This is a partial transcript from "Hannity & Colmes," April 3, 2007, that has been edited for clarity.

SEAN HANNITY, CO-HOST: Just a short while ago, I had an exclusive sit-down interview with the former New York City mayor and presidential hopeful Rudy Giuliani. From his wife Judy to the state of America today, we covered some pretty serious issues, and here's what he had to say.

(BEGIN VIDEOTAPE)

HANNITY: Mr. Mayor, good to see you again.

RUDY GIULIANI, FORMER MAYOR OF NEW YORK CITY: Hi, Sean.

HANNITY: First trip to Iowa?

GIULIANI: Yes.

HANNITY: Why did you wait so long?

GIULIANI: We got started a little late. I mean, we're probably -- we're ahead of the old cycles. We're kind of a couple months ahead, but we're probably two or three months behind the present one. I think we've caught up now.

I think we've caught up in fundraising. We had a really great March. We raised over $10 million, got $11 million in the bank. And we've now got ourselves organized here in Iowa. We've got Jim Nussle running our campaign, getting a lot of people. So I think we'll do well in Iowa. And all the polls say we're competitive in Iowa, so we might as well go for it here.

HANNITY: What do you make of the fundraising? I mean, look at the money that Hillary raised. Look at the money Barack Obama raised. Mitt Romney raised a lot. You raised a lot. Is it too much?

GIULIANI: Probably not with all these primaries. I mean, sure, is it too much in the big scheme of things? Sure. But is it necessary when you've got not just Iowa, New Hampshire, and South Carolina, but Florida, and California, and New York, and Illinois? These are big states.

HANNITY: This race will be finished on February 5th.

GIULIANI: It's going to be February 5th. Maybe it will go to February 12th. But you've got these big, giant states that are going to require...

HANNITY: That are in the process.

GIULIANI: ... even if you do it carefully, it's going to require spending money. I'm real happy with the amount of money we have in the bank. We've got $11 million in the bank. I don't know what the others have in the bank. So I only think about my campaign. But I think we're in good shape.

HANNITY: All right, things are getting tougher. Scrutiny is getting greater.

GIULIANI: You know, you covered me all the time as mayor of New York.

HANNITY: I did.

GIULIANI: This is like what goes on every day when you're mayor in New York.

HANNITY: You're really used to it. You've been tested in that, because you were under fire every day.

GIULIANI: I am. I mean, I am used to it. I mean, this is -- there are wonderful things you can do as president of the United States. There are great things you can do about the growth of the country, and I believe I would understand how to deal with terrorism maybe better than anyone else, and keep us on offense, and be able to deal with kind of a growth strategy for the country, energy independence. So many things you can do, it's worth the scrutiny. I mean, people have a right to it.

HANNITY: Issue came up, your wife, Judy, you said, yes, I'd let her sit in my cabinet meetings. Then the dam broke...

GIULIANI: The way it happened was, we were being interviewed by Barbara Walters, and Barbara asked Judith what she's interested in, and Judith said, I'm not terribly interested in politics, and I don't have big policy concerns. I have one big issue, and that's health care, but health care from the point of view of giving people advice about how to be healthier, warning women about the risk of heart attack, which she has been doing, you know, as part of campaign, warning men about getting tests for cancer, women about how to deal with diabetes, for men how to deal with other forms of cancer. -- These are things she's been doing all other life. She's a nurse. She's been in the health field.

So Barbara, in that context, said, would you be comfortable having her join cabinet meetings? I said of course I'd be comfortable. I mean, if she were interested in an area, it was an area of expertise, I'd be happy about her having her join. -- I didn't suggest that she was going to be a member of cabinet. She isn't going to be; she doesn't want to be. I didn't suggest that she's going to sit in on most meetings. She's not going to sit in on most meetings, if any. I was really thinking more of policy meetings, not these like official cabinet meetings.

HANNITY: You said in an interview, you said, "I'm fair game, come after me, attack me."

GIULIANI: Yes, but you would have said that about your wife, too.

HANNITY: Yes, you would. But you also said, you know, I want fairness, and you used the word decency.

GIULIANI: Yes, I think some of the scrutiny of her is -- come on, I'm the candidate. She's a civilian, to use the old mafia distinction, I guess. Some scrutiny should take place. But you've got so much to go fter me on. I mean, you can do it every day, and I'm willing to respond every day.

HANNITY: Family should be off limits for everybody?

GIULIANI: Do I think they should be?

HANNITY: Yes.

GIULIANI: Yes. I mean, are they, no? Sure, they should be.

Look, I have a very, very long and detailed public record. I think I probably have the most varied experience and the most experience of anybody running in this race, when you look at running a business, traveling to 35 countries, 91 foreign trips, associate attorney general, third-ranking official in the Justice Department, mayor of America's largest city during two very bad times, the beginning and then September 11th, gosh, being United States attorney, prosecuting the mafia.

