the insurgency has one card to play and that's violence. And they're going use it to try to undermine confidence in the ability of this political process to move forward.

It is absolutely the case that very good things are happening in Iraq side-by-side with very bad things. And this insurgency, which is violent and which believes that it needs to be on television and so they do the most violent things in places like Baghdad, they're going continue to try to derail the process. But as long as the Iraqis are making progress politically, as long as they're giving the Iraqi people a chance for a different kind of future, the insurgents can't win.

And the point that Prime Minister Allawi made yesterday to the President is that the Iraqi people have, in fact, made every deadline that has been is expected of them. The transitional administrative law was written; then we were able to transfer the sovereignty to a very good, now competent government. They had the national conference on time. And in fact, they have a national conference now like a legislature that is helping in the process.

They of course, are having small-scale local elections all over the country. They are moving forward. We need to move forward with them. What we cannot do is send mixed signals. Of course it's hard. Any change of this proportion is going to be hard, but the United States has done hard things before. And the response to seeing that it's hard is not to say, "Well, I don't think we can get it done."

GIBSON: All right. But the American people are also seeing that there are no-go zones; we see that the troops in Fallujah were making progress, may have crushed that insurgency and then were brought up short. Are we pulling our punches right now to avoid what would amount to a kind of an ugly bloodbath on TV before the election?

RICE: There's absolutely no pulling of punches. The American military and the coalition forces are active in many parts of the country. You may see that there was an active offensive raid today in Sadr City. They are, practically every day, going after safe houses of Zarqawi and his network in Fallujah. There have been some successes in taking territory back to insurgency forces.

For instance, in Najaf, where just a month ago, we were talking about the Mahdi militia of Muqtada al-Sadr being in the shrine of Ali, and worrying about whether or not people were going to have to storm the Shrine of Ali. We now have there Iraqi forces in the country. And the city is peaceful and it's being reconstructed. Iraqi forces have had success in Samara, where you have a new, local city council up in the Sunni Triangle.

Fallujah is a problem. And the decision was made with a lot of support and actually a lot of input from the ground that at the time, we were in the process of trying to get a political process underway; we were trying to get a government in place and, that the risk of the spread of the insurgency at that time, was too great for an offensive in Fallujah.

But nothing has been ceded to these terrorists and insurgents. Iraqi forces themselves are getting stronger. There are now nearly 100,000 of them that are trained. There are about 600 to 800 of them being trained every week. This is a picture that will improve over time, but no one should mistake that it's a very difficult circumstance and that there are going be hard times ahead.

GIBSON: You acknowledge that it is a difficult circumstance, but what Sen. Kerry is saying is that President Bush is sugarcoating the situation in Iraq; that he's not facing reality. He refuses to face reality, that it is much worse than we are presently characterizing it when we say there is progress there.

How do you respond to Senator Kerry saying that we, the United States, simply seems to be out of touch with what's really going on in Iraq right now?

RICE: Well, first of all, the President and everyone else is saying that there are difficult circumstances there. There's a tough insurgency, there are terrorists who would like to stop this process. But if you have some faith in the Iraqi people and you have some faith in the power of liberty and you have some faith in the fact that these people do want a better life and want to vote.

And if you understand that the world was not better off with Saddam Hussein in power, then you see that there is progress toward this political process that gives the Iraqi people an alternative. And that alternative to the insurgents who, by the way, have no political program, their only program is to blow things up and to keep progress from taking place.

You see that the fact that huge numbers of Iraqis say that they intend to participate in the political process in the elections. It's a step forward. You see that the local elections that are taking place all over Iraq are a step forward.

You see the fact that people are going to school and to universities and starting small businesses and that the electricity is better than it was in the pre-war period. You see that, yes, there's progress, right alongside the disturbing trends in Iraq.

But this is really a question of confidence in the power of liberty to transform lives. We're seeing, in a place that's a little further along, Afghanistan, that's now some three years into the process, we see in Afghanistan which has 10 and a half million registered voters because the Afghan people want to vote in their Oct. 9 election. Almost 42 percent of those are women.

You see the power of people wanting to have control of their own lives. And we have confidence in that; we have confidence in Prime Minister Allawi and his very competent and tough government. And this will work. There's some hard times ahead. But this will work.

GIBSON: Dr. Rice, I don't want to interrupt you, but what about these elections? Kofi Annan is saying, "Look, he can't validate or sanction elections under this security situation."

Do you have confidence in the short amount of time left that the security situation can get in hand, that Dr. Allawi can do that with American help, and that you can run credible national elections in January?

RICE: I do think that you can run credible national elections in January. They will not be perfect elections; no transitional elections are perfect elections. But Allawi and his government are working very hard with local leaders throughout country, including even in places like Fallujah, to find ways for everybody to participate.

And John, most of the country is actually stable. The Shi'a south is mostly stable; the north is quite stable. We're talking about the Sunni Triangle. And Prime Minister Allawi's plan is to siphon off people who are not hardcore insurgents or foreign terrorists and to engage them in the political process. He's actively doing that, his people are actively doing that; they're providing assistance for reconstruction to places that are a part of the political process. There is a lot going on.

But we need to have these elections on time. Now, the Iraqi people, every time they were supposed to meet a deadline, people say they couldn't do it. We couldn't transfer sovereignty because there was too much violence. Well we did and we have as a result, a very good Iraqi government that is capable now of representing the interests of the Iraqi people.

The real strategic goal here is that in December of 2005, you will have a constitution and a fully representative Iraqi government. There are going to be many signposts and mileposts along the way. The first most important one is the transitional elections that take place in January.

But, again, the Iraqi people have shown themselves to want this. They are not falling to Shi'a against Kurd and Kurd against the Sunni. They want a political future together. And we need to support them in it and we need not to send them mixed signals that we don't think it can get done.

GIBSON: Dr. Condoleezza Rice, thank you very much.

RICE: Thank you.

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.'s and eMediaMillWorks, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.