This is a rush transcript from "On the Record ," September 30, 2008. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: The new President of Pakistan, sworn in on September 9, is inheriting controlling of one of the most dangerous nations on earth, one that has been a breeding ground for terrorists, and it has nuclear weapons.

Secretary of Defense Gates testified in the United States Senate three weeks ago that western Pakistan is our most serious threat to homeland security.

President Zardari is the widow of Pakistan's former Prime Minister Benazir Bhutto. She was assassinated last December.

The new President of Pakistan went "On the Record."

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Mr. President, it's nice to see you here in New York.

ASIF ALI ZARDARI, PAKISTANI PRESIDENT: Nice to see you.

VAN SUSTEREN: It was about a year ago I was in New York with your wife and it was indeed sad that a year later your wife is no longer with us.

ZARDARI: Yes, it is a very sad omen. But we've taken her loss and we've taken her force and we've taken her strength and made it into our strength.

If you look at It from the fact that they didn't want her becoming prime minister, not only in her name did we make a prime minister, we made a president, and we made the first woman speaker of an Islamic world in her name.

And we took down a dictator in her name. So her legacy continues.

VAN SUSTEREN: It's hard to understand, though, when spoke to her a year ago -- and I want to talk to but Pakistan now and the fact that, of course, you are the new president there.

But when I spoke to her a year ago there was a high risk that she would be killed if she went back. But there was something that drove her. What was it about her that she was willing to take what was an obvious risk?

ZARDARI: All the speeches, if you see, used to give great lectures in America, if you remember. And her topic was women in Islam. And nearly every lecture ended that "I go back to my country and I know there's a bullet waiting for me."

But what drove her were the people of Pakistan, the poverty in Pakistan and the fact that you can make a difference. That's the reason I took on this job fulfilling her thought process, her mission.

VAN SUSTEREN: Pakistan, just a short time ago, a terrible attack on a Marriott hotel, a terrible act of violence. Who did that?

ZARDARI: I don't really know, but we will find them. Because I was supposed to be there with my prime minister, with my speaker, with a lot of us. Just by chance that it was changed.

VAN SUSTEREN: Do you think you were the target of an assassination attempt at that Marriott?

Watch Greta's interview with Zardari: Part 1 | Part 2

ZARDARI: All of us, all the parliament, the people, all of democracy was the target. We were all supposed to be there, because it was a speakers' dinner. We were sitting in a speakers' dinner just a stone's throw away from that same play. We were in the p.m. house on the lawn when we heard the bang.

VAN SUSTEREN: One group has taken credit for it and said in part it's because of your country's relationship with my country. Do you believe that that's the reason?

ZARDARI: No, I don't think so. I think that is just an excuse to give themselves importance and to say -- bring some legitimacy to the war that they are fighting.

When they say that they are targeting America, if they would have said they were targeting us, obviously the people turn against them, because we have populist people.

So they can't say us, they have to say we managed to get 150 foreign citizens, which is not a fact at all. There were no marines in there.

VAN SUSTEREN: Recently there were reports that special operations forces, our forces, crossed into your country uninvited and had a military action. And that was not received well by a lot of Pakistanis, agreed?

ZARDARI: Yes, agreed. It wasn't received well, and it doesn't help the war on terror, because the first definition, the way we want to deal with the war is to win the hearts and minds of people, and then get the people on your side, alienate them from the terrorists, rather than give them support.

VAN SUSTEREN: Does that set you back a bit when the American forces do that, set you back in trying to get democracy in that area?

ZARDARI: It sets me back in getting my impetus of the new way of dealing with the war. And the new way of dealing with the war is to get the people involved, to make them to realize that making their area unsafe and allowing them to be there is a danger to themselves.

VAN SUSTEREN: Did you discuss that with President Bush when you spoke with him?

ZARDARI: Not specifically, but we discussed it generally. And he agreed with it himself. He said it himself that he believes in the sovereignty of Pakistan and the sovereign state has a right. So I didn't need to discuss. He was already aware of the issue.

VAN SUSTEREN: Do you anticipate it will happen again?

ZARDARI: Cross-border fightings can happen, friendly fire can happen. Even in an exercise you have casualties of friendly fire. So one or two incidents or accidents can happen.

VAN SUSTEREN: So are you saying it's not quite as big a deal?

ZARDARI: As the journalists make it sound--no, it's not.

VAN SUSTEREN: So you're not disturbed by the cross-border.

ZARDARI: I am disturbed in the sense that I would appreciate it if it doesn't happen.

VAN SUSTEREN: And if it does happen again, what do you do then?

ZARDARI: I think it's counterproductive to us, to the war. As a policy, it has to be discouraged.

(END VIDEOTAPE)

VAN SUSTEREN: Coming up, more with the Pakistani president. What did the new president think of Governor Palin and his one-on-one meeting with the Governor, and what did the president say his wife told President Bush 41 about Usama bin-Laden in 1988? That's next.

And, later, listen to this. No, we did not make this up. An artist has painted a nude painting of Governor Sarah Palin. If that is not stunning enough, it's what the artist did with the painting that is getting him so much attention. Stay right here. We'll be right back.

(COMMERCIAL BREAK)

(NEWS BREAK)

VAN SUSTEREN: We continue now with the new President of Pakistan sworn in on September 9.

