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

BRIT HUME, FOX NEWS ANCHOR: Next on SPECIAL REPORT, U.S. intelligence says al Qaeda, like the old gray mare, ain't what it used to be, but it's still looking to pull of something big in the U.S. Democrats say this proves the Iraq war has actually helped the terrorists.

The Senate prepares for an all-night session on Iraq. General Pace says there's been real progress in that country. Plus, the continuing efforts over those border agents sent to jail. And whatever happened to earmark reform? And wait until you hear why Charlie Rangel wants one. All that right here, right now.

Welcome to Washington. I'm Brit Hume. The first National Intelligence Estimate focused exclusively on dangers facing America at home says al Qaeda has not given up any of its desire to strike the U.S. again. But as to al Qaeda's capabilities to carry out another massive attack, well, that's a different matter. Chief Washington correspondent Jim Angle reports.

(BEGIN VIDEOTAPE)

JIM ANGLE, FOX NEWS CHIEF WASHINGTON CORRESPONDENT (voice-over):The NIE warned the U.S. homeland faces what it calls a persistent and evolving terrorist threat largely from al Qaeda.

MIKE MCCONNELL, DIRECTOR OF NATL INTELLIGENCE: This threat is driven by undiminished intent — undiminished intent to attack the United States homeland.

ANGLE: Director of National Intelligence Mike McConnell said terrorists have continued to adapt and improve, but he drew a distinction between al Qaeda's intent and its capabilities.

MCCONNELL: They have attempted to rebuild. It's significant rebuilding, but are they as capable as 2001? I don't think so. They are capable. They are planning, but they're not as resilient or as robust or as capable as they were in 2001.

ANGLE: He said, as has former CIA director George Tenet , that the U.S. has disrupted numerous attacks against the homeland. Tenet put the number at 20. Though al Qaeda keeps failing, they also keep trying, but McConnell explained that unlike the smaller attacks in Europe, the intelligence community believes al Qaeda is determined to pull off something big in the U.S.

MCCONNELL: Mass casualties larger than 9/11 . Their intent is mass casualties, and their intent is spectacular destruction, spectacular destruction, something like a building falling.

ANGLE: The NIE pointed to al Qaeda's strengths. It still has its two top leaders, Usama bin Laden and Ayman al Zawahiri , and has recruited new lieutenants to replace those killed or captured. In addition, al Qaeda has found a new safe haven in the frontier tribal areas of Pakistan, which he said it's using to train terrorists to come to the U.S.

MCCONNELL: Those that speak the right language, that have the right skills, that have the right base that they could come to the United States, fit into the population, and then use some of the training that they receive in the Pakistani area.

ANGLE: Training in explosives and in recruiting others to join them. The Musharraf government is now moving forces into that region to confront the terrorists, and officials said today Pakistan has lost some 80 soldiers in recent fighting.

The situation in Iraq is also a factor. The NIE Said al Qaeda will probably seek to leverage the contacts and capabilities of al Qaeda in Iraq, its most visible and capable affiliate and the only one known to have expressed a desire to attack the homeland here in U.S. McConnell said the coalition has al Qaeda in Iraq on its heels in many areas, but that it's still determined to raise the violence in order to inflict maximum loss of life, in part to influence the Congressional debate here in the U.S.

MCCONNELL: They know what the debate on the Hill is. They know what's going on. So if they can raise the level of violence for a short period of time, they believe they will achieve their objectives.

(END VIDEOTAPE)

ANGLE: The NIE also warned that al Qaeda leadership has instructed its operatives to acquire chemical, biological, radiological and nuclear material. George Tenet's recent book noted that al Qaeda even searched out a Muslim cleric who would issue a religious decree, a Fatwa, to justify the use of weapons that could kill huge numbers of innocent civilians. Brit?

HUME: Jim, thank you. Democrats on Capitol Hill say the NIE is evidence the administration needs to get U.S. troops out of Iraq and focus on al Qaeda in Afghanistan and elsewhere. But at the White House, President Bush reinforced the message that while al Qaeda is still dangerous, it's not what it once was. White House correspondent Wendell Goler reports.

(BEGIN VIDEOTAPE)

WENDELL GOLER, FOX NEWS WHITE HOUSE CORRESPONDENT (voice-over): The president challenged claims that the National Intelligence Estimate shows al Qaeda has gained strength from the war in Iraq.

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Al Qaeda would have been a heck of a lot stronger today had we not stayed on the offense.

GOLER : Mr. Bush spoke after talks with U.N. Secretary General Ban Ki Moon, who warned just yesterday a rapid U.S. withdrawal from Iraq could deepen the crisis there. But the NIE fueled both critics and opponents of the war.

