This is a rush transcript of "Special Report With Bret Baier" from May 25, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: North Korea's nuclear and ballistic missile programs pose a grave threat to the peace and security of the world, and I strongly condemn their reckless action.

Now, the United States and the international community must take action in response.

(END VIDEO CLIP)

BRET BAIER, HOST: The president talking about the North Korea action of detonating a nuclear bomb underground. This is the second time they have done this. They also launched three short-range missiles the same day.

Just heard from the U.N. ambassador — the U.S. ambassador to the U.N., I should say — Susan Rice. She said that the U.N. Security Council wants swift, clear, unequivocal condemnation. And a resolution they're working on, but as far as what will be in that resolution, it's going to be strong, she said, but we don't know the contents.

Let's bring in our panel: Steve Hayes, senior writer for The Weekly Standard, Mort Kondracke, executive editor of Roll Call, and Jeff Birnbaum, managing editor digital of The Washington Times.

First let's talk about this action, Jeff, overall, what we're seeing from the North Koreans and how provocative this really was.

JEFF BIRNBAUM, MANAGING EDITOR DIGITAL, THE WASHINGTON TIMES: Well, this was a great step that they took. This was a much more successful test than the last time they tried it back in 2006. It was a much larger bomb, the size we're guessing of Hiroshima or Nagasaki, and followed on with a more successful missile launch.

I think this is a much more dangerous North Korea that we are now facing.

It is also a North Korea that has its military consolidating power. It is not just Kim Jong Il in charge, but the military is having a lot to say.

And this is telling us something, I think, about succession after Kim Jong Il. His youngest son is very likely to take power and perhaps his brother-in-law taking over in the meantime. And both of these people are believed to be closer to the military.

And therefore, North Korea, I think, is presenting a more potentially dangerous situation for us and the rest of our allies.

BAIER: Mort, we have heard this "strong resolution to follow" numerous times.

MORT KONDRACKE, EXECUTIVE EDITOR, ROLL CALL: Yes, over and over and over again.

You know, the only thing that is going to stop the North Koreans from doing anything is for the Chinese to cut off their oil and cut off their food. That is the stranglehold that — the only stranglehold that anybody had.

And the Chinese don't want to do it because they're afraid — they have done it, incidentally, in the past for a few or a few weeks. But they've never on a consistent basis.

And if President Obama has any hope of getting anything really done with North Korea, that's the channel that has to be followed. And I don't know whether it's going to work.

I mean, the North Koreans, again and again, have played the United States and the world like a fiddle. And my guess is that they're ramping up that effort with Obama now.

He has been paying attention to Iran and Pakistan and Afghanistan. And he is brand new, so they want to get his attention.

BAIER: Steve?

STEVE HAYES, EDITOR, THE WEEKLY STANDARD: Well, I think what Mort said at the end is the most important aspect of this thing, and it's why President Obama has to take decisive action, and take it soon, I think: Iran.

We know that as much as North Korea has been a problem now for going on two decades, a serious problem, a first order threat, the world is watching, but most importantly, Iran is watching at this point.

We have seen again and again — including the second term of the Bush administration — North Korean provocations followed by U.S. either passivity, or, in many cases, flat out concessions. I think we can conclude fairly at this point that the Bush administration North Korean policy was an utter failure, a disaster.

What he needs to, I think, look to prevent at this point is doing something that seems passive, because — not only because of the implications it would have for North Korea, which are obvious and significant — but for the implications with Iran, which is, as we know, going full throttle on their own nuclear program.

BAIER: You boss, Bill Kristol at The Weekly Standard, points back to then-Senator Joe Biden on the campaign trail saying it won't be six months before President Obama is tested.

Here we are with Iran, with North Korea, with Russia. This is a scary scenario. Jeff, when it comes to North Korea, what else can be done? The Pentagon is not talking about any kind of military action. They all have plans, but they're not talking about it.

KONDRACKE: One thing he could do is reverse himself on missile defense and start saying, OK, we are now going to have a robust — we are going full throttle on a successful missile defense program to protect our allies and ourselves.

BAIER: Mort, what is the likelihood that that will happen on Capitol Hill?

KONDRACKE: Look, a lot of it worked with Reagan against the Soviets.

I mean, what you do here is you have aggressive diplomacy. You start to threaten some asset of theirs. You either do it by cutting their water off through China or you do it with a defensive program that could neutralize their military advantage.

You know, I don't see any other way. Talking is not going to work.

BIRNBAUM: Well, I think what's going to happen here is it's just not the United States that is upset by this provocation, but also the other parties to the six-party talks.

In particular, I think Japan and China have to be worried about the additional capability that the North Koreans demonstrated here. We will have to work with them to apply pressure where it really matters, to the countries that are closer to North Korea.

