The following is a partial transcript of the Dec. 17, 2006, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: Well, joining us now for the first time ever, Senator Edward Kennedy.

And, Senator, welcome to "FOX News Sunday."

SEN. EDWARD KENNEDY, D-MASS.: Good morning. Glad to be here.

WALLACE: Let's start with Iraq. President Bush is reportedly considering an option to surge another 50,000 troops into Iraq, and says he wants nothing less than victory. If that's what it takes to stabilize the country and protect us from terrorism, isn't it worth it?

KENNEDY: Well, first of all, no, it's not. And I don't believe that that would stabilize the country, nor do I think it'll bring victory. We have heard in the Armed Services Committee, General Casey, General Chiarelli and General Abizaid, who believe that adding additional troops would enhance and increase what they call the footprint and enhance the kinds of antagonisms against the United States forces at the present time.

What is absolutely necessary is a political resolution and determination by the Iraqi government.

But let me just back up very, very quickly. Since the Hamilton report has been issued, 40 Americans have been killed. Our military has been in Iraq longer than in World War II, World War I, longer than the Vietnam War. They have done everything that they possibly could. They've done it courageously and bravely. And we need a policy that's going to be worthy of their valor.

And we have a president that is on a listening tour about the future of Iraq. We have a president that won't be rushed. Where has this president been?

This country is in chaos. There are now 100,000 refugees that are leaving Iraq every month. Jordan has sealed its borders. Lebanon has sealed its borders. They're rushing into the Middle East. We have 700,000 refugees that have come into Jordan. It's like 30 million people have entered the United States over the last two to three months.

WALLACE: But, Senator, let me follow up on that. Last March you said the following, and let's put it up on the screen: "The administration has been dangerously incompetent, and its Iraq policy is not worthy of the sacrifice of our men and women in uniform."

If you truly believe that, don't you and your fellow Democrats have an obligation, now that you are going to be in control of Congress, to try to stop this president from fighting the war?

KENNEDY: Well, first of all, I was opposed to the war. It was the best vote that I ever had in the United States Senate. And in January of 2005, I laid out a pathway toward what I think would have been reconciliation and success in Iraq, two years ago, that called for the reduction of troops, the redeployment of troops, talked about the Iraqis moving ahead in terms of the reconciliation and talked about the regional kinds of diplomacy. That was two years ago.

Now, one thing about the Democrats is we will support our troops, but we also can support our troops so they are not in harm's way. And I think that's a very important...

WALLACE: Well, what do you mean?

KENNEDY: Well, wait and see. That offers all kinds of options. Our commitment is to the troops, so they're not getting caught in a crossfire and a civil war, which they are.

What are their rules of engagement between the Shia and the Sunni today? You can't tell us, and neither can we hear that in the Armed Services Committee. We are involved in that civil war.

And we are not going to pull the line, in terms of the troops. But we are also leaving open options to protect those troops in whatever way that that would come up...

WALLACE: But the question I'm specifically asking — you were in the Senate during Vietnam...

KENNEDY: That's right.

WALLACE: ... when the Congress...

KENNEDY: This is a different situation than Vietnam.

WALLACE: But the Congress took steps then, Senator...

KENNEDY: That's right.

WALLACE: ... to scale down our involvement.

KENNEDY: That's exactly right. But we are not at this point at this time, but we are at a point where we are going to put the safety and the security of the troops first. We're going to look out after the troops and take whatever steps are going to be necessary to keep those troops or to try and protect those troops.

WALLACE: Even if you have to...

KENNEDY: And we are going to...

WALLACE: Even if you have to go against the president's policies?

KENNEDY: Well, the president's policy, if they're going to enhance the number of the troops, there's going to be opposition to that, not only just by the members of the Armed Services Committee but within the Defense Department itself. I mean, we've heard what General Abizaid has said, General Casey has said. This isn't a question about individual members of the Congress or Senate.

But we have to understand that there is absolute chaos that is taking place there. This country is falling apart. The bottom is falling out of this thing. And we have to — as the number-one issue is the protection of the American troops, and not let them be in a sinkhole. And that is our commitment.

Carl Levin has said he'll have the hearings, weekly hearings, on Iraq. This reminds me of those kinds of hearings that Senator Fulbright had on the Vietnam War.

This country will be tuned into this. And the manner of the stubbornness of the president of the United States will not be able to resist what I think is the movement in this country to ensure that we're going to protect our troops and recognize how limited our influence really is.