And obviously the most important issue for both our countries is terrorism. 10 days ago more than 50 were murdered when a suicide truck bomb exploded at a Marriott hotel in Islamabad.

We asked the president of Pakistan about that threat to his country and the world.

(BEGIN VIDEO CLIP)

ZARDARI: There are 180 million in Pakistan, and not even one percent is represented by these terrorists.

VAN SUSTEREN: But the terrorists have an impact. They have a giant impact.

ZARDARI: They have a giant impact, and that's what we've been trying to tell the world since 22 years of my life with my wife, that they have a giant impact.

Did you know that my wife had complained in `88 against them to Bush Sr.? Have you ever heard that?

VAN SUSTEREN: No, what happened?

ZARDARI: Ah, 20 years ago Usama bin-Laden paid $10 million for a no confidence move against our government. She came, went to the American embassy, called up the American President, and complained that why is an operator who's supposed to be an American destabilizing my government.

And Bush Sr. hadn't even heard of the name Usama bin Laden.

But Oliver North had. He said in his defense that the reason he had spent so much on the security is because he was scared of Usama bin-Laden.

Now that research needs to be done. Somewhere along the line people aren't researching enough, aren't thinking enough.

VAN SUSTEREN: Your wife Benazir Bhutto, former prime minister, actually had a conversation about Usama bin Laden with President Bush 41 in 1988, personal conversation.

ZARDARI: Yes, a personal conversation. Went to the embassy and called him up on the secure phone.

VAN SUSTEREN: And he said?

ZARDARI: He said "Who's he? I never heard of him."

VAN SUSTEREN: And then?

ZARDARI: And then it was left at that, because, obviously, he hadn't heard of it. So he's not an American operator.

Then we complained to the land that he belonged to, and their answer was it's not a government to government push, and things like that.

And an informed person like you does not know this. So therein lies the problem.

VAN SUSTEREN: Was Usama bin-Laden brought to the attention of our government at any other time by your wife or by you after 1988?

ZARDARI: No, not after 1988. But we had security exchanges, and that's how they arrested the first people who attacked--I think it's a man who was arrested in Pakistan and handed over to the Americans.

VAN SUSTEREN: Is Usama bin Laden in Pakistan, do you think?

ZARDARI: Not that I know of.

VAN SUSTEREN: What do you think?

ZARDARI: I don't know. My people tell me no. The Americans think he is somewhere in the mountains.

But if with all the modern technology and your all being engaged in Afghanistan for the last eight years and haven't been able to discover him, how do we?

It's the same mountain range. It doesn't stop in Pakistan. It goes off into Afghanistan. The mountain range continues.

VAN SUSTEREN: What the American thinking is, and I can't speak for American intelligence, they certainly don't contact me--but they think that he is moving in that area, at least some do, and that he's getting cover, that people are covering for him and making sure he's secure.

ZARDARI: I think the whole region has been made into an insecure area because they want to create such an atmosphere there that it is inaccessible.

And that should have been thought of earlier. That should have been thought of when you were going into Afghanistan and you were doing this operation. Somewhere along the line somebody wasn't advising you well enough, not helping.

VAN SUSTEREN: Is the Taliban an enemy of Pakistan?

ZARDARI: Yes. Why would they take out the Marriott hotel if they weren't?

VAN SUSTEREN: We're in a new era in the sense that we have a new government. We had your government, and I'm trying to establish --

ZARDARI: They're my enemies that killed my wife, the mother of my children. They're the enemies of democracy, and they're the enemies of Pakistan.

VAN SUSTEREN: Did you get a chance to meet Governor Palin while you were here?

ZARDARI: Yes, I did.

VAN SUSTEREN: What was she like? What was your impression?

ZARDARI: I think she's a very interesting lady, and she has a new formula, which is the Alaskan formula which I've been trying to tell my people back home, where you can go with the consent of the people and get to the natural resources and make sure that they get a better life from it, and the country benefits from it.

VAN SUSTEREN: The American people are trying to determine whether or not she should be one heartbeat away from being the president. And one of the criticisms of her is foreign policy experience.

Did you get a sense -- and I realize you've only been president for 19 days, but you certainly have been around the higher echelons of Pakistani government for years. Did you have any sort of assessment of her talents or lack thereof in foreign policy?

ZARDARI: I think -- I've always believed in woman leadership. I follow a woman leader, I still follow the Benazir Bhutto doctrine. I still follow all the philosophies she's left behind, and I believe in women empowerment.

So I've already, like I told you, we've made an acting woman president in the name of Benazir Bhutto already.

So I've changed the definition of man, which the constitution reads in a non-gender. It's a non-gender issue now. A woman can be the President of Pakistan.

So my daughter one day can look forward to becoming the President of Pakistan.

VAN SUSTEREN: In your engagement with governor Palin, do you get the sense that she asks the right questions and that this would be an area which she could conquer?

ZARDARI: I think she's very intelligent. She's very smart. She's a governor. She's not a governor for nothing.

VAN SUSTEREN: Have you ever met Senator Obama or Senator Biden?

ZARDARI: Senator Biden I've met. He's a friend of Pakistan and he's a friend of ours. And he knows he's the one who cosigned this $1.5 billion of -- the bill for Pakistan. In fact, the $500 million democracy dividend is his idea. So we have a good man in him.

(END VIDEOTAPE)


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