SEN. CARL LEVIN (D), MICHIGAN: Al Qaeda has gotten stronger as a result of the policies of this administration, and they are now in Iraq where they were not in Iraq prior to the Iraq war.

GOLER: The White House contends the report's warning that al Qaeda will try and use the contacts and abilities it has gained in Iraq to attack inside the U.S. shows the danger of not finishing the job in Iraq. Democrats contend the war is at best a distraction.

SEN. HARRY REID (D-NV), MAJORITY LEADER: Al Qaeda is stronger, so says the report. The president disagrees, but that's what the report says. We can't have it both ways.

GOLER: The White House put on a full court press to try and keep Democrats from capitalizing on the NIE, insisting it not be seen as a progress report on the war on terror.

TONY SNOW, WHITE HOUSE SPOKESMAN: The National Intelligence Estimate, again, is not a tactical document.

GOLER: And denying the war in Iraq has played into al Qaeda's hands.

FRAN TOWNSEND, HOMELAND SECURITY ADVISER: So we should leave them and we should not disturb our enemies anywhere in the world, because they may use it for propaganda? I don't think so.

GOLER: And officials also denied al Qaeda should have been further weakened before deposing Saddam Hussein.

UNIDENTIFIED MALE: Are you telling me it was impossible to smash them globally before we went into Iraq?

SNOW: Yes.

GOLER: The White House denies the tribal region on Pakistan's border with Afghanistan and not Iraq is now the central front in the war on terror, though the report says this is where al Qaeda has found safe haven. And officials defend Pakistani President Musharraf's efforts to secure the area, noting the region's remoteness and antipathy towards any government makes it a perfect place for al Qaeda to hide.

SNOW: It's not as if they're pulling out a shingle and there's a great big compound. These are people who, in fact, do their very best to remain concealed.

(END VIDEOTAPE)

GOLER: This is the seventh time the president has declassified the key findings of a National Intelligence Estimate. Democrats expect he aimed to take some of the attention away from their effort to focus on the war in Iraq. Tony Snow says it's not the case. It's not clear it was successful, even if that was his goal. Brit?

HUME: Wendell, thank you. In Islamabad, Pakistan today a suicide bomber attacked a rally for lawyers supporting the country's suspended chief justice. At least 12 people were killed and another 40 wounded. The chief justice had been scheduled to speak at the rally but had not yet arrived. No one has claimed responsibility for the bombing. There was speculation the attack was retaliation for the government's deadly shoot out with radical forces at the red mosque last week. Later in our program we'll tell you about who's talking about putting an oil embargo on Iran. And up next, senators on both sides of the aisle say they're ready for an all night fight over U.S. policy in Iraq. Stay tuned.

(COMMERCIAL BREAK)

HUME: The Bush administration today announced a new tool in its effort to bring stability to Iraq. President Bush issued an Executive Order that will allow the administration to freeze bank accounts and other financial assets belonging to people or groups that undermine progress, such as reconstruction efforts and political reform in Iraq.

In the meantime, Joint Chief Chairman Peter Pace says there has been significant improvement in the security situation in Iraq's Anbar Province and Baghdad in recent months. Pace said the, quote, sea change will influence his recommendation to President Bush on how long to continue the current strategy there. Among his many options, Pace could recommend a bigger troop buildup to boost the president's surge strategy. But Pentagon officials say no one there is seriously considering adding personnel.

In the meantime, a car bomb in Baghdad today across the street from the Iranian embassy killed at least 20 people and wounded at least 20 others.

It is shaping up as a long night for the Senate, as an overtime session aimed at considering a change in Iraq looms tonight. Today, Senate Democrats and Republicans prepared for their first all nighter in four years by staking out now familiar ground on the issue of troop withdrawal. And war veterans on both sides of the argument showed up on Capitol Hill to weigh in. Congressional correspondent Major Garrett reports.

(BEGIN VIDEOTAPE)

MAJOR GARRETT, FOX NEWS CONGRESSIONAL CORRESPONDENT (voice-over): Anti-war Iraq vets cradled folded American flags and moved Democratic leaders as they lobbied Congress to cut off Iraq war funds. Hours later, a much larger number of Iraq vets who support the troops surge stood with Republicans blocking Democratic troop withdrawal plans. All this while the Senate girded for an all night session, complete with more than a dozen roll-away beds arrayed storm shelter style in the ornate Lyndon Baines Johnson room off the Senate floor.

Republican leaders and Connecticut Independent Joe Lieberman dismissed the Democrats' sleepless night strategy.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: You're going to be subjected to theater tonight, and bad theater at that.

