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

MARTHA MACCALLUM, HOST: Well, they make movies about people like this, an immigrant signs up to fight for our country 24 hours after he got a green card, goes off to war and then gives up his own life to save the lives of the comrades around him. Sergeant Rafael Peralta became a legend in the Marine Corps since that dark day in 2004. And the military is now honoring him for his heroism, but his family and many of the fellow Marines say that the honor doesn't go far enough.

FOX's Douglas Kennedy has the whole story for us now. Douglas?

DOUGLAS KENNEDY, FOX NEWS CORRESPONDENT: Yes, Martha. His comrades thought he deserved the Medal of Honor but the Defense Department gave him a lesser award. Now, many of who have heard this story want to know why.

Watch Douglas Kennedy's report

(BEGIN VIDEOTAPE)

KENNEDY (voice over): In 2004, Fallujah was on fire, filled with combatants looking to kill American soldiers. On November 15th, Marine Sergeant Rafael Peralta, a newly accepted citizen of the United States, and by all accounts, a true believer in the war on terror, entered Fallujah as part of Operation Phantom Fury.

DAVID DONALD, RAFAEL PERALTA'S BROTHER-IN-LAW (on the phone): They were going room to room clearing the houses, entering gates.

KENNEDY: During the fierce fighting, Peralta took a bullet to his head. Seconds later, an insurgent tossed a grenade between him and his men. It was then five soldiers swear they saw the 25-year-old California resident do something superhuman.

Describe what his friends say he did.

DONALD: One of them looked him straight in the eye as, you know, the grenade rolled by his head and he reached over and pulled the grenade up under him and shielded all the guys in the room from the blast.

KENNEDY (voice over): It was, in fact, the ultimate sacrifice, a true act of heroism that instantly became part of Marine Corps legend. Everyone, including Peralta's family, thought he was a cinch for a posthumous Medal of Honor. But Secretary of Defense Robert Gates this week turned him down, awarding him the Navy Cross instead. Peralta's family says they're devastated.

I understand his mother says she doesn't even want the Navy Cross.

DONALD: Yes. She's got mixed feelings on it. She believes that he deserved the Medal of Honor, and it's disgusting that there was the offer of the Navy Cross.

KENNEDY (voice over): His family thinks it's possible Peralta previous status as illegal alien may have played a part in Gates' decision. But the Pentagon insists that's not true. They say the bullet which first struck Peralta killed him instantly and that grabbing the grenade may have been a simple reflex.

They say his arm may have pulled this grenade underneath his body by accident. What do you say to that?

DONALD: That's inaccurate. People that (UNINTELLIGIBLE), he was well capable of doing that.

(END VIDEOTAPE)

KENNEDY: The Medal of Honor is awarded very rarely and requires a recipient to have risked his life with gallantry above and beyond the call of duty. There are many people tonight, Martha, who believe this Marine did exactly that.

MACCALLUM: It's quite a story, Douglas. Thank you very much, Douglas.

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