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Transcript: Stephen Hadley on 'FOX News Sunday'

The following is a partial transcript of the July 15, 2007, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" GUEST HOST BRIT HUME: Joining us now to discuss the interim report on Iraq and much else is the White House's national security adviser, Stephen Hadley.

Welcome back to you, sir.

NATIONAL SECURITY ADVISER STEPHEN HADLEY: Nice to be here.

HUME: First of all, your take on what North Korea said about the nuclear reactor at Yongbyon. Is it indeed shut down?

HADLEY: It appears that it's shut down. The inspectors from the International Atomic Energy Agency are on the scene with their equipment. They will go to the facility and they will be able to confirm that in the next few days.

But it appears that the facility is shut down and we are finally starting to implement the February 13th agreement of this year.

HUME: All right. Let's assume that this is so and that the Yongbyon facility is shut down. It is believed that North Korea already has several nuclear devices, probably several bombs. What effect does this shutdown of this reactor have on their nuclear ambitions?

HADLEY: It's a first step in implementing an agreement that was reached last February, which is part of an overall framework of a year ago September.

HUME: Right.

HADLEY: And under that framework, they need to give up their entire nuclear program.

HUME: Understood. But what effect — what practical effect does the shutdown at Yongbyon have on their ability to continue to produce nuclear devices?

HADLEY: It means they will no longer be able to process to produce the plutonium from which they — of those nuclear weapons that are made out of plutonium.

We have concerns they may have a covert enrichment program. That will be the next subject of discussions...

HUME: And that's a uranium deal, right?

HADLEY: This is basically enriching uranium to the point where it can be used for nuclear weapons.

HUME: Harder to do than with plutonium, correct?

HADLEY: Harder to do. We've had concerns they have a covert program. They at one point admitted that program.

But the route that they have used to date is the reprocessing route. That will be shut down. That route will be cut off, assuming these facilities are shut down.

We will then pursue to work through toward disabling, ultimately dismantling that program, getting a full accounting of what they've been doing with any covert enrichment program, and finally getting them to turn over any nuclear materials from which nuclear weapons have or could be made.

HUME: All right. Let's move on to Iraq now and this week's interim progress report on the extent to which the Iraqi government has been holding up its end of the deal.

There was progress noted in something like eight areas but unsatisfactory progress noted in a number of others, to include — I think we may have a graphic we can illustrate with — the de- Baathification law, which, I guess, is a re-Baathification law, to some extent; what's usually called an oil-sharing law, which is for the sharing of the revenues from the oil and gas; and provisions related to equal treatment under the law, for the preventing of political interference in military operations, which has clearly been a problem over the years; and finally, increasing the Iraqi forces capable of fighting independent of U.S. assistance.

That's a fairly long list there of shortcomings. Why would you be confident that this will change?

HADLEY: Well, partly we're confident because some things are positive that were on those benchmarks.

HUME: Right.

HADLEY: On the security side, Iraqis did send three additional brigades to Baghdad to participate in the security program.

They have established joint security centers in Baghdad, which — they provide, with our forces, security to the Iraqi people.

So there are things on the security side that have happened. There are things on the political side.

They do have an election commission they've stood up. They have begun a process for amending the constitution. There's obviously more to be done.

Why do you think we will see some progress? Remember, the whole premise of this surge strategy was that we need to get greater control of the security situation first, get the level of violence down, buy time for political accommodation and training Iraqi security forces.

So the sequence you think you're going to see over the next 60 days is continuing progress on the security side in operations against Al Qaeda and against the Shia militia.

Secondly, as that process happens, in Baghdad and beyond, places like Anbar and Diyala, we are seeing Sunni tribes rallying to the government and to U.S. forces, coalition forces, and attacking Al Qaeda.

And behind that, we are seeing local government institutions beginning to come and function, provide security and the like.

And as that process continues, we think that it will begin to have an impact in the center, in Baghdad, where Shia, Sunni and Kurds need to come together on a way they are going to work out the rules by which they're going to work together in a democratic framework.

So the leading indicator is the security situation. Next, I think you're going to see this bottom-up reconciliation that we've seen in Anbar and Diyala, and then we think we will — we hope to see more progress out of the center.

HUME: Let's talk about Nouri al-Maliki, a man in whom the president has continued to express confidence, but about whom you rather famously expressed some doubts in — I guess it was last November.

And you said of him, and I quote, "The reality on the streets of Baghdad suggests Maliki is either ignorant of what is going on, misrepresenting his intentions or that his capabilities are not yet sufficient to turn his good intentions into action."

Do you have any reason now to revise that view of him?

HADLEY: Yes. And the president has spoken publicly. The president talks to Prime Minister Maliki. We have the secure video services so that they can talk and see each other, and he is meeting with him either by phone or video probably every other week.

And what the president's seen is an emerging leader that increasingly articulates a non-sectarian agenda for the future of Iraq, an Iraq in which all groups can participate.