SEN. JOE LIEBERMAN (I), CONNECTICUT: Cots are going to be brought in in a short while to provide an opportunity for senators to sleep. To me, the sad truth is that too many of our colleagues in the chamber are already asleep when it comes to Iraq.

GARRETT: Most Senate Republicans and Lieberman oppose bipartisan efforts to require massive troop withdrawals by May of next year. They argue Congress must give the surge a chance, or at minimum, wait until the mid September surge report from commanding general David Petraeus. Democrats would have none of it.

REID: Is it necessary we wait 60 more days until this magic day in September to change course? How many more American soldiers are going to get killed? How many are going to get maimed, wounded, lose their arms, lose their minds?

GARRETT: Republicans who back troop withdrawal said the surge is doomed, and no amount of U.S. military muscle will yield Iraqi political reforms.

SEN. GORDON SMITH (R), OREGON: Staying the course and hoping something better will occur, leaning on a weak reed for too long, it will break us.

SEN. OLYMPIA SNOW (R), MAINE: There's no demonstrable evidence to suggest that there's any political progress.

GARRETT: White House allies say facts on the ground suggests the new military tactics, while much more dangerous, are worth the effort.

SEN. JOHN MCCAIN (R), ARIZONA: We are taking from the enemy and holding territory that was once given up for lost. Those who have falsely described General Petraeus' efforts as, quote, staying the course, unquote, are the real advocates of continuing on the course of failure.

GARRETT: Advocates of troop withdrawals won't say how many forces they will leave behind to fight al Qaeda and train Iraqis, saying only it will be a fraction of the current 160,000 soldiers and Marines in the field now.

LEVIN: We do not get into numbers, because our point is that we must change the direction, that the open-ended commitment must end. That is our point.

(END VIDEOTAPE)

GARRETT: But these numbers do matter, because no matter how long the Senate debates tonight, or rather well into the morning, neither it or the country will know exactly how many troops Democrats intend to leave behind in Iraq. And while this doesn't completely undermine the assertion that this vote will bring an end to the Iraq war, it certainly introduces a considerable note of uncertainty. Brit?

HUME: OK Major, thank you. There's a new Rasmussen poll out today that finds that 51 percent of Americans surveyed say the U.S. should wait for that planned progress report in September before making major policy changes in Iraq; 38 percent, as you can see, disagree. At the same time, though, 53 percent would like the Senate to join the House and pass legislation requiring a troop withdrawal to begin in 120 days; 37 percent opposed to that. If you can figure that out, let us know.

To get Iraq back on its feet it will be necessary not only to rout the terrorists and establish an effective government, the country will need a robust economy, a long-term goal toward which the Iraqis are making some small steps. Correspondent Malini Bawa looks at some of the obstacles they must overcome along the way.

(BEGIN VIDEOTAPE)

MALINI BAWA, FOX NEWS CORRESPONDENT (voice-over): The Al Qaim Phosphate Plant in western Anbar is a rarity in Iraq, a factory that has stayed open and operating almost continuously throughout the war. The First Battalion Fourth Marines is trying to ensure the struggling enterprise stays afloat. Operating at barely 10 percent capacity, the factory is starved for fuel and supplies.

AZIZ JASSIM, PHOSPHATE PLANT MANAGER: If I have raw materials, natural gas, I can increase my product.

BAWA: Inside a giant furnace, mineral phosphate is burned down as part of the process to turn it into fertilizer. Workers are repairing bricks damaged in the last production run.

(on camera): After years of sanctions during the Saddam regime, the heavy machinery here is old and worn out. Some of it can be Jerry rigged to operate, but some of it is beyond repair.

(voice-over): It's a similar story at a nearby cement factory. Both are state-owned plants with the government setting prices and production, and both factories employ hundreds more workers than needed. Jay Cooper is part of the civilian surge. He is a business adviser serving on a reconstruction team.

JAY COOPER, RECONSTRUCTION ADVISER: State owned enterprises, they're not necessarily worried about the bottom line. They are concerned about having employment within each of the regions.

BAWA: In 2003 the U.S. shut down most state-owned factories hoping to quickly privatize them. But investors failed to materialize and the plants remained closed. Now the strategy is to keep the factories open so workers stay occupied and out of trouble.

The Marines can't fix all the problems at these plants. What they're offering to do is serve as a liaison, to win funding and support from the Army Corps of Engineers and the Iraqi national and regional government. Though the plan managers clearly hoped for more, they've proven themselves to be remarkably self-reliant.

COOPER: The ingenuity of the Iraqi people to make things work and to find work-arounds to make their equipment function has been pretty astounding.

BAWA: And in the end when the Marines are gone they will have to fend for themselves. In al Qaim, Iraq, Malini Bawa, Fox News.

