This is a rush transcript of "Special Report With Brit Hume" from May 17, 2007.

BRIT HUME, FOX NEWS ANCHOR: Next on SPECIAL REPORT, Senate negotiators agree on an immigration bill that combines new border enforcement with provisions to let illegal immigrants already here stay on. Ted Kennedy is for it. So is John McCain and so is the president.

There's a new Fox poll out with results that may surprise you on pulling troops out of Iraq.

Plus, the story of the tax on the rich that hits far more than just the rich and why Congress can't fix it.

And Tony Blair in his final days in office stands again with President Bush at the White House. All that right here, right now.

Welcome to Washington. I'm Brit Hume. A bipartisan group of senators and the Bush administration acknowledged today that the immigration reform bill they have crafted is not entirely finished, is not perfect and will not be universally accepted, but they said the 380 page document is the best compromise they could achieve. So what's in the bill and what isn't? Congressional correspondent Major Garrett has the answers.

(BEGIN VIDEOTAPE)

MAJOR GARRETT, FOX NEWS CONGRESSIONAL CORRESPONDENT (voice-over): Fully aware he confronts skeptics, President Bush promised the latest swing at immigration reform isn't all about amnesty.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: This is a bill where people who live here in our country will be treated without amnesty, but without animosity.

GARRETT: No sooner had the president spoken than hard line House Republicans trashed the Senate compromise.

REP. ED ROYCE (R), CALIFORNIA: We are rewarding past illegal immigration into the country. I think, frankly, it will drive a lot of additional illegal immigration, as well.

GARRETT: The bill would grant immediate probationary legal status to an estimated 12 million illegals here now. After paying a 5,000 dollar, the illegal could obtain a so-called Z-visa, renewable indefinitely on a four-year basis. After eight years, a worker could seek a green card, distributed on a merit based system linked to work record. To obtain a green card or citizenship, however, the head of household must return to his or her country of origin and apply.

SEN. EDWARD KENNEDY (D), MASSACHUSETTS: There's broad consensus that 12 million undocumented workers who are here should be offered a chance to earn their legalization. If this bill becomes law, it will provide an historic opportunity for millions of people right away.

GARRETT: The bill also includes border security trigger, meaning the Z-visa and a new guest worker program will not begin without specific border control achievements certified by the Department of Homeland Security. Among the triggers, deploying 18,000 border patrol agents, building 370 miles of border fence and 200 miles of vehicle barriers, creating and managing 27,500 detention beds for captured illegals and implementing a new biometric employment verification system.

Georgia Republican Johnny Isakson opposed last year's Senate immigration bill because it didn't include border security triggers. Now that it does, he's on board.

SEN. JOHNNY ISAKSON (R), GEORGIA: The pressure is on us. Because if we don't do the funding, if the secretary doesn't install the barriers, doesn't hire the agents, doesn't get the unmanned aerial vehicles, doesn't get the ground positioning radar, if we don't have a verifiable biometric identification for all people coming in, you have no bill.

GARRETT: The bill also calls for 400,000 guest workers per year, higher if employer demand dictates, worker for two years under a so called Y visa. The worker must return home for a year after each two-year stint. The worker can reapply for a Y-visa twice, meaning he can work here for up to six years. These workers can also seek a green card, which will be distributed, in part, on the basis of job skills the U.S. economy needs.

SEN. DIANNE FEINSTEIN (D), CALIFORNIA: Please, please, please, don't let the perfect be the enemy of the good.

(END VIDEOTAPE)

GARRETT: This deal already under attack from left and right. Conservatives announced what they see as amnesty and reckless increase in future legal immigration. Liberals think the temporary worker program is too restrictive and oppose new green card rules that say only spouses and minor children can legally enter the country, no more aunts, uncles, cousins, and in all but a few cases, no grandparents.

But if today's deal holds, it's likely to past the Senate next week. House Democrats reacted cautiously. Speaker Nancy Pelosi called it nothing more than a good first step. Brit?

HUME: Major, thank you. More on this later in the program. While progress on immigration reform is made in Washington, the sheriff in Alamance County in North Carolina has built a new 240-bed jail in part because his is one of the few local law enforcement agencies in the country that can arrest and hold illegal immigrants, and get paid for it. Some immigrant rights activists say they are uneasy about the sheriff's actions. Correspondent Jonathan Serrie has the story.

(BEGIN VIDEOTAPE)

JONATHAN SERRIE, FOX NEWS CORRESPONDENT (voice-over): North Carolina is hardly a border state, but the Sheriff Terry Johnson of Alamance County has declared war on illegal immigration.

