This is a rush transcript from "FOX News Sunday," November 11, 2007. This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: As we continue our coverage of You Decide '08, we're joined now from the campaign trail in New Hampshire by Republican presidential candidate Senator John McCain.

You were, of course, a Navy flier, Senator McCain. You ever see a UFO?

SEN. JOHN MCCAIN, R-ARIZ., PRESIDENTIAL CANDIDATE: I can't say that I did, but I kept looking all the time.

WALLACE: Well, that's good to know, that you were on the watch.

You've been going after Republican frontrunner Rudy Giuliani pretty heavy recently. When former New York City Police Commissioner Bernie Kerik was indicted on Friday on federal corruption charges, you said this raises questions about Giuliani's judgment.

And take a look at what your campaign manager had to say. "Rudy Giuliani has repeatedly placed personal loyalty over regard for the facts." So, Senator, what facts? Are you suggesting that Giuliani knew that Kerik was a crook?

MCCAIN: No. But I would hope that it would have been taken into consideration by Rudy that Mr. Kerik went over to Iraq, was assigned the task of the Iraqi police, obviously left after a short period of time, and the Iraqi police effort was in total collapse.

MCCAIN: It was part of the terrible mismanagement of the conflict under Secretary Rumsfeld and in the early years. But look. I am friends with Rudy Giuliani. I respect him.

But the fact is that I'm the only one of the top three with any national security experience. Any. I've been involved in national security issues for the last 20 years. I was in the military for 22 years before that.

I know these issues. I was involved in them ranging from the Cuban missile crisis to the issues we face today. That's what my qualifications are, and I think they're certainly -- it's well to point out that neither Governor Romney nor Mayor Giuliani have any national security experience.

WALLACE: Well, you're speaking a bit more gently than you and especially your campaign manager, Rick Davis, were on Friday about the Kerik affair.

And in fact, the Giuliani campaign was so stunned that they fired back and said your attacks are a sign of your desperation and your failing campaign, and it would be as unfair as judging you based on your involvement in the Keating Five savings and loan scandal back in the '80s. How do you respond?

MCCAIN: I'll match my public ethics in public office with anyone who's running for president of the United States today. I'm proud of my record, and I will stand on it.

But the challenges that face America today are a myriad of national security issues, the latest in Pakistan that you discussed earlier with Bill Richardson.

I know Musharraf. I met with him on numerous occasions. I know the area. I've been to Waziristan. I know these issues. I know how to handle them. And I've been involved in all these issues for, as I say, the last two decades.

And that's the area that I think will, at the end of the day, convince the voters here in New Hampshire that I'm the most qualified, especially on national security, of any of the candidates.

WALLACE: So be specific. I mean, this is one of the real-time crises a president has to face.

MCCAIN: Sure.

WALLACE: So you're in the president's seat. Richardson says he would threaten to cut off all U.S. aid. Would you?

MCCAIN: No, because if you play that last card and it doesn't work, then obviously you have no leverage whatsoever.

I think that Musharraf, by -- agreeing to the elections in February is a step forward. It's not what we want, but it's a step forward.

But look. You've got to put this -- Chris, the situation in the context of the last 20 years or 30 years. Pakistan was a failed state. It was a failed state under Benazir Bhutto. Her husband was convicted of corruption.

Musharraf came to power to replace a failed state. There is significant elements within the Pakistani army and in Pakistan itself of radical Islamic extremism.

We all know about the sanctuary in Waziristan that was provided by Musharraf. One of the reasons for that was difficulties within his own army because of the high casualties that he was taking there.

I think we should appreciate if Pakistan collapses into a radical Islamic state, then our chances of building democracy and freedom in Afghanistan are in severe jeopardy, and democracy and freedom throughout the region are in great jeopardy.

So this is a very delicate time. I would be doing intensive behind- the-scenes negotiations, and I would do my best to convince Musharraf that the best thing for him, as well as the future of Pakistan, is to go ahead and schedule these elections and move forward with the democratic process.

But to issue ultimatums and threats right now that may result in damage to United States national security I think is inappropriate.

I would remind you when we thought it was the best thing to do for the shah of Iran to leave Iran. There were some unintended consequences associated with that.

WALLACE: You know, I want to talk about your critique especially of Giuliani this week on the question of national security credentials, because you obviously have a very different opinion than he does about the possible effectiveness and morality of waterboarding.