(END VIDEOTAPE)

HUME: Still to come on SPECIAL REPORT, how are Democrats doing on that promise to cut that federal spending on pet projects, the ones called earmarks? But first, after a break, two border patrol agents shot a would be drug smuggler. Now the Senate Judiciary Committee is looking into whether they were punished too harshly for doing that. Stay tuned.

(COMMERCIAL BREAK)

HUME: Veterans Affairs Secretary Jim Nicholson has announced that he's resigning to return to the private sector. Nicholson has had a rocky path during his two-plus years in office. Last year the V.A. was accused of lack security after a computer containing the personal information of millions of veterans and military personnel was stolen from an employee's home. The laptop was recovered with the data untouched.

And this year he caught heat for allegations of poor living conditions for wounded veterans at the Walter Reid Army Medical Centers here in Washington, even though that's not an Army facility, not a V.A. hospital.

Two border patrol agents are in federal prison and the drug dealer they were trying to apprehend in 2005 got away, but that's not the whole story. Today the Senate Judiciary Committee took another look at what happened and whether the agents were fairly sentenced. Correspondent Molly Henneberg explains

(BEGIN VIDEOTAPE)

MOLLY HENNEBERG, FOX NEWS CORRESPONDENT (voice-over): Right from the start, Democrats and Republicans on the Senate Judiciary Committee voiced concern about the punishment meted out to two border patrol agents, Jose Compean, now serving 12 years in federal prison, and Ignacio Ramos, serving 11 years.

SEN. DIANNE FEINSTEIN (D), CALIFORNIA: I have not heard many people argue that Agents Ramos and Compean deserve the length of these sentences.

SEN. JOHN CORNYN (R), TEXAS: The public sees two border patrol agents serving long prison sentences while an admitted drug dealer goes free.

HENNEBERG: The drug dealer is Osvaldo Davila, granted immunity in return for his testimony against the agents. Davila tried to bring 743 pounds of marijuana from Mexico into the U.S. in 2005. Along the border, Compean and Ramos interdicted him. Davila fled. The agents fired, hitting him in the buttocks.

Prosecutors contend the agents broke the law by firing on an unarmed man and then disposing of the shell casings.

JOHNNY SUTTON, US ATTORNEY: To further this cover up, Compean and Ramos failed to report this shooting as required and then filed a false report.

HENNEBERG: But the union leader for border agents insists Davila was armed. The agents acted in self-defense, but then admittedly didn't report it.

TJ BONNER, NATL BORDER PATROL COUNCIL PRES: But that is not a crime. That is an administrative violation that merits no more than a five-day suspension.

HENNEBERG: Prosecutors ultimately added a gun charge that under U.S. code 924-C says, quote, if the firearm is discharged, the person has to be sentenced to a term of imprisonment of not less than 10 years.

But some senators say that law was not meant to punish officers who use their weapon in the line of duty.

SEN. JEFF SESSIONS (R), ALABAMA: 924-C is designed to deal with criminals who carry firearms in the commission of felonies and crimes of violence.

HENNEBERG: Prosecutors say a 924-C charge is used when merited.

SUTTON: We have charged it on a number of occasions. We charged the more serious readily provable offense based on the facts and the evidence.

HENNEBERG: Other lawmakers were surprised by the rules for border agents pursuing fleeing drug smugglers.

FEINSTEIN: Any drug dealer on the border who doesn't obey a command and runs cannot be shot.

LUIS BARKER, OFFICE OF BORDER PATROL: Yes, ma'am. Unless there are other circumstances. Just the fact that they were running and they were drug dealers, they cannot be shot.

FEINSTEIN: No wonder so much drugs are coming across the border.

HENNEBERG (on camera): Several House Republicans are calling for President Bush to get involved in this case and pardon or commute the sentences of Agents Ramos and Compean. In Washington, Molly Henneberg, Fox News.

(END VIDEOTAPE)

HUME: The State Department said the U.S. is ready to hold new direct talks with Iran about the security situation in Iraq. Spokesman Sean McCormack says Iran must stop supporting sectarian militias that are exacerbating tensions in Iraq. No date has been set for the talks which would take place in Baghdad. But Iran's foreign minister said his country is willing to come if the U.S. makes such a request.

At the same time, some Israelis are talking about placing sanctions on Iran to deter the country from further efforts to develop a nuclear weapon. They say if you really want to hit Iranians hard, put an embargo on their oil imports. Correspondent Reena Ninan reports.

(BEGIN VIDEOTAPE)

REENA NINAN, FOX NEWS CORRESPONDENT (voice-over): Iran's disdain for the United States and the western world is no secret, and neither is its desire to gain a nuclear weapon.