TERRY JOHNSON, ALAMANCE COUNTY SHERIFF: The majority of the large loads of drugs we're taking off the street are being brought in by the criminal illegal aliens.

SERRIE: Sheriff Johnson is authorized under section 287 G of the Immigration and Nationality Act to hold illegal immigrants arrested in this county for deportation proceedings. The federal government has agreed to pay him 61 dollars a day for each illegal immigrant prisoner he houses in this new 240 bed jail.

But the concept of the local law enforcement taking on a role usually reserved for the federal government makes some immigrant rights advocates nervous.

EBHER ROSSI, IMMIGRATION ATTORNEY: He cites increases in crime related to Hispanics. Yet he's not able to give any figures.

SERRIE: Attorney Ebher Rossi practices immigration law in Alamance County, which has one of the fastest growing Hispanic populations in North Carolina. He believes law enforcement is confusing Latino immigration with the war on terror.

ROSSI: Let's be honest about it, there are people out there that really want to hurt us. We know that. Are these the people that are growing our tomatoes, that are building our houses and that are building our roads? I think the answer to that is no.

SERRIE: Federal government authorities say the Immigration Act extends their reach by allowing them to rely on local and state law enforcement. But Nolo Martinez of the Center for New North Carolinians, and the state's former director of Hispanic Affairs, says the program may actually hurt local law enforcement, because immigrants will be reluctant to report crime.

NOLO MARTINEZ, IMMIGRANT RIGHTS ACTIVIST: If somebody comes forward and is honest about being a witness of a crime, and at the same time that person is asked if he or she is here illegally, I would like to ask the sheriff what he would do? Would he check the background on this person? If that person has not committed a crime, are you going to let this person go?

JOHNSON: We're not going out and doing sweeps, knocking on doors and dragging immigrants into the Alamance County jail.

SERRIE: The sheriff insists his department will only check the immigration status of people booked in his jail for criminal offenses. In other words, illegal immigrants who abide by the law stay under his radar. But for those who do not, the sheriff says he will use every tool at his disposal to enforce force the law.

JOHNSON: Politically correct or incorrect, I intend to do that as long as I'm wearing this badge.

SERRIE (on camera): Alamance County is among 12 communities nationwide approved to participate in the program, three of them right here in North Carolina. And while this town may be hundreds of miles from the nearest border, it's on the front lines of the war on illegal immigration.

In Graham, North Carolina, Jonathan Serrie, Fox News.

(END VIDEOTAPE)

HUME: As senators are reaching that immigration reform compromise, they were also trying to find a way out of their deadlock over the war in Iraq. Today, they approved a bill to fund the war, that contains no details about either war funding or war policy. Its passage opens the door for negotiations with the White House and the House of Representatives.

In the meantime, Marine Corps Commandant General James Conway says coalition forces are ahead of schedule in one notoriously violent province.

(BEGIN VIDEO CLIP)

GEN. JAMES CONWAY, US MARINE CORPS COMMANDANT: I do think that there is significantly more progress in the al-Anbar Province at this point in time than we thought there would be. At one point, when General Casey and I were both there, we viewed the Anbar Province as being the last to be able to be turned over because of the intensity of the Sunni insurgency. That's changed.

(END VIDEO CLIP)

HUME: The latest Fox News/Opinion Dynamics poll, just out, finds Americans more hopeful about the situation in Iraq than you might expect. At total of 56 percent say if they were in Congress, they would favor legislation that does not include a troop withdrawal deadline. Only 39, as you can see there, would set a deadline. And a total of 64 percent of those asked believe the U.S. can still be successful in Iraq or has at least not yet lost the war. That's compared to 26 percent who say the war is already lost.

The figure, by the way, saying it's already lost among Democrats was 41 percent. And 65 percent of Americans feel it was unacceptable for Senate Majority Leader Harry Reid to say the Iraq war is lost while U.S. troops are still fighting; 48 percent of Democrats felt that way. Just 29 percent of all respondents thought the statement was acceptable.

Senate Democrats Chuck Schumer of New York and Dianne Feinstein of California say they will ask for a vote of no confidence in U.S. Attorney General Alberto Gonzales. The senators say the attorney general has been too weakened by the investigation into the dismissal of eight federal prosecutors to run the Justice Department. They did not suggest a date for such a vote, which would be non binding in any event.

Later in our program, we'll tell you about a new study on how trees really affect the climate. You may be surprised. But next, the British prime minister stands by President Bush right to the end. Stay tuned. That's next.

