The following is a transcribed excerpt from 'FOX News Sunday,' September 26, 2004:

CHRIS WALLACE, FOX NEWS: The war in Iraq and the war on terror took over the presidential campaign this week, as John Kerry launched his strongest attack yet on the Bush foreign policy and the president fired back.

We're joined now by Secretary of State Colin Powell.

And Mr. Secretary, welcome. This has been quite a week.

COLIN POWELL, U.S. SECRETARY OF STATE: POWELL: Thank you, Chris. Good to be back.

WALLACE: I'd like to begin by playing some comments that the president and vice president made this week regarding Senator Kerry's critique of their foreign policy. Take a look.

(BEGIN VIDEO CLIPS)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: You can embolden an enemy by sending mixed message. You can dispirit the Iraqi people by sending mixed messages.

RICHARD CHENEY, VICE PRESIDENT OF THE UNITED STATES: John Kerry is trying to tear down all the good that has been accomplished. And his words are destructive to our effort in Iraq and in the global war on terror.

(END VIDEO CLIPS)

WALLACE: Does the Bush administration feel that Senator Kerry's statements are making it harder to wage the war on terror and the war in Iraq?

POWELL: Chris, as secretary of state, I'd rather not get into campaign commentary between the different candidates.

I will say this, that as we saw from Prime Minister Allawi earlier in the week, a great deal of progress has taken place in Iraq. We are moving forward. Schools are open. Municipal elections are being held.

We are fighting a tough insurgency. It's an insurgency that we have to defeat, and we are going to defeat it and get to elections at the end of January of 2005.

And everything we can do to make sure that we stay on that track and support our troops, we should do.

WALLACE: And, you know, if you want to take it out of the realm specifically of what Senator Kerry is saying or President Bush is saying, aren't these legitimate issues to be debated? Is it fair to say that someone, an opponent, is helping the enemy by launching a critique of foreign policy?

POWELL: I think the American people are sophisticated enough and wise enough to make judgments about the candidates and wade through the charges and countercharges that come with the campaign.

I think the American people want to see what we want to see, and that is for the Iraqi people to have a free, open, fair election, for their forces to be built up, for our reconstruction money to be used well, and for Iraqi security forces to take over so we can start bringing our troops home.

WALLACE: The media has revealed that a National Intelligence Estimate, or NIE, prepared for the president in July outlined three scenarios for Iraq through the end of next year, through the end of 2005, ranging at best from the violence and instability that we see now to, at the worst, civil war.

The president was asked this week why his talk about the situation in Iraq is so much rosier than the best estimate of the intelligence community. Here was his answer. Take a look.

(BEGIN VIDEO CLIP)

BUSH: The CIA laid out several scenarios. They said life could be lousy, life could be OK, life could be better. And they were just guessing as to what the conditions might be like.

(END VIDEO CLIP)

WALLACE: The president said later that he should have said "estimate," not "guess." But didn't he mischaracterize what the NIE says? Didn't it, in fact, say the situation could be bad, worse, or civil war?

POWELL: It was an NIE, and I was with the president when he made that comment, and what he really meant to say was these are estimates.

And, in effect, the NIE laid out a sober assessment of potential alternative outcomes. And they always tend to focus on sort of the worst case, so that policy makers can think about worst-case responses.

But I think there are many alternatives into the future, and the best alternative and the one we're pursuing and the one that really is achievable is to continue fighting this insurgency, which is going to get harder. Because these individuals are determined that the Iraqi people will not have a free election, that they're going to go back to the past, to the days of dictatorship and totalitarianism. And we cannot allow them to succeed.

If there's one thing we all agree on, the international community agrees on, is that these thugs and murderers cannot be allowed to succeed.

So there are some tough days ahead. There's tough fighting ahead. But what is at the end of this, when we defeat this insurgency, is the Iraqi people will get to choose their own leaders, write their own constitution and ratify it next year, and then have full, free, fair elections for their final government and parliament. And the United States, having built up Iraqi forces, can begin withdrawal.

WALLACE: But, Mr. Secretary, what some people are wondering is, the National Intelligence Estimate is a serious document. It is the best estimate — I don't have to tell you — of the intelligence community.

The president, in some measure, took this country to war based on the NIE back in October of 2002 that said that Saddam Hussein had weapons of mass destruction.

Why now, when the NIE says things are going badly in Iraq, is it just guessing or estimating?

POWELL: The NIE gives potential courses that could be followed. Things might turn out this way. But it is an estimate. And you can shape each of these alternatives.

We ask our intelligence people to give us a sober assessment of what might happen. Then you just don't follow that path or expect that path to be predetermined. You can influence that path by the actions you take.