EPHRAIM SNEH, FMR ISRAELI DEP DEF MINISTER: Iran is on its way to acquiring a nuclear weapon. It can be in 2010, maybe 2013, but it's quite soon. In terms of our life, it's quite soon.

NINAN: Former Israeli Deputy Defense Minister Ephraim Sneh believes the best option for stopping Iran's nuclear independence is imposing sanctions.

SNEH: If we have real sanctions, effective sanctions, of course it will have tremendous effect. It will bring about the economic collapse of the regime; less trade, less investments.

NINAN: Sneh says specific sanctions against Iran's oil imports can have a damaging effect on the economy, especially since 50 percent of its oil is imported, and the country has a shortage of refineries.

In June, the Iranian government imposed its own gasoline restrictions, limiting consumption to 30 gallons per family per month. As these photos show, that led to riots and gas stations being torched.

MEIR JAVENDANDAR, AUTHOR, "THE NUCLEAR SPHINX OF TEHRAN": These sanctions are working because it's the home grown sanction, because it's sanctions imposed by the Iranian government itself. Iranian people cannot blame Washington or London.

NINAN: Meir Javendandar left Iran in the late 1980's. He admits even internal gas restrictions aren't enough to turn Iranians against their president.

JAVENDANDAR: I think that the chances of a revolution in Iran are very low, very low. People are very unhappy, but there is no alternative. Who are they going to revolt for? Who are they going to take a bullet for?

NINAN: Thirty years ago, before the mullahs took control in Tehran, Israel was Iran's ally and helped train and equip Iran's military.

(on camera): Now Israel is Iran's number one enemy, and it stands to be the first to lose if Iran becomes nuclear. After all, President Ahmadinejad has called for Israel to be wiped off the map. And if sanctions aren't effective, Israel hasn't ruled out a military strike on Iran's nuclear facilities.

In Jerusalem, Reena Ninan, Fox News.

(END VIDEOTAPE)

HUME: In Britain, a disciplinary panel has recommended an 18 day suspension for parliament member George Galloway. Remember him? It found that Galloway had concealed his financial dealings with the government of Saddam Hussein. The suspension recommendation must be voted on now by the House of Commons itself.

We've got to take a break here to give our sponsors a few words and update other headlines. When we come back, you won't believe the earmark Congressman Rangel wants to include in next year's federal spending. You've got to here this. It's next on the Grapevine.

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(NEWSBREAK)

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HUME:Going back for a moment to that story about Congressman Rangel and his $2 million earmark proposal, one of the promises Democrats made after last Fall's election was an overhaul of the whole earmark process, where members send money back home for special requests. So, apart from Charlie Rangel, how have they done? Correspondent William La Jeunesse has a look.

(BEGIN VIDEO CLIP)

WILLIAM LA JEUNESSE, FOX NEWS CORRESPONDENT: When Democrats won control of Congress in November, they promised to drain the swamp, end corruption, and stop spending millions on lawmakers pet projects until the process had bb reformed.

REP NANCY PELOSI, HOUSE SPEAKER, (D) CALIFORNIA: Why don't we just leave the room today forgetting the word "earmark?"

LA JEUNESSE: But watchdogs say little has changed, and thousands of earmarks have already been filed, including $100,000 to help Iowans lose weight, $450,000 for a hiking trail in West Virginia, and from Senator Hillary Clinton, $1 million for a museum exhibit commemorating the Woodstock music festival. Republican Senator Tom Coburn is a long time critic of Congressional spending.

SEN TOM COBURN, (R) OKLAHOMA: So, in essence, we have not done what they promised the American people they would do, and they continue to block our attempts to try to get them to live up to what they've promised to do.

LA JEUNESSE: California Senator Dianne Feinstein wants $1.2 million to fight substance abuse, $750,000 for ocean awareness, and $100,000 each for a Native American learning lab and a folk museum.

Hawaii's Daniel Inouye wants $34 million for native Hawaiian programs, including traditional canoe building, teaching Filipino culture, and archiving native folk tales.

RYAN ALEXANDER, TAXPAYERS FOR COMMON SENSE: Across the board, it looks like the Democrats are getting about 60 percent of the earmarks. So they're definitely getting a higher percentage.

LA JEUNESSE: But the problem remains bipartisan. Republican K. Bailey Hutchinson wants $500 million earmarks for Texas, and Senator Pete Domenici requested $400 million for New Mexico, including $200,000 for the Girl Scouts, and $750,000 for a nuclear science museum. Now supporters defend earmarks as the best way for Congress to have a say in how federal money is spent in their states and districts. And, yet, already earmarks exceed $25 billion, and 2008 appropriations are only half done. Now efforts to instill accountability, where each member must attach his or her name to an earmark, have repeatedly failed, making it appear, when it comes to bringing tax money home, secrecy has a clear majority in Congress. In Los Angeles, William La Jeunesse, FOX News.