If they do actually begin to impose stricter sanctions than are already, that, I think will begin to close the noose around North Korea and make a difference. But it has to be done with the kind of cooperation that Obama had promised.

BAIER: Last word — Steve?

HAYES: I think that policy has failed. We tried to do that during the second term of the Bush administration. Condoleezza Rice, for all intents and purposes, outsourced our North Korea policy to China. It did not work.

China and the United States don't share a strategic objective right now in North Korea. But that's the problem with outsourcing it to China.

I think Mort is right about missile defense. He has got to at least signal that he is revisiting the issue, if not do an outright reversal.

BAIER: Coming up, we'll find out who the panelists think the president will pick for the Supreme Court. That's next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: I said earlier that I thought empathy was an important quality. And I continue to believe that.

You have to have not only the intellect to be able to effectively apply the law to cases before you, but you have to be able to stand in somebody else's shoes and see through their eyes, and get a sense of how the law might work or not work in practical day-to-day living.

(END VIDEO CLIP)

BAIER: President Obama on his upcoming choice for the Supreme Court to fill the open seat of retiring Justice David Souter, and it could come as soon as tomorrow, we believe.

We're back with the panel. Let's talk about some possible names. Mort, start with you.

KONDRACKE: Well, I think that what he is looking for is high intellect, capable — somebody with the intellectual firepower to be able to take on Alito and Roberts and Scalia on the court, and build consensus around liberal positions.

BAIER: But he keeps on going with the common touch —

KONDRACKE: Well, yes, the common touch.

Look, I think that anybody who makes the cut will probably have some argument in favor of something else going besides just high I.Q.

I think that Elena Kagan — the current solicitor general — who has already been vetted by the White House, has already been appointed by Obama, has already approved by the Senate, has some significant conservative backing — Ken Starr and Ted Olson wrote letters of support for her. She is said to be a good consensus builder, was dean of the Harvard Law School, and so on. She is my current frontrunner.

BAIER: OK — Steve?

HAYES: I would actually sort of go with an out of the box pick.

Well, let me hedge a little bit. My out of the box pick —

BAIER: Starting with the hedge.

HAYES: Starting with the hedge. That's what I do.

Out of the box pick would be Jennifer Granholm, who is governor of Michigan. She has, I think, a lot of the qualities that Obama has said that he wants, certainly the common touch quality.

He said just in the C-Span interview, in another portion of that interview, he said he didn't want somebody with just ivory tower learning, which so I think would cut against somebody like an Elena Kagan or a Diane Wood.

So I think she is somebody who would bring some intellect and bring some real world responsibility. She was a county council in Michigan. But also, would be able to come to the nomination process without a ton of legal writings or decisions that she has made, which is something that he is said to favor as well.

My second — my hedge is the field, somebody that nobody is talking about, somebody that we're not all paying attention to.

BIRNBAUM: Let me continue with that. None of us know who he's going to pick.

BAIER: Yes, sure.

BIRNBAUM: Let's just say that.

But I actually like Diane Wood, the 7th Circuit Appeals Court judge, who has been fighting the intellectual battles every day with two of the most intellectually powerful conservatives on the appeals court, Richard Posner and Judge Easterbrook out there in Chicago.

She and President Obama probably crossed paths many times, because they both taught at the University of Chicago. She also has had other jobs in government. So she hasn't just been for 14 years an appellate court judge.

And I remember, during the Clinton years, she was also on a list to — so she may not automatically come to mind when it comes to empathy. But the people who know her say she is really an extraordinary person.

So she is my choice, such as it is.

BAIER: Let me bring up Christine Aguaro. She is a federal district judge in Colorado. And according to Shannon Bream's reporting, she at one point — her family lived in a boxcar when she was growing up. She was the first Hispanic female from Colorado admitted to Harvard Law.

She has publicly admitted, this is the key point, she has publicly admitted that she is being vetted.

Notice that we're all mentioning women. Everyone is pretty certain that it's going to be a woman?

BIRNBAUM: Yes, I think so.

KONDRACKE: There is only one woman on the court right now and there is a tradition of two. I can't imagine that he is not going to want a woman.

BAIER: And Hispanic, is that —

HAYES: Well, he's getting pressure from Hispanic groups. And I think it would be something that he would look forward to politically in the 2012 and reelection, consolidating that.

BIRNBAUM: Just what we should mention — Judge Sotomayor, who is also Hispanic and also on the short list. Just in case we're all —

BAIER: So we'll just throw them all in there.

(LAUGHTER)

BAIER: There you go. There it is. We will see. It could be as early as tomorrow.

Panel, thank you.

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