And so I read it as a very sober assessment. It wasn't a terribly shocking assessment. It was something that I could have written myself, and I'm glad the NIE was done in such a capable way by our intelligence folks.

But what we have to do is shape events and take what the NIE says to us and influence events, not just say, "This is going to happen because it's written in the document." It will only happen if we don't take action to keep it from happening that way.

WALLACE: OK. There was some disagreement within your administration this week about whether elections can be held throughout Iraq in January. Here's what Defense Secretary Rumsfeld said, speaking to a congressional committee. Let's listen.

(BEGIN VIDEO CLIP)

DONALD RUMSFELD, SECRETARY OF DEFENSE: Let's say you tried to have an election and you could have it in three-quarters or four- fifths of the country, but in some places you couldn't because the violence was too great. Well, that's — so be it. Nothing's perfect in life.

(END VIDEO CLIP)

WALLACE: Does Secretary Rumsfeld speak for this administration in saying that partial elections are acceptable?

POWELL: Our goal right now is to support Prime Minister Allawi's goal of having full, free, fair elections for the whole country.

POWELL: For elections to have complete credibility and stand the test of international scrutiny, I think what we have to do is to give all the people of Iraq an opportunity to participate in those elections, just as we would have difficulty with partial elections here in the United States.

Now, this is not to say that there won't be attacks at polling stations, or that there may be some places where it will be hard to have those elections, and maybe individuals will have to go somewhere else to vote. Don't know. But it is premature to judge that we cannot have full, free elections throughout the country.

We're getting the U.N. to stand up its electoral support activity. We're going to provide security to U.N. personnel, so that the numbers could be increased in the country.

And there are elections taking place in Iraq today. There are municipal elections taking place, as a precursor to the national elections that will take place.

WALLACE: But would the administration ever consider accepting partial elections, or is it a matter of all or nothing, it has to be throughout the country?

POWELL: I think it has to be throughout the country.

It doesn't mean that everybody got to vote on that particular day. What's our turnout on any particular day for a variety of reasons? So, we don't need a 100-percent turnout of every single citizen.

But I think it has to be seen as a comprehensive, full, free, and fair election, in order to get the kind of credibility that we want to need.

And that's what Prime Minister Allawi's committed to. That's what we're committed to. That's our position.

And we're going to do everything in the next several months to bring the areas that are not under control under control. Why? So that those people have the opportunity to speak in an election for their leaders, and to get ready to ratify a constitution, and then have full elections, another set of elections, at the end of 2005.

WALLACE: There's a report that you're working with Prime Minister Allawi to set up an international summit for October to work on building support for Iraqi elections in January.

Now, some Arab leaders and some European leaders say that they think the presidential campaign is playing some role in trying to hold this meeting, because they say, when France and Russia proposed the international summit earlier in the year, that this administration was cool to it.

POWELL: No, that's not the case. This is an idea of Prime Minister Allawi's, and he came into office saying that it was important for him to reach out to his neighbors. And he has visited all of his neighbors. And it was his idea that we bring together the neighbors of Iraq, plus the G-8, to have a regional conference.

Now, the other conference that some of my colleagues in the Security Council were suggesting was a broader, international conference. And that may be well something we can do at some point in the future. We're not against that. But we have to make sure that these conferences have a purpose and are well-prepared.

Hopefully, this regional conference will be held in October. It could be in November. It's not a function of anyone's election. It's a function of when we can get the people together and we have a proper agenda and the conference is well-prepared.

And it will be a conference in the region. Why? So that all of Iraq's neighbors can sit with Prime Minister Allawi and his cabinet and discuss why it is in the interests of the whole neighborhood for there to be a stable Iraq with an elected government resting on the basis of a democratic system that is no threat to any of its neighbors, and why that's in the interests of the neighbors, and what can the neighbors do to help, and how can the industrialized community, represented by the G-8, assist in the process.

WALLACE: Will foreign policy and diplomacy be a little easier to conduct when the campaign is over?

POWELL: I am conducting foreign policy and diplomacy every day, Chris. And I just finished a week at the U.N., where I guess I spoke to 60 or 70 foreign ministers from around the world in all sorts of groupings: African groupings, the Middle East.

We had 28 nations come together to talk about reform and modernization in the Middle East, something that people thought we would never be able to do. That process is under way.

Met with the Adriatic Charter, nations of the Balkans, who want to be part of the transatlantic community.

So diplomacy never stops, and, with or without an election, it never stops.

WALLACE: Mr. Secretary, thank you.

POWELL: Thank you, Chris.