This is a rush transcript from "On the Record ," October 10, 2008. This copy may not be in its final form and may be updated.

JAMIE COLBY, FOX NEWS GUEST HOST: And there is breaking news tonight about a rogue nation halfway around the world. FOX News has learned that North Korea may be removed from Washington's list of state sponsors of terrorism.

The State Department expected to announce as early as tomorrow a bilateral agreement with North Korea on nuclear disarmament verification procedures. That sounds complicated.

But this is big, and getting to the bottom of it, our own Greta, who sat down with Secretary of State Condoleezza Rice. The first topic they tackled--North Korea.

(BEGIN VIDEOTAPE)

GRETA VAN SUSTEREN, FOX NEWS HOST: Madam Secretary, it's very nice to see you.

CONDOLEEZZA RICE, SECRETARY OF STATE, UNITED STATES OF AMERICA: It's nice to see you, too, Greta.

VAN SUSTEREN: I want to ask you a couple of questions about North Korea, because we were there. If I step over the line, you go right ahead and tell me that that's over the line, a question I shouldn't ask.

Let me ask you the first question -- do we know if Kim Jong Il is dead or alive?

RICE: Well, by all accounts, he's appeared now, so we hear. But North Korea is such an opaque society. It's so closed. Obviously, something happened to him at some point along here.

But we're just assuming that the North Korean government is being run by the authorities of the North Korean government, and we're responding accordingly.

VAN SUSTEREN: Now, you say that he appeared. Is there any proof that that wasn't a body double?

RICE: No. But I assume that the appearance was the appearance. And so we don't have any evidence that he is not in fact running North Korea.

VAN SUSTEREN: What is the status of our negotiations over there, their nuclear program?

RICE: Well, we have just been working with the six parties, the other parties to come up with a verification protocol so that we can, in fact, verify North Korean progress with denuclearization across the whole range of their programs.

And Secretary Chris Hill was just in Pyongyang last week. He has come back with some further work with the negotiations. We are now doing a little bit of work with other members of the six parties.

And when we have a verification protocol that lets us know that we can, in fact, get to the bottom of what has happened with North Korean nuclear programs and what will happen going forward, then we'll be ready to exercise our obligations. But we have not yet gotten to that point.

VAN SUSTEREN: Now to Pakistan. They have a new president, which, of course, you know. Is Pakistan now getting to be more of a hot spot for us? Because there's certainly reports that there have been American troops going over into Pakistan, special ops. Is that becoming a new hot spot for us?

RICE: Well, we have a new situation in Pakistan, and it's a situation that we actually advocated for, which is that there would be a civilian government, the ends of military rule in Pakistan, which came into being in 1999. It's been 10 years, nearly 10 years of military rule.

Now they've had elections. They have an elected president, President Zardari, with whom our president met recently and with whom I met recently in New York, and we're working with that government.

Watch Greta's interview with Condoleezza Rice

Now, Pakistan has a lot of very bad challenges. It has economic woes. The Asian Development Bank and the World Bank are working with Pakistan to try to address those. We're very active in that.

Pakistan has also a very serious terrorism problem, very serious. And it's not just a problem from our point of view that, is, what happens across the Pakistan-Afghanistan border, or the presence of Al Qaeda there that could be a threat to U.S. interests.

But it's also, obviously, a threat to Pakistan, because there have been bombings in Pakistan. There was, of course, the assassination of Benazir Bhutto. And so we have a common goal with Pakistan to deal with the extremism and with the terrorism.

VAN SUSTEREN: I suppose on the bright side, I'll look for a silver line, is that now the democratic government in Pakistan, was a hot spot, having India and Pakistan both nuclear countries side by side and warring with each other.

I suppose now things will be much nicer, or potentially much safer, at least vis-a-vis India and Pakistan.

RICE: Really, one of the untold stories, Greta, over the last several years is that, actually, relations between India and Pakistan have been improving for some time. They were improving under President Musharraf.

And one of the first places that my Indian colleague, the Foreign Minister Mukherjee, went was Pakistan right after the Pakistani government was sworn in.

And so this is a relationship--and frankly, in 2001, in December of 2001, I remember merry Christmas night being on the telephone with Colin Powell, the Secretary of State at the time, Jack Straw, who was then the foreign secretary for Great Britain, David Manning, former ambassador here who was Prime Minister Blair's foreign policy advisor, and it looked like Pakistan and India were going to war.

And I remember it well because my family was downstairs waiting for me to come to Christmas dinner. And we were on the phone just trying to figure out who might go into the subcontinent into South Asia to talk to them to keep them from coming to blows.

We had another near conflict in June of 2002. Relations have improved a lot. They've opened lines of communication in Kashmir, they've opened trade and bus traffic.

It's still dangerous. There's still a lot of clashes along the line of control which separates Pakistanis and India in the disputed region of Kashmir. But it is a lot better situation than it was in 2001 and 2002.

VAN SUSTEREN: Which is why I earlier said that it's so different when you're on the inside than when you're on the outside. The story about Christmas Eve. I don't recall that, but it's fascinating on the inside, isn't it?

RICE: Yes, it is fascinating on the inside.

VAN SUSTEREN: Are you going to miss it?

RICE: I think I have to be on the outside for a while.

I've been really lucky. I have had a chance to represent the United States of America. And I love this country. I think this country is the most extraordinary political entity ever in which human beings of all kinds of backgrounds and ethnic backgrounds and nationality have come together here where we're not united in any way by blood.

We're united by an ideal. That's pretty dramatic.

And I've had a chance to represent what the United States stands for, and we are admired for what we stand for.

They don't always like our policies, but people admire America. They admire our creativity, they admire innovation, they admire the fact that we get along all these very different kinds of people, when in so much of the world difference is a license to kill.

And it's just been a great joy to have a chance to represent this country.

(END VIDEOTAPE)

COLBY: And tonight there is more breaking news about North Korea. We are now learning that the U.S. does plan to remove North Korea from its terror black list on Saturday.

We'll be showing you much more of Greta's interview with Secretary Rice. That is coming up for you in the coming days.


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