(COMMERCIAL BREAK)

HUME: This just in to Fox News, a deal has been reached at the World Bank for the resignation of Bank President Paul Wolfowitz. He was found, you may recall, to have violated bank rules by helping to arrange a pay raise and a job transfer for his female companion, a bank employee. Correspondent James Rosen has now the latest, James?

JAMES ROSEN, FOX NEWS CORRESPONDENT: Brit, good evening. Executives at the World Bank Board have been deliberating for several days, as you know, over what to do about the situation involving Paul Wolfowitz. They spent another six hours today negotiating with aides to Wolfowitz over a statement that is to be issued imminently by the World Bank Board that will state that Wolfowitz is resigning, but that he acted in good faith at all points along the way throughout this controversy.

We understand as well, as part of this negotiated arrangement, Wolfowitz will remain in his job through June 30th. According to World Bank sources, the statement has been in part drafted by Wolfowitz' aide Robin Cleveland, who also attracted controversy at some points throughout this. At issue, as we know, are steps that Wolfowitz took two years ago to deal with a conflict of interest involving his companion, long time World Bank employee Shaha Riza, which led to her being reassigned to the State Department under lucrative terms.

Throughout this matter, Wolfowitz has been represented by the noted criminal defense attorney Bob Bennett. We have been in touch with Bennett's office. They have not confirmed this arrangement, but sources at the World Bank tell us Wolfowitz has agreed to resign in exchange for statements soon to be issues, any moment, by the World Bank Board that will state that he has acted in good faith. He will apparently remain in his job until June 30th. Brit?

HUME: James, thank you very much. British Prime Minister Tony Blair, meanwhile, has paid his last official call at the White House. And while his backing for the war in Iraq may have cost him support at home, Blair today stood shoulder-to-shoulder with President Bush and again championed coalition strategy in the war on terror. Chief White House correspondent Bret Baier reports.

(BEGIN VIDEOTAPE)

BRET BAIER, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT (voice-over): In a final Rose Garden appearance together, President Bush and British Prime Minister Tony Blair insisted they have no regrets about their decision to go to war in Iraq, a decision that has dramatically affected both leaders' popularity, so much so for Blair, he's stepping down in six weeks.

TONY BLAIR, BRITISH PRIME MINISTER: We took a position that we thought was very difficult. I thought then and I think now that it was the right decision.

BUSH: You know, I don't regret things about what may or may not have happened over the past five years. I honor a relationship that I truly believe has been laying the foundation for peace.

BAIER: Addressing President Bush, Blair said despite the fact that his relationship with the president was controversial in his country, he never doubted its importance.

BLAIR: You have been a strong leader at a time when the world needed strong leadership. You've been unyielding and unflinching and determined in the fight we face together.

BUSH: What I know is the world needs courage. And what I know is this good man is a courageous man.

BAIER: Before the news conference, the two leaders participated in a video teleconference with U.S. and British commanders, as well as their top diplomats in Baghdad. Blair said he came away encouraged.

BLAIR: There is a renewed attempt to find political reconciliation between Sunni and Shia particularly. And I believe that are signs, real and genuine signs of progress there.

BAIER: British reporters asked President Bush if he felt partly to blame for Blair's Labor Party pressuring him to step aside before the next general election.

BUSH: Could be. The question is am I to blame for his leaving? I don't know.

BAIER: And then the president was asked if Blair, with just weeks left in office, was really the right British leader to be talking to?

BUSH: He's absolutely the right guy for me to be dealing with.

BAIER: At which point President Bush chastised the British reporters.

BUSH: It's interesting. You're trying to do a tap dance on his political grave, aren't you. You don't understand how effective Blair is. He happens to be your prime minister. But more importantly, he is a respected man in the international arena.

BAIER: At would be point Prime Minister Blair referenced what appeared to be the sounds of war protesters outside the White House gates.

BLAIR: Here, as we speak at this press conference, I mean, I can't make out the words they're shouting over there, but I bet they are not totally complimentary to either of us.

BUSH: I don't know about that.

BLAIR: It's about democracy. And it's about people being free to express their views.

BAIER: It turns out the noise was from one anti-war protester with a bullhorn.

(END VIDEOTAPE)

BAIER: Blair said if European leaders want to get the easiest round of applause they simply attack the U.S. and President Bush. Blair said, quote, our enemies take heart from that. He then urged U.S. and British leaders to be proud of the tough decisions, no matter the political consequences. Brit?

