This is a partial transcript from "The O'Reilly Factor," July 7, 2006, that has been edited for clarity.

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JOHN KASICH, GUEST HOST: A months old terror plan was apparently uncovered by monitoring Internet chat rooms. Authorities say it involved martyrdom, explosives and the transit tunnels connecting New York and New Jersey. A confessed plotter has been arrested in Lebanon.

Joining us now from Washington is terrorism analyst Steve Emerson. And on the phone from Long Island, New York, you know him, you love him, and of course, it's Bill O'Reilly.

Bill, let's start with you. At the press conference, the FBI Assistant Director Mershon called the plot, as you just heard, the real deal. This is a plot that involved martyrdom, explosives, and focused on these tubes. The plotting for this attack had matured to a point where it appeared that the individuals were about to move forward.

Bill, sounds pretty serious. Your reaction to it?

BILL O'REILLY, HOST: Well, I think the story is important above and beyond the actual desire to blow up the Holland Tunnel to remind everybody that, you know, we're in the middle of a War on Terror, John. I mean, you know, it's a beautiful summer here in the Northeast. And people are at the beach. And they're relaxing. They're having fun. The Fourth of July, everybody's together. It doesn't seem like a war.

And therefore, we're having a lot of trouble in our policy on how to fight the war. We're having a lot of trouble on allowing our intelligence services to do what they have to do to snuff out plots like this.

And I think that this story should just be another wake-up call. I think, look, these people want to kill us and disrupt our society and they're not going to stop. So why don't we, the American people, stop the nonsense, come together, and defeat these people?

You know, united we can beat them. It's much harder when we're fighting each other. And I think The New York Times is – No. 1, I'm going to really be interested to read their coverage tomorrow.

KASICH: Bill, you know, this business of the soft targets. You know, it seems — and when you look at this, you know, with Chicago, the guys were in Miami. In Canada, they were talking about going after the tower up in Toronto.

Now we look at the tunnels here. It just looks as though soft targets, maybe disrupting the financial centers and perhaps at the same time going to where the media centers are. Your sense of that?

O'REILLY: Well, I mean, look, I think that these guys are — look, the Miami guys are a bunch of clowns. All right? But clowns can kill people. And they -- we saw that in Oklahoma City.

So yes, I mean, the left-wing press diminishes these things. Oh, look at these guys. They're not a threat, this, that, and the other thing.

Yes, they are. And as far as their targets are concerned, John, they're just — they want to kill Americans.

KASICH: Yes.

O'REILLY: That's what they want to do. It can go anywhere any time. And you know, again, these stories should remind everybody that there is real danger, real danger and that we should be trying to rally around our government no matter who is elected to confront the danger.

KASICH: Steve Emerson, the significance that a country like Lebanon, you know, which is dominated, frankly, by Syria, who's never been our friend, that they cooperated. They actually arrested this guy over in Lebanon. What — tell us your reaction to that.

STEVE EMERSON, TERRORISM ANALYST: Not only did they arrest him, but they elicited a confession out of him, which I'm sure was through draconian methods.

Look, Lebanon, which is dominated, as you correctly noted, by Syria has got a large Hezbollah influence, has been uncooperative in the United — with the United States on previous counterterrorist operations.

But this time, they've decided to cooperate because the United States probably laid it on the line and said if you don't cooperate, we're going to put sanctions against you. I don't think they made a direct threat like that, John, but I'm sure maximum pressure was put on the Lebanese. And it showed that they can do something against the War on Terror.

KASICH: Bill, there is some real criticism — there was at least earlier out of the FBI about the fact that this story ever made its way into the press. Number one: it was an ongoing investigation. And the FBI said there were countries that didn't appreciate the fact that this got out. How do we deal with this, Bill?

O'REILLY: You know, it's impossible in a free society, John, to shut this kind of stuff down. I think the world has got to understand that, you know, in America, we have a very aggressive press. Its duty is to watch the government and what they do.

Obviously, you and I participate in that every day. And I'm sure Steve respects it. We have to have an aggressive press in this country. So these things are always going to happen.

And I think, you know, they should happen to the extent that Americans should know what dangers they face. And so I'm not upset about this story getting out. I think it can be a very good thing, something that I will continually mention and, you know, to try to wake people up to stop the nonsense. And as I said, come together and support whatever government we have in beating these animals.

Because boy oh boy, I'm telling you, they will kill any American they can kill.

KASICH: Yes, that's what they're after. They want to kill as many people as they can.

O'REILLY: Right.

KASICH: And it's no longer a war on the battlefield.

Steve Emerson, you know, Bill mentions the guys arrested down in Miami. We look up in Canada, we see a far more sophisticated plot. I don't know, Bill, if you heard about this today, but the ability to set off explosives with cell phones, very carefully planned.

Steve, you've read the article about the terrorist attacks in Bali. Very sophisticated. Tell us about the different levels of these bad guys?

We got the clowns. We got the serious guys. Who are we looking at here?

EMERSON: Well, listen, you have to look at everyone. And as Bill correctly noted, even clowns can cause damage. You know, even if they didn't take down the Sears Tower, they could have planted a bomb in the basement or in one of the garage levels that could have caused serious damage and casualties.

The reality is that terrorists come in many stripes. And we can't really discount their importance only on the basis of what they appear to look like, according to our stereotypes.

They were fanciful in terms of saying perhaps that they could perhaps flood Manhattan. That couldn't have occurred, but they certainly could have carried out suicide bombings, as they planned on these trains, that would have killed hundreds, if not thousands of people.

The level of sophistication doesn't have to be high to carry out an act of terrorism.

KASICH: Bill, there's been a debate about where these anti-terror funds ought to go. And, as you know, doing your show all the time, you know, some of the terror funds have turned into pork. You know, they want to get it all over the country, spread it out.

O'REILLY: Yes.

KASICH: And, you know, and the other issue, Bill, was, you know, do you invest in infrastructure or people? It seems to me that we ought to put the money where the problem is. And secondly, invest in people. Your take?

O'REILLY: Well, I mean, I want the intelligence agencies to have everything they need. I mean, I think that's number one.

I think that the federal government has to basically say we are going to wage this war as aggressively as we can wage within the law. We're not going to be intimidated by the ACLU. We're going to put our resources where they matter the most. And that's in the intelligence agencies.

KASICH: Yes.

O'REILLY: You know, the local police, particularly here in New York City where we live, where I live, have done a magnificent job. And they deserve to get federal funding.

KASICH: All right, Bill, we're going to have to leave it there. Steve, thanks for being with us.

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