WALLACE: Do we have any moral obligation to the Iraqis who have risked their lives, counting on our word that we're going to be there? And do we have to ensure that we're going to be safe from the possibility of terrorist attacks coming from Iraq?

KENNEDY: We have an enormous moral obligation to those Iraqis who have worked with us. And we are failing them. We are failing them.

We have taken 202 Iraqis into the United States. There are tens of thousands of Iraqis that have worked with the military, who have worked with military contractors, have worked with the press, that are out there, that are being threatened every single day.

And they are being told at American embassies, in Jordan and in Lebanon, in the countries of the area, "You can't get into the United States of America." We took 100,000 after the Gulf War I, when we didn't have this kind of internal battle.

That is just one aspect of this administration's failed and flawed policy. We are absolutely failing people on the ground, and that's illustrative of as a wide range of different...

WALLACE: Senator, I am told that your leader, the new Senate majority leader, Harry Reid, has just said this morning that he would support a temporary surge of U.S. troops into Iraq.

KENNEDY: Well, I respect Harry Reid on it, but that's not where I am.

WALLACE: You think that would be a mistake.

KENNEDY: Well, I agree with the generals who have appeared before our Armed Services Committee and think an enhanced — just as we saw the enhanced troops in Baghdad didn't quiet Baghdad down, the generals who have testified before the Armed Services Committee think that we would add to being a crutch for the Iraqi civilian government in not making the right judgments and decisions. I think that is a persuasive case and is one that I support.

WALLACE: Let's talk about domestic policy. According to the nonpartisan National Journal, you had the most liberal voting record in the Senate...

KENNEDY: Oh, wow.

WALLACE: ... in 2005. And you're still called — I don't know if that's a compliment or not — the liberal lion of the Senate.

During your 44 years in office, Bill Clinton has said that the era of big government is over. Some of your fellow Democrats have gone along with cuts in social programs.

Over these last 20 years or so, have you changed your view at all about the role of government?

KENNEDY: Well, my view is that programs change but our values don't change. And that was really what was at the issue, wasn't it, at the last campaign. I was a candidate in the last campaign. What people were saying in Massachusetts and across the country, that they wanted a change, they wanted a change in Iraq policy, and they wanted a change in Washington, D.C.

They wanted a change from a government that is just looking after special interests to the public interests. And they wanted a government that is going to be concerned about the middle class and their needs.

I will never relinquish and I will never stop in trying to get a comprehensive health care that is going to cover all Americans, just like we have in the United States Congress and the United States Senate and the president of the United States. I will never give up on that.

And I will never give up in trying to ensure educational opportunity. That is what the Democrats inherently stand for. When you come and scratch right down to it, we stand for hope, we stand for opportunity, and we stand for progress. And that's measured in education and decent payment for different jobs.

Now, how are you going to do this? I sponsored eight different kinds of health care bills in order to try to achieve that. So I'm wide open in trying to achieve and accomplish this.

WALLACE: But let me ask you about this, because some people would say that there need to be bigger changes than what you're talking about. Let me give you an example.

Back in 1995, you were one of only 12 senators to vote against welfare reform, which was subsequently signed by President Clinton. And you said the bill was — and let's put it up on the screen...

KENNEDY: This is...

WALLACE: 1995.

KENNEDY: Six years ago, OK.

WALLACE: On welfare reform.

KENNEDY: Here we go.

WALLACE: You said that welfare reform was a legislative child abuse. "Let them eat cake." But now, Senator, 10 years later, the employment rate among unmarried women — the employment rate — has soared, and the child poverty rate has dropped.

Hasn't welfare reform worked?

KENNEDY: No, no. Your figures are wrong in terms of child poverty. Your figures are absolutely wrong.

WALLACE: Well, we got them from the liberal Brookings Institute, sir.

KENNEDY: You're wrong. We've had an increase in the last five years of the number of children that are living in poverty in the United States of America. It's increased by 1,700,000.

We have 36 million Americans that are going to bed hungry every night — 36 million Americans who are going — and 12 million of those are children. So...

WALLACE: So you don't think...

KENNEDY: No, I don't. Listen, I thought — what we saw in that period of time is an expanding economy. What you need in welfare reform is, first of all, you need training programs. You need job opportunities, and you need a day-care. Those are the elements. And you need, basically, transportation for people on it. And you need the expanding economy.

