The following is a partial transcript of the Aug. 27, 2006, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Joining us now to discuss trouble spots around the world and politics here at home is Senator Joe Biden, the Democrats top man on the Foreign Relations Committee and a presidential candidate for 2008. The senator joins us from the campaign trail in Charleston, South Carolina.

And, Senator, let's begin with the good news. Your reaction to the release of our two FOX colleagues and what their prolonged kidnapping tells us about the situation right now in the Palestinian territories.

SEN. JOE BIDEN, D-DEL.: Well, it tells us, Chris, I think that the situation in the entire region is perilous, number one. But number two is just a great joy. I mean, as I was literally coming over to this site to do your show, I saw on the hotel monitor that they had been released. And I guess had the same feeling everybody did. You just went, like, "Great."

But I don't know, and I'm not sure anybody knows, the full circumstances of their release. But it does say one thing, that there seems to be some element within the Palestinian lexicon over there that in fact thinks that it was not a good idea to keep them. It's hard to read, though, at this moment, but I'm just delighted, like everybody else in America is, that they're released.

WALLACE: Senator, let's turn to what may also be some good news out of Iraq. Take a look if you will, sir. After a deadly July, the murder rate in Baghdad has fallen 41 percent so far this month.

In two of the worst neighborhoods, where U.S. and Iraqi forces have launched a new offensive, the murder rate is down 83 percent in Amariyah and as well in Dora. And, Senator, on Saturday, hundreds of tribal chiefs signed on to Prime Minister Maliki's reconciliation plan.

Is it possible — possible — that President Bush's plan for Iraq is finally beginning to work?

BIDEN: I pray it is, but I don't think this — the answer is, I don't think there's any reasonable prospect, Chris, for, quote, "things to work in Iraq," until, and, in fact, the Sunnis get a buy in with a piece of the oil to deal with the insurgency. And Maliki has the ability to jump in and be willing to take on the competing elements within the Shia coalition made up of the Mahdi Army, the Askari (ph) and the Dawa parties, mostly the Badr Brigade.

Unless you are able to take control of the militias, I don't think there's much of a shot here. But we have had good days and good weeks like this before. I pray this is the beginning of an ultimate reconciliation, but I'm doubtful of that.

WALLACE: Well, let me ask you about your doubts, because in an op-ed column this week, you said the following, and let's put it up.

"Unfortunately, this administration does not have a coherent plan or any discernible strategy for success in Iraq. Its strategy is to prevent defeat and hand the problem when it leaves office." But, in fact, Senator Biden, there has been, if not a new strategy, at least a new tactic. U.S. and Iraqi forces have started what they call the ink blot strategy of going into some of the toughest neighborhoods, flooding them, gaining control and then gradually spreading that out, their control.

And this week, the commander of all U.S. forces in the Mideast, General John Abizaid, had this to say. Here it is.

(BEGIN VIDEO CLIP)

GENERAL JOHN ABIZAID, COMMANDER, U.S. CENTRAL COMMAND: I believe that there is a danger of civil war in Iraq, but only a danger. I think Iraq's far from it. I think that there's been great progress on the security front here recently in Baghdad.

(END VIDEO CLIP)

WALLACE: Is it possible, Senator Biden, that General Abizaid has a better sense of what's going on on the ground in Baghdad than you do?

BIDEN: Well, I'm sure he has a great sense of it. I've just been on the ground in Baghdad just four weeks ago. I sat with General Casey. I sat with General Chiarelli. They both said the same thing. They said that things are really in difficult shape. They pointed out that since the unity government, the insurgency has not abated in any way, and you had a considerable increase in the number of people joining the militias, because there are no jobs at all.

There is no strategy to deal with getting the 60 percent unemployment rate among young people and young men, who get paid to carry weapons and join the militia. There is, in fact, no reasonable prospect that there's enough troops that we can get this ink blot strategy extended throughout the country, Chris.

We're talking about unable to sustain 135,000 troops there for another year. I mean, I can go on and on. So this is a momentary and, pray God, a longterm decrease in the sectarian violence in the region, but look what we've had to do. We've had to bring troops back in. We have had to have them essentially take the lead. They're going to say they're not in the lead, but essentially take the lead.

