This is a rush transcript from "The O'Reilly Factor," December 27, 2007. This copy may not be in its final form and may be updated.

Watch "The O'Reilly Factor" weeknights at 8 p.m. and 11 p.m. ET and listen to the "Radio Factor!"

LAURA INGRAHAM, GUEST HOST: I'm Laura Ingraham in tonight for Bill O'Reilly. Thanks for watching us. And there has been a violent turn of events today in a part of the world already on the brink. Former Pakistani Prime Minister and opposition leader Benazir Bhutto, was brutally gunned down in a homicide attack in Pakistan. We're going to talk to Bill O'Reilly about it in just a moment. But first, a little background.

Bhutto had recently returned to Pakistan after eight years in exile and had just addressed thousands of supporters at a campaign rally, when an attacker shot her in the neck and chest, then blew himself up. 20 other people were also killed.

Her assassination has major international repercussions, especially here in the United States. The Bush administration has devoted an enormous amount of diplomatic and financial capital in an effort to promote democracy and to bring about free and fair elections to that country. And just last month, under pressure from the White House, President Pervez Musharraf resigned as chief of the army and lifted a state of emergency. But now the parliamentary elections scheduled for January 8th are totally up in the air.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The United States strongly condemns this cowardly act by murderous extremist, who are trying to undermine Pakistan's democracy. Those who committed this crime must be brought to justice.

(END VIDEO CLIP)

INGRAHAM: Most experts believe today's violent attack was carried out by Islamic militants with ties to Al Qaeda. But we don't know for sure or exactly how all that will play out on the world stage.

But remember, Pakistan is a nuclear power and the stability of that country is vital to us and to the world at large.

And joining us now by phone with his analysis of the situation, "The Factor" himself, Bill O'Reilly. Bill, sad and tragic news coming out of Pakistan early this morning. What's your take?

BILL O'REILLY, HOST: Well, I'm out of the country, and I'm just glad I'm not in the region because I think over the next few days, you're going to see some awful stuff coming out of Pakistan.

But in any story like this, you break it down to the most fundamental elements. So let's start with Ms. Bhutto, a very brave woman. Knew that she was an assassination target. About a dozen times before, they tried to kill her.

And all of us who followed her career knew that when she came back, there was a very, very strong possibility that she would wind up dead. Because there just simply isn't any security in Pakistan. The army is infiltrated by jihadists. The secret police is infiltrated. And that's why you can't really trust the Pakistanis on any level to do much because of the infiltration.

So the assassination comes as no surprise to those people who know how chaotic and how divided Pakistan is.

The second thing — this is — and I'm going to say this on "The Factor" and people should write it down— Musharraf's last chance. Musharraf is going to wind up in a pool of blood just like Ms. Bhutto if he doesn't throw in with NATO and the United States and throw in tomorrow. And by that I mean Musharraf's been playing a game. He's been taking our billions, he's been telling President Bush and President Clinton before that what they want to hear. He allows the Islamists and the jihadists to run wild in certain areas of the country.

[Take] Quetta. When I was in Afghanistan a few weeks ago, every United States and NATO intelligence source knows the Taliban runs its operations out of the Pakistani city of Quetta. That's not a remote city, Laura. They could walk in there tomorrow and wipe these guys out. They do not.

Now in the mountainous regions where Usama bin Laden is rumored to be hiding, that's a different story. It's more difficult there. But Musharraf has got to throw in now with NATO and the United States. If not, we're not going to be able to protect this man. He's going to go, too because I firmly believe that it is Al Qaeda and the Islamists behind it.

Let's — they even said today, so let's believe them. Let's believe them. Because even if it wasn't them, they disrupted the world, not Musharraf. Musharraf's not a threat to the world. But certainly the jihadists are. So let's — the United States should have a very strong line privately to Musharraf. This is your last chance, sir. You either do what you have to do and throw in with us, and that means advisors on missions and things like that, or we're going to walk away.

INGRAHAM: Well, it seems like we've been giving Musharraf many chances. And...

O'REILLY: Yes, this is it.

INGRAHAM: ...he's vital to us in many ways. But, look, I mean, we have this place on fire. I mean, it was bad before this. And as you said, it's going to be in flames, regrettably.

O'REILLY: No, he's going to lose this game, Musharraf.

INGRAHAM: Yes.

O'REILLY: He can't play this double game much longer. He's got to make a decision. Which side is the man going to be on? Now he could go in and get the Taliban tomorrow. He could bring CIA and Special OPS on NATO with Pakistani forces and they can take care of those guys.

INGRAHAM: But Bill, here's the problem. Too many of the people in Pakistan don't view him as a legitimate leader. And that's the dance that we've always tried to do.

O'REILLY: But there isn't — Laura, there isn't any legitimate leaders in the country right now...

INGRAHAM: Of course there isn't.

O'REILLY: ...it's going to be run by the gun for the foreseeable future. There aren't any leaders there. It's either the jihadists win or Musharraf's guys win.

INGRAHAM: Would you not agree, Bill, that today this was a major victory for A Qaeda that we have been targeting and we have been trying to fight against globally and in this part of the world now for several years?

But this was — if they're behind this, which most experts think there were ties to A Qaeda without a doubt, that this is a victory for them, because they're going to be intimidating. And essentially, this is a way to blackmail other reformers, prevent them from coming into the system and actually sticking their necks out, to use a bad analogy tonight, on this, you know, to try to move this country into the future and not backward.

O'REILLY: I think it's a short-term victory that could turn into a long-term defeat if Musharraf does the right thing and partners up with us seriously. So you're right. In the short term, this sends a chilling effect to everybody in Pakistan and other parts of the world. We can get you.

But if Musharraf then says enough and throws in with NATO and the USA, then the gloves are off. We can go after these people.

INGRAHAM: And the other...

O'REILLY: You know, it's funny, the United States, if you look at the far-eft nutty Web ites and all of this, still Americans don't understand the danger, Laura. Still. They don't get it because they don't want to get it.

INGRAHAM: And we know now the ties to British citizens of Pakistani descent, those who trained in Pakistani training camps responsible for that attack that was thwarted back in the late summer in Britain. And so the Pakistan situation is so important on so many levels. And Bill, we really appreciate your joining us.

O'REILLY: OK, Laura. Thanks for coming in and subbing for me tonight. I appreciate it.

INGRAHAM: Fantastic, no problem.

Copy: Content and Programming Copyright 2007 Fox News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2007 Voxant, Inc. (www.voxant.com), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon Fox News Network, LLC'S and Voxant, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.