HUME: Thank you, Bret. British Treasury Chief Gordon Brown accepted his party's nomination today to succeed Tony Blair as Britain's prime minister. Next month, Brown say she will emphasize domestic issues, but also said that finding a solution in the Middle East will be a priority and at least for today he left no daylight between the U.S. and Britain.

(BEGIN VIDEO CLIP)

GORDON BROWN, BRITISH TREASURY SECRETARY: I'm not announcing new policies in relation to foreign affairs today. What I do see, however, is that the values that unite America, Britain and Europe on foreign policy are more enduring than either one single set of events or what happens in one country.

(END VIDEO CLIP)

HUME: Still ahead on SPECIAL REPORT, is a new war with Native Americans in the offing? Maybe. But first, a look at a tax problem that's affecting more Americans every year, and why a solution seem so hard to find. We'll be right back.

(COMMERCIAL BREAK)

HUME: The Senate today approved a 2.9 trillion dollar spending plan for the fiscal year that begins in October. There was plenty of debate over spending and even on the future of the Bush tax cuts. There was agreement on one issue, however, that something must be done about what's called the alternative minimum tax. But chief Washington correspondent Jim Angle reports a long-term fix on that might be too, well, expensive.

(BEGIN VIDEOTAPE)

JIM ANGLE, FOX NEWS CHIEF WASHINGTON CORRESPONDENT (voice-over): The middle class will dodge a 75 billion dollar tax increase next year, but remain in the line of fire, because Congress can't find the money to permanently spare tens of millions of tax payers from what everyone considers a stealth tax increase.

REP. EARL BLUMENAUER (D), OREGON: The Democrats will be focusing on the tax tsunami that is bearing down on the American public, and that's the alternative minimum tax, which once was supposed to be limited to the wealthiest of Americans.

REP. PETE SESSIONS (R), TEXAS: This budget does contain a one year alternate alternative minimum tax patch, which prevents over 20 million middle class Americans from being slammed by this tax.

ANGLE: The AMT is a 1969 law aimed at the rich, which now hits the middle class because it wasn't indexed for inflation. In fact, next year, without a fix, some 23 million taxpayers the law never intended to hit would be forced to pay 75 billion more in taxes.

REP. CHARLES RANGEL (D), NEW YORK: Instead of the wealthiest of the wealthy being targeted, we have firemen and teachers and people that makes 50,000, 60,000 and 70,000 dollars not being allowed to use their child deductions and other deductions, local and state tax deductions.

ANGLE: Those thrown into the AMT have to figure their taxes the normal way, then without personal exemptions for family members or deductions for state and local taxes, and pay the higher of the two. Everyone in Washington is against the AMT, but Congress keeps fixing it one year at a time instead of eliminating it, because it can't find the money to fix it permanently.

REP. JIM MCCREARY (R), LOUISIANA: To repeal the Alternative Minimum Tax would cost close to a trillion dollars over ten years in lost revenues to the Treasury. So when you try to replace that trillion dollars, that means you're raising taxes on somebody. That's not easy to do.

ANGLE: Because Congress has a rule called pay-go, which means any reduction in taxes has to be made up somewhere else, making very difficult politically. Nevertheless McCreary and Ways and Means Chairman Rangel agree that doing one-year fixes over and over is the wrong way to go.

RANGEL: Kicking this can down the road every year or every two years, to me, is making the problem even worse.

(END VIDEOTAPE)

ANGLE: The AMT is the one tax cut both Democrats and Republicans can agree on. But there was plenty of debate on other tax cuts today, because the Democratic budget anticipates letting most of the Bush tax cuts expire in 2010 and 2011, prompting Republicans to accuse Democrats of planning a tax increase down the road. Brit?

HUME: Just the beginning of this I'm sure, Jim. Thank you. A new war with Native Americans appears to be getting underway in upstate New York. The state wants to collect taxes on sales by the Seneca Nation of gasoline and cigarettes. But the Senecas are resisting. It's not the first time this issue has come up. But as correspondent Rick Leventhal reports, things could get ugly.

(BEGIN VIDEOTAPE)

RICK LEVENTHAL, FOX NEWS CORRESPONDENT (voice-over): This is what happened the last time New York State tried to force the Seneca Indians to collect taxes on gasoline and cigarette sales. Ten years ago, Senecas burned tires and clashed with troopers on a stretch of highway in upstate New York, shutting the thruway down for 24 hours. Now the state is again trying to collect tax on Seneca gas and smokes sold to non-nation members.

And this time, the Seneca say instead of demonstrations they might build toll booths.

(on camera): The Senecas say they're fighting fire with fire. They've decided to charge a toll of one dollar per vehicle on this stretch of the New York State Thruway for what they call the privilege of passing through Seneca Nation territory.

