This is a partial transcript from "On the Record," February 2, 2005, that has been edited for clarity.

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(BEGIN VIDEO CLIP)

CONDOLEEZZA RICE, SECRETARY OF STATE: We've got a lot of challenges ahead of us. This is a really remarkable time in our country's history. The president has set forth a really bold agenda for American foreign policy, and the State Department has got to be in the lead in this period in which diplomacy will be so important to solidifying the gains of the last few years and to pressing forward an agenda for a freer and more prosperous world.

I can't think of a better call than to say that America will stand for freedom and for liberty, that America will stand with those who want their aspirations met for liberty and freedom.

(END VIDEO CLIP)

FOX News CountryWatch: Iran

GRETA VAN SUSTEREN, HOST: The Bush administration is pushing for a peaceful solution to the Iranian nuclear threat (search), but refuses to rule out military force as an option. Will diplomacy be enough?

Joining us in Washington is former — not former, current Senator Joe Lieberman (search ).

Nice to see you, Senator.

SEN. JOSEPH LIEBERMAN, D-CONN.: I'm former a couple of other things.

VAN SUSTEREN: Former a couple other things. Former candidate...

LIEBERMAN: And hopefully future senator.

VAN SUSTEREN: Indeed. Senator, on January 21, the vice president on a radio show had very tough words for Iran. He said it was a potential trouble spot. Is there a risk that we would end up going to war with Iran?

LIEBERMAN: Well, it depends on what Iran does. I mean, I agree with the administration position: diplomacy is the way to go at trying to improve our relations with Iran. But you can't take anything off the table, including a military option.

The fact is that Iran is a lot like the old Soviet Union. It's a small group of people who hate America or dictators, supporters of terrorism at the top. And the Iranian people, generally, are very pro-American. And I think we ought to be helping the Iranian people to rise up and run their own lives and their government.

VAN SUSTEREN: I always worry about the clock. You have this dispute right now about what they're going to do in terms of nuclear material in Iran, and Europe has been talking to them. And apparently, there's a little bit of a standoff. Iran has not yet backed off building this nuclear plant. They say it's for power. We suspect something sinister.

Do we run out of time on this?

LIEBERMAN: The clock is ticking and it's not only ticking for the rest of the world. It's ticking for Iran. And I think we've got to be very clear with them that they've got a choice. They can stop the development of a nuclear weapons program, and there will be benefits for them, including the possibility of fuller diplomatic relations, of better economic relations.

I thought one of the more interesting and important things that happened in the last 24 hours was that General Electric (search) — I'm proud to say, headquartered in Connecticut — announced that it's going to stop doing business in Iran. Get a few more big companies to do that, and Iranians are going to get the message.

They don't want to be exiled from the international economic community. But they can't be part of it unless they play by the rules of the civilized world. And that means stopping being still the No. 1 supporter of terrorism and stopping their nuclear weapons program.

VAN SUSTEREN: So how do we do that?

LIEBERMAN: Well, I think we're into a kind of Mutt and Jeff, as the cops call it, routine, where the Europeans are sort of going at it more diplomatically and we're standing back with a club, saying is you don't cooperate, watch out.

VAN SUSTEREN: So when does that clock run out, though? I mean, because you know, while we have talks, and talks are important...

LIEBERMAN: Yes.

VAN SUSTEREN: Negotiation, diplomacy is far better than war. But it's also a good time for people to get up and start running with programs while we're talking.

LIEBERMAN: No, I agree. And we don't know enough to say when you come to that point where you've got to make a tougher decision.

But the Iranians ought to be under real pressure. I want to come back to what I said before. We'd feel uneasy if Iran was developing a nuclear weapons program and it was a democracy. But we'd feel a lot better if it was a democracy and the people were running it, rather than this group of fanatical mullahs who constantly say the worst things about America. And as I said again, one of the largest state sponsors of terrorism in the world.

So this is going to be the next big test. The elections in Iraq tell us we've begun to turn that around. If Iraq becomes a self-governing country, connecting to the modern world economy, that will send a real message. And maybe we can begin to move that over to Iran.

VAN SUSTEREN: All right. Current Senator Lieberman, thank you very much.

LIEBERMAN: Sure.

VAN SUSTEREN: I appreciate you joining us.

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