This is a partial transcript of "Special Report With Brit Hume," August 26, 2005, that has been edited for clarity.

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JIM ANGLE, GUEST HOST: The stakes are very high, and President Bush (search) even called negotiators to nudge them toward compromise. But late today, a spokesman for the Iraqi government said talks on a new constitution are hopelessly deadlocked. This, he said, is the end of the road for negotiations.

But the draft constitution and the proposed compromise may now be taken to the parliament, where there it will be voted on. So what are the options at this point? And does this mean more difficult times ahead, or is it just another bump in the road?

For answers, we turn to Reuel Marc Gerecht, a former Middle East specialist at the CIA, now a fellow at the American Enterprise Institute.

Happy to have you.

REUEL MARC GERECHT, AMERICAN ENTERPRISE INSTITUTE: Pleasure.

ANGLE: Let me ask you first, before we get into the details, the Shias and the Kurd had offered a compromise. Sunni (search) negotiators turned it down. So now the draft compromise — the draft constitution, with that compromise, will go to the parliament. What are its prospects there?

GERECHT: Well, I suspect the parliament’s actually going to refer it out for the October 15 referendum without even necessarily approving it. In the sense that, by the constitution, it’s not clear that parliament has to vote it up and down. It can just move it directly to the referendum. I suspect that’s what they will do.

ANGLE: Now, one Sunni negotiator today conceded that the other parties had at least tried to address their concerns. And even though they weren’t willing to accept the compromise as written, they said, look, they did address the area of our concerns, which were broadly described as federalism, something that we’ve also debated here in this country.

What do they mean by federalism?

GERECHT: Well, I think there were really two issues there. Federalism in its reverse side, what they’re primarily talking about, is oil distribution. And God has put most of the oil under the Kurdish property and Shiite property. And the Sunni zones, which are for the most part in the central part of the country, have no oil whatsoever.

There’s also an issue for the Sunnis that they have just been the dominant dictatorial power in the country for a very, very long time. It’s difficult for them to give up the idea that, somehow, they cannot once again, essentially, be the dominant force throughout all of Iraq.

ANGLE: Well, and I’m sure there are some hard feelings still among the Kurds and the Shia who are thinking, "Whatever the Sunnis get, however difficult it is for them, perhaps they deserve it"?

GERECHT: Well, I think there is certainly some bitterness. I have to say it is remarkable, though, on both the Shiite and the Kurdish side, how little revenge-killing there has been. There has been, but given the thousands of individuals who were slaughtered during Saddam’s rule, and Saddam’s regime was primarily Sunni, it is striking how little. And that should give people hope.

ANGLE: Yes, it does suggest that people are genuinely trying to work out some sort of agreement for a new Iraq.

GERECHT: I think that’s true. It’s certainly true on the Shiite and Kurdish side. I think it’s also true on the Sunni side, though it’s more complicated. I mean, I think the Sunnis are now in a position that they — at least the members who were part of this constituent delegation aren’t going to compromise. And I think that’s clear. And they’re going to have to push it to the October 15 referendum.

ANGLE: Now, Reuel, what are the calculations among Sunnis? Obviously, you’ve talked about part of it, but they’re now looking at this situation and thinking, "Do we sort of continue to support to some extent the insurgency? Do we go with the new government, which is trying to forge a new, more democratic Iraq?"

How does the Sunni community look at the two options ahead of them?

GERECHT: Well, I think it’s very difficult to say that clearly, because I think the Sunni community is divided. And it’s very difficult to get an accurate gauge, because the insurgency is so powerful and the possibilities of intimidation are real.

I think what you have to look at — and it’s a pretty good gauge — is where the traditional Sunni clergy is going to go. And if they go in the direction of some type of compromise, then it’s a real possibility. If they don’t, I think the compromise is unlikely.

ANGLE: What are the signs on that so far?

GERECHT: It’s mixed. It’s very, very mixed. I would say that I think the Americans have taken the wrong position from the very beginning and that they have tried actually to placate the Sunni minority, which represents about 20 percent of the population, instead of suggesting to them that they really need to accept the offers presented, because they don’t really have a choice.

And they need to accept the fact that there is a new Iraq, and a new Iraq that they cannot dominate. And that has been very, very difficult for them to do. And I think the Americans have been sending the wrong signals.

ANGLE: Let me ask you more broadly about Iraq. General Myers (search), chairman of the Joint Chiefs, about to retire, was talking today about the situation there and said the stakes are enormous, that there would be, if the terrorists were to win, or if we withdrew prematurely, that it would mean instant instability throughout the region.

What is your sense of that statement?

GERECHT: I think that’s a fair description. I think, if you were to look back in history, and you look at those American actions that sort of inspired bin Laden, bin Ladenism, radical Islamic extremism, you would certainly look at the American withdrawal, the flight from Somalia (search), the retreat from Beirut, and the way the Clinton administration didn’t respond to the attack on the USS Cole (search) in Aden in 2000.

Take all those three incidents, sort of roll them together, exponentially increase the symbolic effect, and you have some idea of what an American retreat from Iraq would be.

ANGLE: You mean an encouragement for the terrorists?

GERECHT: Oh, absolutely. I mean, if you wanted to add jet fuel to jihadism, an American flight from Iraq would do it and you’d see the effect throughout the entire region and you would certainly, I think, see an increase in terrorism against the United States.

ANGLE: Because the sense would be that they would be emboldened, because they were able to — by killing people, they would be able to make the U.S. turn and run? Is that the...

GERECHT: Absolutely. I mean, bin Laden rose to prominence by sort of suggesting, or explicitly declaring, that they had driven the Soviet Union (search) out of Afghanistan (search) and they had destroyed the Soviet Empire. In the jihadist mind, America looms a lot larger than the Soviet Union even did.

And if you can drive America out of Iraq, then you have achieved something that is of truly momentous significance. And they will play on it and they will — that will increase recruitment.

ANGLE: Nevertheless, it is a very difficult task in Iraq. General Myers said today that the sense he gets from going there is that things are better than people here at home. About 30 seconds, what is your sense of where we stand?

GERECHT: I mean, as long as the political process continues on, as long as, particularly the Shia community, which represents about 60 percent of the population, as long as its center holds, then you have an ongoing, real political process that could lead to a functioning democracy.

If that were to fall apart, then everything will fall apart. But I think that is still pretty clear we still have — the center of the community is still there.

ANGLE: OK, Reuel Marc Gerecht, thank you very much.

GERECHT: My pleasure.

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