(END VIDEO CLIP)

HUME: A new Associated Press poll finds the leader of the Republican presidential race right now is undecided. Twenty-three percent of the Republican voters said they've not made up their minds yet. Twenty-one percent still like Rudy Giuliani, Fred Thompson's at 19 percent, although he has announced, JohnMcCain at 15 percent, and Mitt Romney at 11 percent.

Among Democrats, Hillary Clinton is far out in front with 36 percent, followed by Barack Obama at 20 percent, Al Gore, who has also said he is not running, comes in at 15 percent, John Edwards trails at 11 percent.

Edward's wife Elizabeth, by the way, says she's not sure Hillary Clinton would be a good president for women. Mrs. Edwards tells Salon.com she understands sometimes a woman in power wants to behave as a man and not talk about woman's issues.

Mrs. Edwards says she's not convinced that Clinton would be as good an advocate for women as her husband John Edwards would be.

A hot potato is something you toss from hand to hand, too hot to hold. What is its opposite? Whatever you call that, it's what happened in a bay near San Francisco, where environmentalists say the government's deteriorating ships were too hazardous to be stay where they are, yet too hazardous to be moved. Correspondent Claudia Cowan has the story.

(BEGIN VIDEO CLIP)

CLAUDIA COWAN, FOX NEWS CORRESPONDENT: Cargo ships, coast guard cutters, historic battleships from World War II—74 ships ride anchor in Suisun Bay outside San Francisco as part of the government's reserve fleet. While some may be recalled to duty, most are obsolete, ghost ships whose only value is as scrap metal.

The problem is the nearest ship recycling yard is in Texas, and moving these rusty relics is an environmental hazard. But some environmentalists say leaving them where they are is just as dangerous.

SAUL BLOOM, ENVIRONMENTALIST: These ships are in seriously deteriorated conditions, are flaking, heavy metals, paints, other pollutants, into the San Francisco Bay on a regular basis.

COWAN: According to one study, these aging ships have already released 21 tons of lead, asbestos, and other toxic chemicals into the bay, and more than 60 tons of hazardous metals remain on board, posing a contamination risk to marine life maintenance workers, even visitors.

Federal officials have working to clean up the site have been hampered by conflicting local, state, and federal environmental laws. Still, the head of the U.S. Maritime Administration says he's committed to solving the problem.

SEAN CONNAUGHTON, MARITIME ADMINISTRATOR: Make sure the ships are in the best condition possible before we allow them to even come in here, and then to make sure we have the funds to maintain those vessels once they're in the fleet.

COWAN: But there's a catch. Under federal law, getting rid of these decrepit vessels requires scraping the hulls to remove any barnacles or other marine life that might contaminate another ecosystem. At the same time, green groups argue the cleanup will pollute these waters even more. Until that fight is resolved, these ships aren't going anywhere.

In Suisun Bay, California, Claudia Cowan, FOX News.

(END VIDEOTAPE)

HUME: Next on Special Report, the FOX all stars on the National Intelligence Estimate and where we are in the war on terror, plus the debate about that. This will be fun. Stay tuned.

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(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: In my judgment, looking at all the data, they are capable, they are planning, but they are not as resilient, or as robust, or as capable as they were in 2001.

UNIDENTIFIED MALE: Al-Qaeda's stronger, so says the report. The president disagrees, but that's what the report says. You can't have it both ways.

(END VIDEO CLIP)

HUME: Well, is that what the report says? Some thoughts on this now from Fred Barnes, Executive Editor The Weekly Standard, Mara Liasson, National Political Correspondent for National Public Radio, and Mort Kondracke, Executive Editor of "Roll Call" Fox News, and distinguished ones, contributors all. All right. Well, it seems like there's a factual question that needs to be resolved. Does the report say what Reid said it says, or does it say what McConnell, the director of the National Intelligence, says it says?

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Well, it says that al- Qaeda is weaker than it was in 2001, but it's getting stronger.

Look, I basically agree with Bush critics, like Lawrence Wright, who wrote "the looming tower," which won the Pulitzer Prize, on the history of the development of al-Qaeda, that we had al-Qaeda on the run, the al-Qaeda central on the run in 2002 and 2003, failed to finish them off at Tora Bora. Then along comes Iraq, and you've got the rise of al-Qaeda in Iraq, which is a recruiting ground, a rallying cry, a training ground for all kinds of jihadist terrorists. And, meanwhile, we did take resources away from Afghanistan and put them into Iraq—Arab speakers, and Special Forces operators, and so on—and al-Qaeda is resurgent in Pakistan and Afghanistan.