MAURICE JOHN, SENECA NATION PRESIDENT: We're not a state. We're not a municipality. We're not a county. We're not a city. We predate the United States. We predate New York State and almost every state in the union. What we're looking to do is become self-sufficient like we once were.

LEVENTHAL: New York Democratic Governor Elliot Spitzer says the state is losing 200 million dollars a year in tax revenue and neighboring merchants complain they can't compete with non-taxed tobacco and fuel.

But the Seneca say the proposal is a violation of a centuries-old treaty and a threat to their survival, marching to the governor's office in New York to make their case.

(on camera): How serious are you about this?

JOHN: We're very serious. If we can put a lean on New York State, maybe we'll do that. We have our own court system. We have our own options. This is not a bluff. This is the real thing. And it's about land.

LEVENTHAL: The Senecas aren't the only tribe feuding with New York State. The Oneidas run Turning Stone Casino and Resort in Barona (ph), near Syracuse. Hotels, golf and 125,000 feet of gambling space generating an estimated 150 million dollars a year. The state says the Oneida's gaming compact, signed in 1993, is illegal. And if the Oneidas won't give up a share of their take, the governor says the feds can close the casino, putting up to 5,000 jobs at risk, 90 percent of them held by non-tribe members.

PETE CARMEN, ONEIDA GENERAL TRIBAL COUNCIL: The state gave its word that this was a valid compact. All the state needs to do is ratify this existing compact and we can put a lot of people at ease.

LEVENTHAL: A spokesperson for the governor says there's no war against New York's native Americans, saying the state is open to negotiations over revenue sharing, pointing out other tribes already do it. But the Senecas and Oneidas say their spirit, their principles and treaties won't be broken.

In upstate New York, Rick Leventhal, Fox News.

(END VIDEOTAPE)

HUME: In economic news, the index of leading economic indicators suggests the U.S. economy will slow down over the next three to six months. Higher gas prices and a sluggish housing industry cited as the chief causes. However, some analyst say things could pick up later in the year because the stock market is doing well.

We've got to take a break here to pay some bills and update our other headlines. When we come back, Democratic presidential candidate John Edwards made some mighty good money working just part-time. We'll explain how he did it next on the Grape Vine.

(COMMERCIAL BREAK)

Click here to read the "Political Grapevine."

The poet Joyce Kilmer thought he would never see a poem as lovely as a tree, but apart from their beauty, there appears to be more debate than many people may think about the role trees play in global climate change. One school of thought says what matters most is where the tree grows. Correspondent Claudia Cowan reports.

(BEGIN VIDEOTAPE)

CLAUDIA COWAN, FOX NEWS CORRESPONDENT (voice-over): Conventional wisdom holds that because trees absorb greenhouse gasses, like carbon dioxide, forests, especially tropical jungle, are powerful weapon in the fight against global warming. But a new study out of Stanford University says that in northern climates with a lot of snow, forests contribute to increased temperatures by trapping heat from sunlight under their canopies. If those trees were cut down, the study says, frozen landscapes would reflect more solar radiation back into space resulting in a drop in the temperature by up to 10 degrees.

Professor Ken Caldeira conducted the study.

KEN CALDEIRA, STANFORD UNV CLIMATE SCIENTIST: There are benefits to forests. But if what you are trying to do is slow climate change, then planting a tree in a snowy area is not the way to go.

COWAN: That, global warming skeptics say, underscores the imperfect science behind the hype.

STEVE MILLOY, JUNKSCIENCE.COM: We don't know all the fact to us that impact climate and just to rush to judgment and assume that it's human emissions of carbon dioxide, other green house gases is really foolish and we're going to hurt our economy.

COWAN: Environmentalists worry the study could be used as an excuse to destroy critical northern forests.

PAUL MASON, SIERRA CLUB OF CA: I think it's important that we keep sight of the bigger picture and make sure that we're protecting forests for clean water and for their habitat and their other values and not just reduce it to carbon and global warming. Forests have other critical values.

COWAN (on camera): Scientists say many factors influence the earth's temperature and studies like this underscore that what's most is more information is needed that a tree in northern Canada has an entirely different impact than one in the Amazon basin is just further proof there's a lot about global climate change we simply don't know.

In San Francisco, Claudia Cowan, FOX NEWS.

(END VIDEOTAPE)

HUME: The chairman of the Michigan Republican Party says he will try to keep Texas Congressman Ron Paul out of future presidential debates. Sal Anuzis says Paul's suggestion during Tuesday night's debate that U.S. foreign policy was to blame for the September 11 attacks is "off the wall and out of whack."