And, in fact, there is no reasonable prospect to expect that the folks out in Fallujah and the folks out in the Anbar province are going to say, "Hey, you know, this means we got a really good deal here. Why don't we end our insurgency here?"

I hope you're right, Chris, but this is the same strategy we've had before and I don't know how you do this unless you give the regions, the people, the Sunnis, the Shia and the Kurds a little bit more breathing room. Don't force them together the way we're doing it now, have a loosely knit federated government, like we did in Bosnia.

WALLACE: Senator, let me ask you about that, because your plan is to decentralize the country and create sort of semi-autonomous regions for the Kurds, the Sunnis and the Shia. But I want to put up a poll taken recently of Iraqis.

BIDEN: I can't see your polls. If your staff could turn this TV so I can see?

WALLACE: I'm going to read it to you.

BIDEN: Oh, OK, sorry.

WALLACE: Ninety-four percent support a unity government and 78 percent oppose the country being segregated by religion or ethnicity. Do we really want to be in the position, Senator, of pushing something that the Iraqis apparently don't want?

BIDEN: Chris, I'm not talking about segregating the government by religion or ethnicity. I'm talking about them having the same kind of autonomy in the three major regions — their constitution right now says any three of their 18 governorates can get together and form a region.

All I'm saying is that they should have control over their local laws of marriage and property and education the same way the state of South Carolina is different than the state of California today. That they should have their, quote, "South Carolina State Police," and there should be a California State Police, that they have local control and local autonomy.

That's the only way you're going to get the Sunnis to buy into a notion that they're going to be part of a government that's controlled by 61 percent of the Sunnis. And if you do that, you're going to find each of the sectarian forces deciding the straight and have their power base in their own area.

I went to down Basra, one of the few people to go down there, met with a British two-star general. He said, we don't have an insurgency down here. We don't have a civil war down here. What we have is warring Shia factions deciding who's going to fill the vacuum here. I think it's time to get real and we ought to talk to the generals on the ground.

WALLACE: Senator, we're running out of time, but I want to ask you a quick question about Iran, and also a little politics.

In Iran, Iran's president yesterday inaugurated a new heavy water reactor — rather, production plant — and he said that his country's nuclear program poses no threat to any country, including Israel. Meanwhile, the Russians, who gave us their word, apparently in July, that they would go along with sanctions, are now saying, no, they won't go along with any economic sanctions.

Question: what do we do now?

BIDEN: Well, it's a really bad situation, and it seems to me what we have to do is continue to push to see if we can hold this coalition together to increase gradual sanctions. Without that, we don't have a whole lot of options here. We don't have — as the president of the United States said, we have been sanctioned out.

And our military option to go in and take out any one of their multiple sites that they may use to produce nuclear weapons over the next decade, is pretty limited. So we ought to be getting to the point where we are trying to get the rest of these nations to keep their deal.

Look, the U.N. Security Council passed a resolution. They said if the Iranians didn't step up, that we would step up. This is a test for the diplomacy. This is a test for the United Nations. If it fails, then what we're going to have to do is begin to come up with a serious containment policy, here.

In the meantime, by going out into the region and making sure that everyone from the Sunnis to the Turks have a sense of what their interest is and begin to make it clear that we're going to build up the capacity to contain Iran while we settle things in Iraq, to give us more flexibility to deal with Iran. We don't have any clear options right now.

WALLACE: And, finally, Senator Biden — finally, we've got about 30 seconds left, but I can't let you go without some politics. As we've mentioned, you're in South Carolina right now, on the campaign trial. Thirty seconds or less, what kind of a chance would a Northeastern liberal like Joe Biden stand in the South if you were running in Democratic primaries against southerners like Mark Warner and John Edwards.

BIDEN: Better than anybody else. You don't know my state. My state was a slave state. My state is a border state. My state has the eighth-largest black population in the country. My state is anything from a Northeast liberal state.

WALLACE: So you think you could go into the lion's den and against the other lion tamers?

BIDEN: I know I can.

WALLACE: Senator Biden, we're going to have to leave it there. We want to thank you so much for joining us today.

BIDEN: Thanks.