So what does this mean? I mean, we can't just leave Iraq now when we've got a formidable enemy there. The NIT says that they're the most visible and, I think, effective, capable of all the al-Qaedas. So we've got to beat them in Iraq, and we've got to beat them in Pakistan. It's a much more complicated job. We may be better off than we—

HUME: So al-Qaeda has been strengthened by the Iraq war, in your view?

KONDRACKE: I believe so, yes.

HUME: Mara?

MARA LIASSON, NATIONAL PUBLIC RADIO NATIONAL CORRESPONDENT: Yes, it has, but that doesn't mean it would wouldn't have gotten stronger without it. It's complicated.

When Reid says al-Qaeda is stronger, they are stronger. But than what? What's your benchmark? The other question is, what's the central front on the war in terror? That's certainly got a lot of attention in the White House. Where should we be putting our effort? In Waziristan or in Iraq?

HUME: What should we do in Waziristan?

LIASSON: Well, they are talking about—well, we might be able to do something to help Musharraf go after them—it's unclear exactly what—

HUME: Is it clear that our efforts in Iraq are making that not possible?

LIASSON: No, I don't see why we couldn't do both at the same time. Although, Tony Snow was asked today—Wendell Goler, actually, asked him this question—are you saying it was impossible to have gotten rid of al-Qaeda, as Lawrence Wright and others argued they could have, before we went into Iraq?

And Snow said "Yes." In other words, it was impossible to take care of them. And there, there is a big argument.

HUME: Well, I assume what the idea is, is that once they ran across the border into Waziristan, the remnants of al-Qaeda, that there wasn't a whole lot we could do without—.

LIASSON: There's some people who think we should have followed them more fiercely than we did.

HUME: Yes there are.

FRED BARNES, EXECUTIVE EDITOR, WEEKLY STANDARD: There are, but those, I mean, look, it's an impossible place there. We do have, I assume, commando teams and so on that have gone there—in fact, I know we have— that have gone there trying to search for Usama bin Laden. But you're not going to drop the 101st airborne in there. That's not where they can operate effectively. It's a pretty remote place, and you'd rather have Usama bin Laden there than in Kabul or some other place. He's better off there.

`They have set up training there. That's a problem. And it's a haven, and something needs to be done about it. Look, what this report—almost everybody read something different into this report. We all know why al-Qaeda is a threat. I think Mara's probably right, we don't know whether Iraq has really played a role in it or not, or whether al-Qaeda would have been this big or not. But the truth is, Mort and Lawrence Wright are totally wrong. We would not have wiped out—you might have wiped out Usama bin Laden, and some of al-Qaeda headquarters, and the number two comes out, and that would have helped.

But what is the problem? The problem is Islamic radicalism, which is a political ideology that's part of a religion that is sprouting up all over the world. It wouldn't have gone away. There would be a huge terrorist threat whether it's al-Qaeda or not.

We know all these groups that are affiliated with al-Qaeda. Well, they might not have had somebody to affiliate with, but they still would have been out there in England, and France, and Germany, and Morocco, and Algeria, and so many other places.

So to say, well, we could have wiped out al-Qaeda, which I don't think we could have, anyway, that's not really solving the problem. It would have helped some, but the problem is much, much bigger than that.

KONDRACKE: But we've exacerbated the problem by giving them the kind of rallying cry that they used to have against the Russians in Afghanistan. They rallied, they trained, they recruited in Afghanistan against the Russians, and they're doing the same thing in Iraq right now.

HUME: All of those other people in there fighting and dying for al- Qaeda in Iraq would be have been doing, what?

LIASSON: I think they might not have been there at all.

KONDRACKE: Yes, exactly.

LIASSON: But the other thing that is happening in Iraq—The White House did make a point today that the al-Qaeda in Iraq is focused on Iraq. They're not, you know, they're not capable right now of launching attacks on us.

However, everything that they do there, every time that they make a better IEDs, or are more effective at some kind of murder and mayhem, that's something that they could export, not necessarily to New York city, but certainly Saudi Arabia, Jordan, Egypt.

HUME: So the idea is if you fight them, they learn things, so you shouldn't fight them? LIASSON: No, I'm not saying that.

KONDRACKE: Now we have absolutely got to beat them. And that is emerging as a center piece in our strategy in Iraq.

HUME: When we come back, the Senate's all-nighter on this issue, it's purpose, what it can and cannot achieve. We'll be right back.

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(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: The irony is that we are ready to vote on the Levin Amendment at almost any time, but we are going to have big political theater here tonight. I guess we will have a lot of fun staying up late, having a Senate slumber party.