And so my record is filled with, I believe, a lot of achievement and a lot of results that I invite people to look at, and it's filled with mistakes, also, because, look, I had a long career. So go look at all those things, and then look at the balance of my public performance.

There were personal issues. There were mistakes I made. Despite that, and while those things were going on, crime went down 57 percent. Homicide went down 67 percent; 660,000 people removed from the welfare rolls; a deficit of $2.3 billion changed into a surplus of multibillions; taxes reduced 23 times. And then we had to deal with September 11th.

So it seems to me, you take a look at that, and say, "What's the balance here? Is this guy the kind of guy that can lead the country, no matter what's going on, he's going to stay focused and get results?" Or, "I don't believe that."

HANNITY: You read about Rudy Giuliani. You don't really read about your record. Like, for example, almost every article I read, people want to know, what about -- if they've mentioned Bernie Kerik, your former police commissioner. They've mentioned Rudy Giuliani and how that will impact the campaign.

GIULIANI: Well, I think the issue there is, I made a mistake. I selected a lot of people, thousands of people, most of it right, a couple wrong. But even there -- it didn't affect the results.

Here's the results. What happened to crime? Crime went down 57 percent. What happened to homicide? Sixty-seven percent. What happened to auto theft? Seventy-five percent. What happened to the city as a whole? The crime capital of America that nobody could change, that was unmanageable, became the safest large city in the country.

I didn't do it alone. I did it by having appointed some really smart people, some really good people. Did I make a couple of mistakes along the way? Yes. If I become president, will I make some mistakes? Of course I will. Will I do most of the things right? Will I get those kinds of results that other people couldn't get? I believe I can. That's why I'm running for it.

HANNITY: All right. What do you think hasn't come out about you that will? For example, we've seen Rudy in the dress. What's coming out...

GIULIANI: You know, I think you got all my dress pictures. But you know what you don't have? Now...

HANNITY: You're going to give it away. This is it.

GIULIANI: Oh, yes, I've got a couple. I have not recently seen a picture of me as the Lion King. I don't think I've seen a picture of me as the Beast in Beauty and the Beast, which I played, I thought, rather well. And I came down, I flew down on the stage when I did that.

I think what they'll find out about me is I enjoy having fun. I mean, I really enjoy those inner circles. And I made them fun, and I enjoyed them. And I enjoy campaigning. And so you're going to get a couple of things people can interpret different ways, I guess.

HANNITY: All right, we'll continue. Former Mayor Rudy Giuliani.

(COMMERCIAL BREAK)

COLMES: Welcome back to "Hannity & Colmes." I'm Alan Colmes.

We now continue with more of Sean's exclusive interview with Rudy Giuliani from Iowa just a short while ago.

(BEGIN VIDEOTAPE)

HANNITY: We continue with former New York City mayor, Rudy Giuliani, presidential candidate.

We're watching a hostage crisis now evolving in Iran. More pictures released. President Ahmadinejad is supposed to give a press conference tomorrow. If you were president today, how would you handle that?

GIULIANI: I think the president has made the points that has to be made that it's unacceptable, that it's -- what they're doing with displaying people and the kind of thing Iran is doing, unfortunately, is reminding us of, you know, the late 1970s.

I think Tony Blair has to take a very, very strong position. I think we have to support him in that.

And I think, I guess maybe if I could summarize it. I think Ahmadinejad has to see -- has to see Ronald Reagan, because as soon as they saw Ronald Reagan putting his hand on the Bible they let the hostages go.

And there's something to that, something to their having an understanding that, you know, they there are going to be consequences to what they do. And I think they felt that with Ronald Reagan. I think the Iranians did. I think the Soviets did. It made a big difference.

HANNITY: Let me ask you. Look, we're watching almost like a game of chicken being played in Washington right now over the supplemental funding bill for the Iraq war and Afghanistan war.

GIULIANI: It's a shame.

HANNITY: Well, Harry Reid literally said today if the president doesn't agree to timetables, that he may go along with Senator Russ Feingold's proposal and defund the war in 120 days.

GIULIANI: It would be a terrible mistake. I mean, if the president does what he says he's going to do which is veto the legislation, then they really should pass some kind of a funding mechanism and allow the president to try to get this strategy right with General Petraeus.

It isn't right to kind of reverse the strategy on the president. I understand they have the constitutional authority to do it. I think if they -- if the president vetoes it, he's got -- I don't know if he has two weeks, three weeks, four weeks, five, some number of weeks where he could -- he could continue to fund under existing appropriations. He would have the inherent authority to do that.

But then there would come the point where he couldn't. And I think that would just be a terrible mistake for them to do that directly or indirectly.

HANNITY: Have the Democrats become the party of surrender in the war?

GIULIANI: Sure.

HANNITY: But how would you deal with that if you're president?