Anuzis says he will circulate a petition to among Republican National Committee members to ban Paul from now one. Paul's supporters object.

In Iraq today, three American soldiers where killed and one was wounded when their petrol was struck by a road-side bomb south of Baghdad.

In the meantime, the commander of U.S. forces in the region said the military is leaving no stone unturned in the search for three soldiers missing since that attack back on Saturday. A spokesman for the unit that was struck, the 10th Mountain Division 2nd Brigade, said the attackers apparently took the dog tags of one of the four soldiers who were killed. One of those four soldiers remains unidentified.

The recent infighting among Palestinian factions has now drawn Israel into the conflict along its border with the Gaza Strip. Israeli officials say they are not taking sides in the Palestinian fight, but after three days of Hamas rocket barges — barrages, excuse me, Israeli war planes pounded Hamas targets. Correspondent Reena Ninan reports.

(BEGIN VIDEOTAPE)

REENA NINAN, FOX NEWS CORRESPONDENT (voice-over): Israeli government officials said they hoping not to be drawn into the Gaza violence, but today they were. The Israelis launched six air strikes in Gaza, targeting the infrastructure and Kassam rocket launching sites. Six Palestinians were killed and dozens injured, at least 12 homemade Kassam rockets were fired into Israel by Palestinian militants, today. One hit a school in Sderot where students were taking exams. No casualties were reported, but some were treated for shock.

Today the Israeli government evacuated those terrified residents to safety in central Israel.

MIRI EISEN, ISRAELI GOVT SPOKESWOMAN: Half a million Israelis, right now, are living under the dread of rockets. We won't allow them to use their violence, their terror against Israel.

NINAN: Meanwhile Israeli helicopters armed with missiles and machineguns hovered on the border. Down below Israeli tanks were entering Gaza and moving into firing positions.

(SCREAMING)

NINAN: Four days of Palestinian fighting between Hamas and Fattah that left 44 dead, appears to be on hold a cease-fire in place, but chaos still rules the Gaza streets.

UNIDENTIFIED FEMALE (through translator): The situation is not good. There is no safety at all. It is a tragedy.

NINAN: And then came this ominous warning from Hamas.

AYMAN TAHA, HAMAS SPOKESMAN (through translator): We are ready to launch any type of attack by enemies and equipment necessary and in all the cities.

NINAN: Hamas' way of saying they'll renew the suicide bomb campaigns against Israel.

(on camera): If they makes good on those threats, then Israel will have to rely on the barrier around its borders and good intelligence to foil future attacks.

Along the Israel-Gaza Border, Reena Ninan, FOX NEWS.

(END VIDEOTAPE)

HUME: Next on SPECIAL REPORT the all-stars will look at the immigration deal struck between the Senate and White House, today. Stay tuned.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN EDWARD KENNEDY (D), MASSACHUSETTS: This plan isn't perfect, but it's a strong bill and it is a worthy solution. Only a bipartisan bill will become law.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The agreement reached today is one that'll, uh, help enforce our borders, but equally importantly it'll treat people with respect.

(END VIDEO CLIP)

HUME: What that mean is that while the administration and other sponsors of this bill say it is not an amnesty bill, it will allow illegal immigrants now in this country to stay and work. There are stepped-up border provisions in it, as well. We'll talk about more of that in a moment, but let me introduce Fred Barnes, executive editor of the Weekly Standard; Mara Liasson, national political correspondent of National Public Radio; and the syndicated columnist, Charles Krauthammer — FOX NEWS contributors, all.

Fred, what are the key elements here, in your view?

FRED BARNES, WEEKLY STANDARD: Well, it is a comprehensive bill, and the three parts are, of course, border security and then the temporary worker program and then dealing with the 12 million illegal immigrants already here.

HUME: The temporary worker program is for people who haven't yet come here, right?

BARNES: Yeah, sure, well, I'll get to that. This won't take that long. I mean, the border security has with it a trigger, in other words, unless certain things are done, like having 18,000 — it's 18,000 more border patrolmen there and 370 miles of fence — until that is done, you can't move to stages two and three. But once that's done, you can have a program of bringing in 400,000 temporary workers a year who can stay two years, then they — but no longer, then they have to go back and stay in their country for a year if they want to come back again. And they can, but they're not allowed to stay and get on a path to citizenship.

And then thirdly, and of course the most controversial part, is the 12 million illegal immigrants already here. The will qualify after the trigger and so on...

