This is a partial transcript of "Special Report With Brit Hume," March 28, 2005, that has been edited for clarity.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. ET

(BEGIN VIDEO CLIP)

ALI AL DABAGH, MEMBER, IRAQI NAT'L. ASSEMBLY: We had reached an agreement for having the meeting on next Tuesday for the National Assembly and to name the president, as well as his duties. We think that this is a big achievement, as we want the National Assembly to start working. Without having the president, it is not illegal and it means so many issues need to be discussed.

(END VIDEO CLIP)

BRIT HUME, HOST: Well, as that suggests, it's now been nearly two months since the Iraqi elections that were to have led to formation of a new government. While there has been plenty of politics, there is still no new government. And it's not entirely clear when there will be. The interim vice president, the Sunni Ghazi al Yawar (search), has now taken himself out of consideration to be speaker of the parliament, and none of this is good news.

So how worried should people be? For answers, we turn to a man with excellent contacts in Iraq, the former coalition spokesman there and now FOX News contributor, Dan.

Dan, what's going on in Iraq?

DAN SENOR, FMR. CPA SPOKESMAN: It's politics, Brit. It's democracy. We often said when we were there that democracy is messy. If you want clean and tidy, there's dictatorship. But right now, these leaders are immersed in their first sort of democratic experiments, negotiating, horse-trading.

The Kurds, which really hold all the cards right now, the Kurdish leadership recognize they were the second largest vote getters in the elections. They got about 70 seats. So they have the capacity to hold up the formation of a government. And so what they're doing is their trying to get as many of their priorities, many of their demands met now.

HUME: Such as?

SENOR: Such as, they want some kind of control over the oil-rich city of Kirkuk, which has tremendous...

HUME: Well, it's part of their oil territory. Isn't it a legitimate...

SENOR: Part of their — northern part of the country, but under a unified Iraq, many Iraqis argue it should be not under the control of Baghdad, under the control of a national government. Not under the control of regional interests.

The Kurds also say that they traditionally represented the largest population in that area, in Kirkuk. Saddam drove them out as part of his Arabization program because he didn't want Kurds, this repressed minority, to be in control of such an important city. They're saying we should now be able to repopulate the city and take control of it again.

The Kurds have their own militia, which fought Saddam for decades, called the Peshmerga.

HUME: And it's about the most effective fighting force outside the U.S. in the country. Correct?

SENOR: That's right. And the uni — the national government is saying it's time for the militia, the sectarian-based regional militia to shut down if we're going to have a unified national country. The Kurds are saying, not so quick. We want the Peshmerga to still have some role in securing our part of the country. The Kurds want real federalism. They want some autonomy from Baghdad...

HUME: They've always wanted it. And it was always thought that they will get that. I assume that they will get some of it.

SENOR: They will get some of it. The question is degree. The question is how much? And so a lot of these issues should be dealt with in the constitutional process, which will come up after the government is formed. But the Kurds recognize they have a tremendous amount of leverage right now. And so...

HUME: They will not have as much after?

SENOR: They will still have some after. But they're never going to have as much as they have now. When I was in Iraq, I spoke to one Kurdish leader who basically said the one thing — the Shiites, which won the largest number votes, largest number of seats don't want, don't want is to extend the life of the current government, the Allawi government.

By us not participating in the formation of a new government, we have the capacity to do exactly what they don't want, which is extend the life of this government. So we're going to extend the life of the current government until they give us what we want. We won't let them form a new government until we get these demands met.

HUME: Well, these four things that they want sounds like things that he wants very much. They also sound, at least in the case of a couple of them, like things that the Baghdad central authority there that will be — will be very reluctant to yield. So this sound like this stalemate could go on for sometime.

SENOR: Exactly. Two things are at play here. One, Ayatollah Sistani (search), who has basically told the political leaders look, get the ball rolling here. You have a responsibility to form a government. The Iraqis literally risked their lives to go vote for this political process. Don't squander the momentum from that political process.

HUME: Right.

SENOR: Secondly, the interim constitution says that after the president and the two vice presidents are chosen, the Iraqi leaders have exactly two weeks to choose a prime minister, and form the rest of the government. So assuming that the president and the vice president are chosen here quickly, the clock is really going to tick in order to meet the deadline that's mandated by the interim constitution.

HUME: Why should I not believe that this whole thing could go kaflooey here?

SENOR: Well, like everything in Iraq; you could have said the same thing when we were drafting — when the Iraqis were drafting the interim constitution. There was a deadline that it be drafted by the end of February. The deadline was met. It was a deadline required for the formation of the interim government. Many people thought June, no way it will be formed...

HUME: I understand. Dan, there's no doubt about that record. The track record of the perils of Pauline here. We've had that. But do the Kurds — I mean, is this a situation where the Kurds really have anything to lose? I mean, they wanted a measure of autonomy anyway. If there were no real central authority, or central unified Iraq, that would be a bad thing for those to the south of the Kurds. But that wouldn't be the worst thing in the world for the Kurds at all, would it?

SENOR: The Kurds can overplay their hands.

HUME: How so?

SENOR: The fact is the majority of Iraqis risked their lives to go vote. And they're saying, a lot of these Iraqis are saying, look. We did our part. All right? We risked our lives. We made some tough decisions and we — eight million plus participated in this election...

HUME: That has moral authority. But does it have any political authority over the Kurds?

SENOR: So they're saying to the Iraqis leaders we did our part, now you do your part and form a government that we chose. And there's a real sense from a number of Iraqis that I speak to, there's a real frustration. They're simmering mad with the Kurds...

(CROSSTALK)

HUME: I know. But let's assume there's frustration. But do the Kurds really have anything, though? You said they can overplay their hand. But if this thing all went to pot and they decided they were going to be the Independent Republic of Kurdistan, which they may well want to, how would they lose in that?

SENOR: The Kurds have made a strategic observation or recognition long ago that they cannot survive as an independent nation. They are two or three million strong population. They're landlocked. They're surrounded by enemies. The idea that Kurdistan can survive as an independent sovereign state is just not realistic, and they recognize that.

So they're trying to strike a balance here between recognizing they've got to be part of the unified Iraq, but trying to milk as much as they can out of this process.

HUME: Last question. So your view is they'll make a deal eventually.

SENOR: They'll make a deal because they don't want the Iraqis on the street to really turn against them.

HUME: All right. And what about — Does it matter at all that Ghazi al Yawar doesn't want to be the speaker of the assembly?

SENOR: No. He's not a terribly an important player right now. He's a senior-level Sunni. He'll get some position. He doesn't want a position that's subordinate to the position he's had up to now, which is ceremonial position of president. And I think he's trying to negotiate and he won't take this subordinate position. And I don't think it matters.

HUME: Dan Senor, good to have you as always.

SENOR: Good to be with you.

HUME: Thanks for coming in.

Content and Programming Copyright 2005 Fox News Network, L.L.C. ALL RIGHTS RESERVED. Transcription Copyright 2005 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.