UNIDENTIFIED MALE: It will be a real filibuster. And if they believe in their heart of hearts that this is the right policy, let us see if they still feel that way at 4:00 this morning. That's what this is all about. It is not a slumber party.

(END VIDEO CLIP)

HUME: I think he meant 4:00 a.m. tomorrow morning. But, nevertheless, Senator Durbin is among those who are leading the way here. They are going to insist that if the Republicans wan there to be a 60 vote threshold for the vote on this Levin Amendment that Republicans oppose and the White House doesn't like, they are going to have to sit there on the Senate floor and protect their right to keep the debate going and not shut it off.

Well, OK. So, what about this? Does this move the ball in any particular direction, or is this just another futile gesture? Or do the Democrats, by dramatizing this this way, gain some ground?

BARNES: The one thing this is not is a real filibuster. You have a real filibuster—remember the ones during the Civil Rights era—you wanted to block a vote on civil rights legislation. Republicans are offering a vote. Here is a filibuster where there is a scheduled vote tomorrow morning. And Democrats are filibustering. I mean, it is not even a filibuster. It is not trying to prevent a vote, they want to schedule a vote.

It's a stunt, and some Democrats have said so. I do not think it is going to help them because there is one fundamental idea that I think has taken over the Iraq debate, and that is the idea of let us wait for General Petraeus to report in September.

A majority of Americans feel that way, and I think many more are going to. And it just makes sense. Congress confirmed the guy, he had his strategy, he is over there, he said he would come back in September. Why have all these votes, other than the fact that the left of the Democratic Party is pushing the Senate to do it?

KONDRACKE: The Democrats are trying to overreach here. They want to get a 51 vote decision on the Levin Amendment which is a withdrawal amendment.

HUME: But is the Levin amendment really a withdrawal amendment? All it says is, that you have to start withdrawing. It does not say how many troops, and it doesn't say when they all have to be out there. Isn't the Levin Amendment, in some sense, much milder and weaker than the Democrats are willing to admit?

KONDRACKE: Well, if it were, then why are Republicans so resisting it? The administration is treating it as a big deal because it is a forced withdrawal amendment.

HUME: What does it say? Does it say when the troops will be out of there?

BARNES: It says to begin withdrawal in 120 days, and have the goal of full withdrawal by next March.

HUME: But it doesn't require all the troops to be out by next March.

KONDRACKE: It does not require all the troops to be out by next March.

HUME: To be out by next March or any other time.

KONDRACKE: No, it doesn't. But the administration does not like the idea—Reid could get 60 votes for an anti-Bush resolution, either with the Alexander Salazar amendment on the Iraq study group, or the Warner-Lugar amendment, which demands a new strategy. Those could get 60 votes. But the Democrats will not vote for them because they are too weak.

BARNES: So, in other words, they cannot get 60 votes.

KONDRACKE: They cannot get 60 votes because it will not vote for it.

BARNES: That is what I said.

LIASSON: There are definitely legislative proposals, and Mort just mentioned several of them, that could, with some tweaking, get a bipartisan super majority.

HUME: But would they in the troop commitment in Iraq?

LIASSON: Well, no. But I don't think that anything that the Democrats are proposing, short of Feingold, would end the commitment of the troops in Iraq.

HUME: So, for the moment, the Democrats understand that the war in Iraq is stymied.

LIASSON: Yes, but, I think, just on pure politics, they feel, and there is some evidence for this, that satisfies the anti-war base. This also puts the Republicans' feet to the fire, forces vulnerable Republicans who are facing tough races to vote again and again for the war. But, basically, we are in a stalemate, and we are going to be there until September 15.

BARNES: I think it is shifting away from Democrats. I agree with Mort, they are overstepping.

HUME: That is it for the panel, but stay tuned to hear Senator Bill Nelson tell us how good he had it as a returning Vietnam veteran. You won't believe this, it's next.

(COMMERCIAL BREAK)

HUME: Finally tonight, Senator Bill Nelson was describing how much better things are today for returning American soldiers then it was for the GIs who came back from Vietnam. But it seems, for officers like him who are returning from Vietnam, well, things were really pretty good.

(BEGIN VIDEO CLIP)

SEN BILL NELSON, (D) FLORIDA: There is such respect for our troops now. That was not necessarily the case all the time back then when I was in the military. Certainly all the intercourse that I had as a military officer was the best. But that was not the case for a lot of our returning soldiers.

(END VIDEO CLIP)

HUME: Well Senator, we are certainly glad to know that. That is Special Report for this time. Please tune us in next time. And in the meantime, more news is on the way. Fair, balanced, and unafraid.

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