But remember, it's not just an issue of Prime Minister Maliki. As I said, the real issue is that Shia, Sunni and Kurds have not yet worked out the rules under which they're going to operate together under a unified Iraq, under a democratic constitution.

That kind of power sharing needs to come first. There is some progress on it. We have been encouraging it. We're pushing it. And the expression of that will be in these legislations that you're talking about.

So Maliki is emerging as a positive force, but the basic underlying bargain still needs to be cut.

HUME: What effect do you think it has when a man like Maliki, who is obviously a central figure in all of that — and I realize, as you point, out he's not all there is to the picture.

But he comes out, as he did yesterday, and says that the Iraqis could take charge of the military situation in Iraq all by themselves. That wildly overestimates their current capability, doesn't it?

HADLEY: Well, that's also not all he said. I mean, he said Iraqis need to take responsibility.

HUME: Right.

HADLEY: That's what Iraqis want. That's what we want. That's what the American people — so we all share the objective.

HUME: Yes, but they can't do it now, can they?

HADLEY: And he also said yesterday but they do not — they need additional equipment and they need additional training. And that's, of course, the...

HUME: But right now they need additional troops, our troops, don't they?

HADLEY: That's the assessment we made last January. The president and Maliki both agreed that the key to progress was getting control of Baghdad. That's what Maliki asked.

We made an assessment that he did not have the capability to do that himself. That's why we did the reinforcement, to buy time for further training and equipping of Iraqi security forces so over time they can take a more prominent role and we can take a more supporting role.

HUME: Now, these arguments that you advance have, obviously, considerable weight, I suppose, but you have what seems to be a growing group, in the Senate in particular, of worried Republicans who are beginning to fall away.

There won't be very many more before there will be the inability to sustain a filibuster against Democratic-offered measures to restrict the way the president can conduct this war.

How confident are you that you'll be able to hold the line in the Senate on this issue?

HADLEY: Well, we've had a pretty good week in that respect. And one of the things that's been interesting — there's been a lot of attention on the comments that Senator Lugar and Senator Warner have made and the legislation they have introduced.

It's interesting, too, if you look at that, they are not calling for an arbitrary withdrawal deadline or a withdrawal schedule. They are also talking and recognizing that what happens in Iraq deeply affects American security at home.

And if you listen to them, they're also talking about we're going to have to be engaged as a country in Iraq in some form for a considerable period of time. All they're simply saying is we need to think about now how we can transition to a new phase in Iraq when U.S. forces may have a different role.

HUME: So you could live with a resolution to that effect.

HADLEY: No. No, because what we've already got through legislation adopted last May was a very orderly process, adopted by the Congress, signed by the president, which says it begins in September, it begins with a report from our commander on the ground, General Petraeus, and our ambassador on the ground, Ryan Crocker.

They will come back. There will be in September, supplemented by a series of reports from the administration, from outside the administration — and that will be the time to consider the kinds of questions and issues these gentlemen have raised.

HUME: Okay.

HADLEY: We need to get their assessment, their recommendations, as the president said.

HUME: How confident are you you can hold the line in the Senate until then?

HADLEY: I think there's a recognition that what the Senate enacted in May was the right process and that hearing from our commanders on the ground in September is the first step.

HUME: Now, let me just turn to another issue, and that is the terror threat that was spoken of by Michael Chertoff this week, the homeland security secretary, in terms of a gut feeling he had.

If there's anything behind that, it would appear to be the training facilities and other haven that Al Qaeda seems to have found in Waziristan in Western Pakistan.

Now, there's a report out of there this morning that says that the militants there are calling off the truce they had with the government in the region. What is going on?

HADLEY: There has been a concern for some time in that region. President Musharraf had a policy for a long period of time of major operations there. They killed or captured over 600.

HUME: Right. I understand that.

HADLEY: About a year-plus ago, they reached an agreement with the tribals where the tribals were supposed to manage Taliban and Al Qaeda, and that agreement hasn't worked.

HUME: Right.

HADLEY: President Musharraf understands it. We understand it. President Musharraf is now taking steps to move troops back into that region. That probably accounts for the statements that he heard from the Taliban. We're supporting that effort.

It is concerning. There is pooling of Taliban there. There is training and there are operations.

HUME: If it's as effective as it is, isn't there something that we could do militarily, air strikes or whatever, or not? Or we're going to rely on Musharraf?

HADLEY: Well, it's difficult, because Pakistan is a sovereign country, and President Musharraf has been a very stand-up actor on the War on Terror.

His challenge, of course, is that these extremists, these Taliban, are a threat to him and to us, and he has taken action against them, but the action has at this point not been adequate, not effective.

He's doing more. We are urging him to do more, and we're providing our full support to what he's contemplating.

HUME: Stephen Hadley, thank you very much for being with us.

HADLEY: Nice to see you.