GIULIANI: Well, I think what they're doing is unprecedented in war. Find me another time that an army or a nation announced their retreat in advance and handed their enemy a written timetable?

I mean, it's like, you know, Xeroxing and handing it out to them. We're going to retreat from the field in the following order and in the following way.

I don't think I've ever heard of this before in the history of war. I think it is inherently irresponsible. And it puts the remaining troops who are left behind as you do this kind of sequenced retreat, it puts them in graver jeopardy.

HANNITY: Do you think we did make mistakes? What do you think they are?

GIULIANI: Of course we made mistakes.

HANNITY: What were the mistakes?

GIULIANI: I think we made mistakes. I think the president has acknowledged those mistakes and I think we've made mistakes in every war we've ever fought, including ones that we've won. And we've made some of our biggest mistakes in the ones that we've won.

The Civil War, the Second World War, the Battle of the Bulge, the draft riots in New York in 1863 during the Civil War. Lincoln being enormously unpopular. Lincoln having to fire two or three generals, because Lincoln made mistakes in selecting his generals.

So the real issue is what's our objective here? I think this kind of thing, announcing your retreat to your enemy can only occur in Washington. I think it can only occur in the vacuum they live in. And not recognizing the enormity and the scope of this terrorist war on us.

HANNITY: You have no doubt we did the right thing, and this was the right thing and we've got to win it. That's your position. We did the right thing.

GIULIANI: We try and get Iraq to a position where it acts as a help to us against terrorism, rather than an encourager of terrorism.

The strategy of being on offense against terrorism, which I would continue if I was elected as president, and maybe even try to find ways to expand, in terms of dealing with Afghanistan, Pakistan, some of the other things, I think these things have to get attention. Iran, we've got to stay on offense.

HANNITY: Do we have to at some point -- if it is predicted and projected today Iran may have nukes by 2009. Do we have to consider taking out those nuclear facilities?

GIULIANI: I think -- I think we should proceed with diplomacy. I think we should proceed with sanctions. We should up the sanctions, and we should proceed with disinvestment. It's had some success. We don't know if it's going to be long-term success in North Korea. I believe it can have success in Iran.

But a very clear statement has to be made by the president of the United States. President Bush has done it. The next one is going to have to do it too, probably. We will use a military option if we have to.

We don't want to. It would be very dangerous to use the military option. It would not be a good thing. But it would be much more dangerous and much worse if he had nuclear weapons.

HANNITY: You said today you would cut taxes more. Democrats have, in their projections, that they'll eliminate the Bush tax cuts.

GIULIANI: Well, that would result in one of our biggest tax increases, if not ever, almost forever, almost in the history of this country. It would be enormously irresponsible. What Washington did with the death tax is similar to this very odd thing that they've done with retreat. The death tax goes down to zero in the year 2010. In the year 2009, it's 45 percent. In 2010 it's zero. In 2011 it's 55 percent.

I do not suggest being on a respirator in 2010. Just don't tell people if you are. There's going to be a real motive. I mean, you've got to watch this.

But where else but in Washington would this happen? Forty-five percent one year, zero the next year...

HANNITY: And 55 percent...

GIULIANI: Fifty-five percent. So, you know, if you're thinking about your heirs, you've got to die in 2010. This is using our tax code to create an incentive to die. Only Washington could do this.

HANNITY: Let me ask you, if you get the nomination, off the top of your head, give me five people you'd think of for V.P.

GIULIANI: No, I won't do that. I won't tell you five people for V.P. There are a lot of really, really good people. I am not at all thinking...

HANNITY: Five people who you'd want in your cabinet?

GIULIANI: A lot of people. There are a lot of people that are advising me, a lot of people that I like. A lot of people that I think will be terrific. And I'm probably going to discover 20 more.

But I think it's presumptuous, whether you're the front runner or last runner, to be talking about a vice president a year before you might even be the potential nominee, a year and a half before you are.

HANNITY: Your thoughts on Hillary Clinton. I want your honest thoughts. What do you think of her as a person and as a candidate? And do you think she can win?

GIULIANI: I think Hilary is a fine, honorable person. I disagree with her. I disagree with her now, particularly on the way to deal with the War on Terror and the war in Iraq.

I disagree with her on a whole bunch of other issues, probably on health care and the economy and taxes and -- but I respect her. I respect her for running. I think she's running for the right motives.

And I think that Hillary' s got a real good chance. So does Barack Obama. So does John Edwards. So do my opponents that are running on the Republican side. Who knows? We've all got a chance. I think we're all doing it for the right reasons.

HANNITY: Mr. Mayor, good to see you. Thank you for being with us in Iowa. Thank you.

GIULIANI: Thank you.

HANNITY: Appreciate it.

Watch "Hannity & Colmes" weeknights at 9 p.m. ET!

Copy: Content and Programming Copyright 2007 Fox News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2007 Voxant, Inc. (www.voxant.com), 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, LLC'S and Voxant, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.