This is a rush transcript from "The O'Reilly Factor," September 6, 2007. This copy may not be in its final form and may be updated

BILL O'REILLY, HOST: In the "Campaign `08" segment tonight, in Rasmussen tracking polls John McCain has gained a little traction after last night's Republican debate. And as you may know, Fred Thompson has entered the presidential sweepstakes. And with us now one of the contenders, Governor Mitt Romney. What do you think of Thompson getting in there? Because he's going for the same votes you're going for.

MITT ROMNEY, (R) PRESIDENTIAL CANDIDATE: You know, you welcome him in. You don't have any control over who's getting in.

O'REILLY: Is there any difference between his philosophy and your philosophy?

ROMNEY: Well, the biggest difference is that I've been in the private sector all my life. I've been managing and leading enterprises, and that's something that's new to him. And we'll hear what he has to say about his issues as he gets into the campaign race. He hasn't said a lot yet on these things. If he's able to distance himself from Washington, go out and raise the money and meet people at the grassroots level, he'll have a big impact.

O'REILLY: I want to get very specific with you. Because we only have you for a short time and you can come back any time you want. But we've been reporting on this illegal alien criminal problem, as you know, all right? And right now you have many cities in the United States that will not report to the federal government, homeland security, when they arrest an illegal alien for a violent crime, rape and murder, they just won't tell the Feds that we have so and so in custody.

The City of New Haven is perhaps the worst of them all. They won't even execute federal warrants. So when a judge signs a warrant for an illegal alien's arrest, criminal, whether he skipped bail, whatever, the City of New Haven says we're not going to help you out. As president, what would you do about the City of New Haven, Connecticut?

ROMNEY: Well, the same as I'd do with other sanctuary cities, including New York City and San Francisco and others. And that is I would reduce federal funding to cities that don't enforce the federal law.

O'REILLY: But you can't do that. Only Congress can do that.

ROMNEY: Well, if there are things I can do directly, such as sending our agents in, ICE agents in, terrific. What I did in Massachusetts is that I empowered the state police to enforce the federal immigration law.

O'REILLY: You had a squad that did that.

ROMNEY: We got authorization from ICE to be able to, if you will, detain people who would come into our state illegally, come into our country illegally, and those that the state police came across, whether at a traffic stop or at a crime, they could detain, turn over to ICE and have them deported.

O'REILLY: And as soon as you left and Duvall Patrick took over, he abolished that. Why?

ROMNEY: It's hard to understand.

O'REILLY: Is it pandering for left wing votes?

ROMNEY: There's probably some of that. I was at the border in San Diego and I talked to the Border Patrol agents. And they said, look, they catch less than half that try and make it across at San Diego where we have double fences. And they said if you want to stop illegal immigration, you've got to stop the magnets. And those are the sanctuary cities that say they're not going to enforce the law, they're zones of protection.

O'REILLY: So you're telling me…

ROMNEY: And there's employers.

O'REILLY: Just so I'm clear, if you're elected president, the City of New Haven, you're going to deal with them.

ROMNEY: Yeah. Absolutely. I will deal with those cities that do not enforce the law and that do not report the infraction to the law.

O'REILLY: Because that would be…

ROMNEY: And, of course, that provide benefits to people…

O'REILLY: Of course, they do.

ROMNEY: …that are here illegally. And by the way, it's important to point out we value legal immigration, and I'm really concerned about legal immigrants feeling somehow this is a topic about them. I don't want them to feel uncomfortable. It is a topic about…

O'REILLY: Well, for me it's criminal illegal aliens we've got to deal with first. All right now, all the guys last night, except for Ron Paul were all stay the course in Iraq, including you. OK. That sounds good and I want the United States to prevail in Iraq. And as you do, I believe that our military has done a magnificent job and we are not an immoral nation for being there, as many on the far left think we are. However, I don't have any use for the Maliki government. I think they're corrupt. I think they're thugs. And I don't think they're going to change. How would you make them change?

ROMNEY: Well, if it's the things that they are doing that you don't like, then you tell them directly about the things you want them to change.

O'REILLY: And they say, “blank you.” We're going to continue stealing the money and continue with arming the militias.

ROMNEY: We have carrots and we have sticks. We obviously are playing a large role there financially, as well as with personnel. So we can tell them these are things you're going to have to do if you want these benefits.

O'REILLY: But look at the South Vietnamese. They didn't do it. We had carrots and sticks there.

ROMNEY: Well, actually, the South Vietnamese -- You know, I talked to former secretary Mel Laird, defense secretary, and he said we were making great progress in South Vietnam in terms of a withdrawal plan and they were picking up the parts they needed to, until Congress yanked the funding and said, “Get out.”

O'REILLY: But the government was corrupt to the end in South Vietnam. They never were a good government, which is why the South Vietnamese didn't fight for them.

ROMNEY: But in the case of the al Maliki government, we're not going to step in a government that's been democratically elected and say we're going to have our way. This is a nation that is building from its own base. And Hillary Clinton said we've got to depose al Maliki and leave the country. Talk about a recipe for disaster.

O'REILLY: I don't know that she said that but I am very worried that the Iraqi government will never do the right thing because they're under the sway of the mullahs. President Bush simply said, well, yeah, they all voted. You know why they voted. Because the mullahs told them to vote for the Shiite or the Sunni or whatever. It's like Chicago. Vote for the Democrats.

ROMNEY: Just like you said. It's like Chicago was. And we're not going to step in, as the power that's there, trying to see the country grow and start pulling people out and say we're kicking al Maliki out of his office. But I do agree with you that as we see things that are troubling and make it very difficult for the country to emerge as an entity, that we ought to step in and say, “Guys, here's what we want you to do. Think about this, or we're going to do the following things.”

O'REILLY: Right. Because they haven't reached any benchmarks. And that's what I'm worried about. I'm not worried about the U.S. military, I'm not worried about the morality of the war. I think we're on the right side of history on both.

Very, very worried, governor, about the Iraqi government. I'll give you the last word.

ROMNEY: I think you're right in that regard. The report that came from the GAO was discouraging and the report that came from the administration, likewise said a lot of these benchmarks are not being met and a lot of people who go meet with al Maliki come away and say this guy is not going to make it happen. But he is their leader, he has been democratically elected and the process is one that is going to take us to the point where we finally see a stable country there.

O'REILLY: Governor, thanks for coming in. We appreciate it.

ROMNEY: Nice to be with you.

O'REILLY: Nice to see you.

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