You have openly questioned his experience to be president. In an interview in Saturday's New York Times, you had this to say about Giuliani's decision to leave the bipartisan Iraq study group. That's the Baker-Hamilton bipartisan commission. "He didn't show much interest in a war where young Americans are fighting and dying."

Senator McCain, do you really want to stand by those words about Rudy Giuliani?

MCCAIN: He didn't show interest in the Iraq study group, which was about where Americans are fighting and dying.

The Iraq study group met without his participation, and he either voluntarily withdrew or was asked to withdraw from the Iraq study group, which was trying to sort out the tremendous challenge we had, particularly at that time, in Iraq because of the failed strategy of Rumsfeld.

I admire and respect Rudy Giuliani. We know each other well. This is not a question of personality. It is a question of experience, knowledge, background, and ability to lead.

And that's where I believe my qualifications are clearly different from those of Rudy or Governor Romney. And I think it's clear to point out those differences.

I served on a weapons of mass destruction commission, and I was pretty busy with other things at the time, too.

WALLACE: You were one of the prime movers, it's fair to say, on the issue of campaign finance reform, but now one of those so-called independent groups is running a T.V. commercial in South Carolina supporting you.

I'd like to address two issues. First of all, do you oppose that ad? And have you called Rick Reed, who's one of the people behind the group that is putting that ad on the air and, in fact, has done work for your campaign in the past -- have you called him and said stop the ad?

MCCAIN: I have not called Rick Reed because I don't know what his involvement in it is. I don't know who is involved with it. I have condemned those ads.

If I knew who was involved in it, I would tell them to -- that I would like to see them taken down, and Mr. Reed has not been involved in our campaign except in an advisory capacity -- give us some advice a long time ago as there are many, many others who have.

But I have always condemned these kinds of ads and I will continue to do so. But I don't know any of the details of them, obviously.

WALLACE: What will you do if you were to find out that any member of your campaign staff was involved in raising money or arranging to set up this organization?

MCCAIN: Well, obviously, I would think that it's the wrong thing to do. I'd have to know -- I mean, if I knew that anybody in my campaign did anything that was morally wrong, or wrong -- that I would take action about it if something like that was -- came to light, obviously.

WALLACE: This week all of the top Republican candidates got endorsements from one of the leading social conservatives, if not more. What do you think of the fact that Pat Robertson, the televangelist, supported Rudy Giuliani? And to the degree that the Christian conservative leadership gets splintered among all of you, doesn't that actually help Giuliani?

MCCAIN: I don't know. As I said about Pat Robertson's endorsement of Mayor Giuliani, I'm not often rendered speechless. I certainly was at this event.

WALLACE: Well, you've had a few days to overcome that. Why are you so astonished by that?

MCCAIN: Sure, I'm still surprised by it, and I will continue to be surprised by it for probably as long as I live.

WALLACE: Why?

MCCAIN: Look, for obvious reasons. Pat Robertson has usually advocated support for people that have a strong pro-life position, among others. I think it's -- I wasn't the only person that was surprised in America.

But the fact is that I will continue to work with members of the Christian community as well as other parts of our Republican Party, and I'll do my best to work with them and cooperate with them.

And we need to keep a team of all Republicans together in order to win the next election.

WALLACE: Senator, finally, and we've got less than a minute left, let's look at the latest Wall Street Journal poll out this week, national poll. It shows you up slightly in the last month, but now into second place, and Fred Thompson down dramatically into third place.

What's happened to your campaign in the last month, Senator?

MCCAIN: Well, we've been moving up, with obviously a great deal more enthusiasm at town hall meetings. I think there's a poll out this morning that shows that only 16 percent of the people in New Hampshire have definitely made up their minds.

This thing is wide open. I know from previous campaigns that a lot of people, particularly independents here in New Hampshire, wait. A lot of people haven't made up their minds.

We're campaigning hard. I'm glad the way that things are going. And I can sense that we're doing very well here in New Hampshire. We're on the upswing. And I can tell you right now I will win New Hampshire.

WALLACE: You're saying flat out you'll win New Hampshire.

MCCAIN: I'm saying flat out, Chris.

WALLACE: And if you don't?

MCCAIN: I will.

WALLACE: But are you saying if you don't that you're out of the race?

MCCAIN: Of course not. I'm just telling you I will.

WALLACE: All right. All right. Well, we've heard it here. We'll mark the tape, Senator. Thank you.

MCCAIN: OK, pal. Good to talk to you.

WALLACE: Thank you. Thanks so much for joining us. Please come back, sir.

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