HUME: You mean after the border enforcement provisions are in place, they qualify...

BARNES: Yeah. They will qualify for a card that will allow them to stay here. If they mean the qualifications, you know, they have a clean criminal record and...

HUME: And they have to pay a fine?

BARNES: And they have to pay a fine. But, if they want to — after eight years, if they want to get a Green Card and get on the path to citizenship, they have to return to their home country, only briefly, I think they're guaranteed to return, the heads of household do, and then they get in line to be a citizen of the United States, which should happen, I think like something after about 13 years.

HUME: It appears this bill can pass the Senate, but what about the House — Mara.

MARA LIASSON, NATIONAL PUBLIC RADIO: That's a big question, already some House Republicans are saying this still is amnesty to them. Look, this was surprising to me it got that it got that far even in the midst of a presidential election year. You have Ted Kennedy and the president working to come up with this. I think the two key things about this bill are the touchback provision, which Fred just described, that you do have to go home to apply, I think that that is politically very important to get Republicans onboard. It's kind of maybe satisfied some of this cry for deportation that you have among certain Republican circles, and also, the fact that this does have the triggers in it. The triggers and the touchbacks are the two most important things.

HUME: And the enforcements...

LIASSON: The enforcements first, yes.

HUME: ...which are triggers for the — Charles.

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, I'm unimpressed by the touchback. It's like tagging up at third base, I think all that has to happen is the head of household heads home, he spends a while there, he returns, he's guaranteed a return and the whole process proceeds. Look, this is clearly amnesty...

(CROSSTALK)

HUME: Wait a minute. Hold on a second. Let me argue that point with your for just a moment. Just the definition of amnesty is a mass pardon. And a pardon is defined — I looked this up today — as the, as you're excused without penalty. Now, there are penalties in here.

KRAUTHAMMER: Look, the penalty for illegal immigration in America, the important one is deportation, it's not a fine. Deportation is your penalty. Well, under this bill, as soon as the triggers are triggered, everybody shows up at the INS and gets a "Z" visa...

HUME: That's what it's called, that's the new — not a Green Card, but it's a kind of visa that lets you stay here.

KRAUTHAMMER: Who needs the Green Card? That's my point. You're here. You're legal, you're — as Kennedy has said, you'll sleep well at night and your family — because you're now here legally, indefinitely and you can work. So — and it's renewable indefinitely. So, in essence...

HUME: But don't you have to put the — but don't you have to put the enforcement provisions in place on the border first?

KRAUTHAMMER: Well, that's — look, that is the supposed trigger and that's what I think is in doubt. If the enforcement is serious, I'm in favor of this, because I believe in amnesty after you shut the border. But I have to be shown that this is serious stuff. Doubling the number of agents is bureaucratic stuff that's meaningless. If you get a reduction of the people who cross the border illegally, by say 90 percent, that's a trigger. You build a fence and you do that — I'd be all in favor of amnesty for the 12 million already here.

(CROSSTALK)

HUME: Well, what's in the bill — Fred.

BARNES: Then you're going to be in favor of it, because they have to have this biometric card that is fool proof that anybody will have to have to get a job. If you don't have it you've not going to...

(CROSSTALK)

LIASSON: Charles is talking about reducing illegal immigration as a trigger.

BARNES: Well...

KRAUTHAMMER: The number of people who cross here, I want to see — and not bureaucratic benchmarks.

BARNES: Well, I assume it will. Yeah well...

KRAUTHAMMER: What you're assuming is...

(CROSSTALK)

BARNES: ...miles of fence is not a bureaucratic benchmark. Look, I agree with you on border guards...

KRAUTHAMMER: On a border that's 2,000 miles long, it's meaningless, 300 miles. It allows 1,700 others of places of which you can enter.

BARNES: Here's the problem with what you said, Charles, is — and this bill accepts one thing and you don't seem to accept it and that is that the 12 million people who are here illegally aren't going back. America is not going to deport them, there is no Republican administration that's going to do that, there is no Democratic administration that's going to do that.

They're here. So, we got to deal with them. And what's the best way to deal with them? Well, we want them to work, we want them to come out of hiding, we want to give them a card so we'll know who's at least here and who's not and we want them ultimately — because most of them — I think most of them came here because they want to be in America and would like to be citizens, to give them a chance after paying a penalty and they get there in 13 years, Charles, that is not amnesty.

KRAUTHAMMER: Thirteen years to get citizenship is fine, but the point is that on day one when the — but, you don't need a Green Card if you have a "Z" visa, you are here legally.

