This is a rush transcript from "America's Election HQ," August 18, 2008. This copy may not be in its final form and may be updated.

E.D. HILL, HOST: Today, embattled Pakistani President Musharraf finally gave in to months of pressure from the ruling coalition and resigned. Musharraf was given two choices last week, resign or be impeached. Well, he chose option number one. Addressing his nation today, Musharraf says he hopes his mistakes will be forgiven.

President Bush expressed his gratitude to Musharraf for helping us fight terror but also says America looks forward to working with Pakistan's new government. It is unknown who the new leader will be and how that will impact our War on Terror.

FOX's Scott Heidler joins us now with the latest, live from the capital of Islamabad — Scott.

SCOTT HEIDLER, FOX NEWS CORRESPONDENT: E.D., President Musharraf announcing his resignation today, heading off what he said would have been an impeachment process and would have been damaging for Pakistan. His emotional hour-long speech was a cliffhanger, spending over 45 minutes detailing his accomplishments. Until the end, it was tough to read if he was actually going to step down today.

He said that he wanted to spare the people of his country from could be a dangerous power struggle during the impeachment process that could have taken weeks to resolve. He asked for forgiveness for his mistakes and as president, he always acted for the people of Pakistan and the country, never for himself.

There will not be a power vacuum because of his resignation, as prime minister, Yousaf Gilani is the head of state. Nor will there be new elections.

The law minister is saying today that a new president will be announced after 30 days, but Musharraf's resignation will no doubt bring some serious power brokering within the two parties who lead the coalition. Outside of removing Musharraf from the picture, there is little the two see eye to eye on. But those differences will wait for tomorrow as many coalition supporters taking to the streets in Karachi and Lahore, celebrating what one minister called the end of a long chapter of dictatorship.

But, E.D., one huge question still remains — what does the future hold for President Musharraf? He's here in the country now, we know that for sure, but for how long? Will he be able to stay in his home country here in Pakistan or be forced out — E.D.

HILL: All right. Thank you very much, Scott.

Two big concerns now for the U.S. with this shakeup. Is Pakistan still going to help us find bin Laden and who's in control of that nuclear program?

Joining us now is former deputy assistant defense secretary under President Reagan, K.T. McFarland, also serving national security posts in the Nixon, Ford, and Reagan administration.

Watch E.D.'s interview

I guess the question I start out with is — does it matter that much? This is a country that has been unstable for a while.

K.T. MCFARLAND, FORMER DEP. ASST. DEFENSE SECY.: It has, yes.

HILL: So, does a shift matter that much to us here in America?

MCFARLAND: Well, yes, it does for a couple of reasons. We now have accountability. You know, in the last — as you pointed out, in the several months of unrest and uncertain political situations — now, Musharraf is gone and it's up to the civilian leadership. Are they going to get the economy rolling again? Are they going to have domestic order in their cities?

And most importantly, from our point of view, are they going to deal with the terrorist threat?

HILL: Yes.

MCFARLAND: Are they going to go after those tribal areas where we know bin Laden is and where there is a resurgence of the Taliban?

HILL: Yes, I look at it from purely the American perspective.

MCFARLAND: You're right.

HILL: .I'm sorry to everyone else around the globe.

MCFARLAND: Yes, you got it.

HILL: But, you know what, I love for them to have a great economy, what I care about is whether they're going to go after these terrorists. And Musharraf was not successful in doing that. He kept on cutting these deals, it seemed strange, based on trust, which doesn't seem to be a whole lot in supply there.

(CROSSTALK)

MCFARLAND: Well, what Musharraf did is he went to the tribal areas, that's the border between Afghanistan and Pakistan and he basically said, "You guys are in charge," and he pulled out the Pakistani forces.

Now, the question is: what happens next? Is the civilian leadership in Pakistan going to go back and say, "OK, new deal, we want to get the terrorists under control,"

HILL: But they didn't, even if they if they did that.

MCFARLAND: They haven't so far, but now they got, you know, it's either — this is why it's such a critical time.

HILL: Yes.

MCFARLAND: It's a critical for them and for their future. It's certainly a critical time for us, because if they're unable to do that, if they're unable to get the Taliban under control, unable to prevent Al Qaeda from moving into Pakistan, their country collapses. And from our point of view, selfishly, that's a country that already has nuclear weapons.

HILL: Right.

MCFARLAND: What happens to those 100 nuclear weapons in Pakistan?

HILL: What about their inspiration? Do they really want the terrorists — maybe, I'm being completely cynical — do they really want them out?

MCFARLAND: Well, you know, it's a complicated thing. They clearly want their own destiny. They don't want — they don't want civil unrest in their own country. They don't want an even more destabilized government.

On the other hand, there are lots of indications that in the army and in the intelligence services, there are a lot of pro-Taliban officers, particularly at the junior officer level. So, it's not clear. There's not a unified Pakistani position here.

HILL: All right. Let me switch to Iran now. And you know, and now on these claims (ph).

MCFARLAND: One trouble spot to another, right?

HILL: Yes, exactly. One that we hope will get better, the other one we just never know what to expect day to day. You know, they make a whole lot of claims, a lot of boasts, a lot of brags, a lot of demonstrations, do they mean anything?

MCFARLAND: Probably not. I mean, they've made a lot of claims. Even a week ago, they've said they had a "smart" submarine.

HILL: Right.

MCFARLAND: A couple of months ago, they've claimed this, that, and everything over the last several years. Those usually don't pan out to be much of anything at all.

HILL: Then why do they do it? Based on your experience inside, we now talk about it after...

MCFARLAND: It's bargaining chips. It's bargaining chips. Iran has a goal, and its goal is to be the predominant power in the gulf region. Now, they're going to get there however they can. They are trying — they have a nuclear weapons program and they are definitely working their way down that checklist of nuclear weapons.

HILL: So trying to get there.

MCFARLAND: They're trying to get there and even the most conservative people say it's three years away. On the other hand, they're also doing a lot of bragging until they get there.

HILL: Yes. All right. K.T. McFarland, thank you very much.

MCFARLAND: Thank you, E.D.

HILL: The expertise you bring to it, thank you.

MCFARLAND: Thank you.

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