We had the expanding economy, but we still — children were left out. If you look at what's happening to children in this country, at this present time, you'll find out the number of children that are hungry and the increased number of children in poverty.

I'm right on the increased number of poverty children. I know this issue. I've been debating this issue all during the fall. And we have had that, and we've had the total number of people that have fallen back into poverty during this Bush administration. We have 5 million more people that have dropped back into poverty...

WALLACE: But, Senator, nobody thinks that we should go back to the dependency that we had in the past...

KENNEDY: I'm not talking about...

WALLACE: ... about welfare reform, where people spend their entire lives on the government dole.

KENNEDY: What we're talking about, that issue primarily was about how are you going to deal with children. And you had principal designers of it. I mean, Dean Elwood, who's the dean of the Kennedy School, resigned because they weren't dealing with children.

But let's go now. You talk about big government. Let's talk about big government in the student loan program. Let's talk about Sallie Mae's stock going from $3.50 to over $50 because they are the principal student loan guarantee. That is absolutely outrageous.

You talk about big government under the Republicans. That's the biggest giveaway of all. We can peel off $12 billion to $13 billion that middle-income families shouldn't be paying and put it right back into those students' pockets in the middle income.

So if you're saying — that is big government to me, Chris. That's the big government to me.

What about the big government on the pharmaceutical where they paid — listen to this. You go to an HMO, you're 18 percent healthier than you are if you're outside of an HMO. And this Republican administration gave a 9 percent inflater to the HMOs so they get paid 25 percent more than we do under the Medicare. That's $40 billion.

Come on. That is what we want to free this...

WALLACE: I want to continue this conversation, but...

KENNEDY: Good.

WALLACE: ... I also wanted to talk about some presidential politics, and we're beginning to run out of time.

You caused quite a stir this week when you said that you won't wait indefinitely to see whether your Massachusetts colleague, John Kerry, decides to run for president, that you may decide to support someone else.

Is it just a matter of timing, or might you endorse someone else like Senator Hillary Clinton, Senator Barack Obama?

KENNEDY: Well, I've talked with John. John is going to make his mind up in these very next few weeks, and I have every intention of supporting him.

This process is moving very, very rapidly, as we've seen in the last, really, 48 hours or so, where Evan Bayh has gotten out. Looks like John Edwards is getting in. Barack Obama looks more like he's going to be a candidate. Hillary Clinton has accelerated her, sort of, timeframe.

So it is moving much more rapidly than it ever has before. And I think a candidate, if they're going to be able to stay the course on this, has to get in much more quickly. I think if they're not going to get in quickly, then it's going to be a difficult situation.

But John Kerry — I think of what a difference John Kerry would be if he were president of the United States of America. We'd be a vastly different country. And I think John Kerry — people underestimate him. They underestimated the last time. I think he's a strong candidate. And if...

WALLACE: Let me ask...

KENNEDY: ... if he makes a judgment and decision to get in, I intend to support him.

WALLACE: Briefly — we have about a minute left — for all of the excitement about Barack Obama, there's also talk about his inexperience. They said the same thing about your brother John back in 1960. Do you see any parallels?

KENNEDY: Well, first of all, my brothers are my heroes, and they're in a category by themselves. But Barack Obama is talented.

I think when you look at — I went to an interesting conference that looked back on presidents, and the historians talked about not only their legislative achievements but also their character, their ability to inspire. Abraham Lincoln, one term in the Congress of the United States and certainly one of our greatest presidents. President Buchanan had been in the Congress 10 terms, had been in the Cabinet, and one of our worst presidents.

They all come back to the question, then, of character, their sense of vision that they have for the country, their sense of purpose, and their ability to inspire a nation.

It seems if we come back to a different, perhaps, judgment, in terms of all of the candidates, the Democrats will have the best candidate. And we have every intention to win. The fact is all of them, whether you take Obama, Hillary, Chris Dodd, John Kerry, they're all better than our Republican friends.

WALLACE: So you're going to vote Democratic this year?

(LAUGHTER)

Senator Kennedy, we...

KENNEDY: Good to talk to you. Thanks very much.

WALLACE: ... want to thank you for coming in.

KENNEDY: Good to be with you.

WALLACE: And now that you know where we are, please don't be a stranger, sir.

KENNEDY: All right. Nice to see you. Thank you.