Look, I'm not against this. I'm in favor of this, but only after you shut the border. And you've to show me that this actually is going to do that. I think it's a lot of loopholes. It will be waived — the president will say all of this is done and yet, the borders will remain open.

HUME: In the House they're expected to add a provision which will specify that until Fred Barnes can satisfy Charles Krauthammer that the border provisions have truly been accelerated, there'll be no bill.

Next up with the panel, President Bush bids farewell to outgoing British president — prime minister, excuse me, Blair, talk about their final meeting and the end of an era, next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TONY BLAIR, BRITISH PRIME MINISTER: I've admired him, as a president, and I regard him as a friend. I have taken the view that Britain should stand shoulder-to-shoulder with American, after September the 11th, I have never deviated from that view, I do not regret that view, I am proud of the relationship we have had...and I would take the same position of alliance with America again. Yes, I would.

(END VIDEO CLIP)

HUME: Tony Blair expressing no regrets about standing with this country, although it has not helped his popularity back home, as the difficulties with the Iraq war have mounted. We're back with our panel.

Well, what about the end of this relationship and what does what the two men said today, about each other and themselves and the approach they've taken, tell us — Charles.

KRAUTHAMMER: Well, it was a productive allegiance. They were able to work together in a way that's rare among even allies. They've had a problem with Iraq obviously, it hasn't turned out as they hoped or expected. But the fact that Blair is saying that he would have done it again is important. Because I think he believes that, he's not just saying that, deposing Saddam was extremely important.

And he was unique. It was a time when a lot of the world was not rallying to our side. Rhetorically yes, but in fact, no. Australia and Britain were clearly our only real allies in Afghanistan and again in Iraq. And they have stood with us.

The British have an interest in this relationship. There was something about the personal way that Blair had looked at this that made it stronger than a normal U.S./British relationship.

LIASSON: Yeah, you know, Tony Blair had strong relationships with two American presidents. One he was kind of united in the political project that Bill Clinton tried to do for the Democratic Party that he did...

HUME: Which was an ideological agenda — third way.

LIASSON: Yes, and kind of shifting a left-wing party back into the mainstream. I think he had a bigger task in Britain and he performed a more miraculous transformation of the Labor Party, there. But, he also had a strong relationship on foreign policy with this president. I think he would have probably conducted the war differently. We know that he asked Bush to do certain things he didn't do with the U.N., creating the alliance, but in the end he never wavered. And I think it will be a long time before we know how history views Iraq and Tony Blair's place in it.

BARNES: I thought he did do what Tony Blair asked him to do on — regarding the U.N. by going to the U.N. and spending months there and finally not getting a full support for the war in Iraq, but he did go there and probably wouldn't have if Blair hadn't sort of cajoled him into it.

You know, there really was a — it is interesting that what Mara was talking about, the contrast in relationships between Blair and Clinton and Blair and Bush. I mean, Blair thought that Bill Clinton was the greatest politician of the late 20th century, was a great admirer of Clinton and they were very close — very chummy, very friendly — talked all the time.

With Bush it was different because Bush it was not — there was a more practical, a more dealing with issues and not that close of friendship. But here's the difference, Blair told some people this, when he talked to Bill Clinton and Clinton said he was going to do something, Blair didn't have the foggiest idea whether Clinton was going to do it or not because frequently he just yapped and then didn't follow through. With Bush he knew. If Bush said this was going to happen, it happened

HUME: Will it be nearly as strong with now chancellor (INAUDIBLE) Brown.

BARNES: Well, it'll be strong, but not like this.

LIASSON: I don't thinks so, because Bush doesn't have much time left and Iraq is such a mess.

KRAUTHAMMER: Strong but impersonally sort of strong.

HUME: That's it for the panel, but stay tuned to find out if that crack that Mike Huckabee made the other night about John Edwards was fair, that's next.

(COMMERCIAL BREAK)

HUME: Finally tonight, when former Arkansas governor Mike Huckabee made a joke at the expense of John Edwards and his $400 haircuts at the GOP debate the other night was Edwards watching or he busy doing something else? The answer it seems is yes and yes.

(BEGIN VIDEO CLIP)

MIKE HUCKABEE (R-AK), GOP PRESIDENTIAL CANDIDATE: And instead, what we've done is what Senator McCain has suggested. We've had a Congress that's spent money like John Edwards in a beauty shop. And it's high time...

(LAUGHTER)

(END VIDEO CLIP)

HUME: And that's SPECIAL REPORT, please tune us in next time and in the meantime, more news is on the way — fair, balanced, and unafraid.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. EST.

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