This is a rush transcript from "On the Record," June 30, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: President Obama wants it to stop, calling for Israel to stop all settlement construction. He even demanded it in his speech in Cairo at the center of the Muslim world. Israeli President Netanyahu said no, but now the answer is "maybe." Where are we now on the settlement issue? Earlier we spoke with Israeli Defense Minister and former Prime Minister Ehud Barak.

(BEGIN VIDEOTAPE)

VAN SUSTEREN: Sir, it's nice to see you.

EHUD BARAK, ISRAELI DEFENSE MINISTER: Nice to see you.

VAN SUSTEREN: And welcome to the United States.

BARAK: Thank you.

VAN SUSTEREN: Sir, does Israel intend to freeze settlements? I know that this is a big issue on the table for you.

BARAK: It's a part of a much wider issue, whether together with the United States and our Palestinian and Arab neighbors, we can launch a original peace initiative to be led by the president of the United States.

Within this context, many issues had to be addressed. One of them is the settlement issues. And we already said, Prime Minister Netanyahu said in his speech, we are not going to launch new settlements, we are not going to launch new projects or suburbs in the existing settlements. We are not going to expropriate land except for immediate personal use.

And the only consideration is what to do with the buildings. There are hundreds of buildings which are now in the process of being built, and that's something that between individual cities and private contractors, we cannot practically stop.

And this means that we'll have to stop any new, major activities which are doing for some time. But I don't think there is a practical way to stop building houses which are already being built.

VAN SUSTEREN: All right. So see if I understand it, is that Israel's definition of freezing the settlements does not include buildings that are already in process being constructed.

And what about -- weren't 50 new homes recently approved this week to begin construction? Are those not in the freeze?

BARAK: No. It's not something that's been approved this week. It was approved long ago in order to remove an unclosed outpost. We want to dismantle them, but the human beings are not going to be arrested in prison. They're going to be sentenced somewhere. That's something that goes back about half a year.

But I don't want to, Greta, and the public to read me wrongly. Of course there will be a discussion about the contingency that if a major peace initiative is going to be launched, we will probably consider certain kind of an effective freeze on any new buildings for limited time period.

VAN SUSTEREN: Well, there's sort of a practical problem here in that the issue of freeze settlements or not freeze is quite a hang up. And then, of course, you have your practical problem in that you have some that are right now being constructed, that natural growth.

So there's a huge practical problem. But then, of course, you have President Obama saying that he wants them stopped in order for the United States to be able to push this peace process forward.

BARAK: I think, you know, we should be able to never lose sight of the real objective, which is to reach a peace agreement, to live in two states side by side. And we, of course, respect and listen very patiently to the American reservation.

But I think that basically if other issues from the envelope within which this whole process is launched, the kind of agreement that we are trying to reach, the kind of contiguity that is given to the Palestinians, the kinds of security answer given to Israeli consideration, what kind of original projects are going to be launched? How is the daily life of Palestinians?

If all those issues are treated properly, a way will be found, I believe, to agree about what it exactly means to freeze. We basically agree with the administration on this issue.

And probably there are some differences. I believe they could be ironed out if the whole thing gets into shape and starts to move forward.

VAN SUSTEREN: Today you met with envoy George Mitchell?

BARAK: I met with Senator Mitchell for some four hours.

VAN SUSTEREN: And did you -- as you walk away from that meeting, where do you agree and where do you disagree?

BARAK: I don't think that it serves the probability of having a successful disposition if I detail everything here on TV everything. But I can tell you that we looked into the whole picture from the strategic landscape into the need for original peace initiative, and into many other aspects of the Palestinian track as well as the other tracks.

VAN SUSTEREN: Another problem for Israel and a hugely significant one is Ahmadinejad, who has made statements that essentially he wants to destroy Israel. What are you going to do about Ahmadinejad and his nuclear program?

BARAK: I think that the real nature of this regime has been more apparent to the whole world when they questioned their own people. And I believe that many in the world now have second thoughts about what kind of partner what kind of a player this regime is.

I even noted that there is a real crack within the clergy themselves which gives certain hope that it won't take many before another round of major eruption of conflictions within them will build.

I think that there is a need for -- if the Americans want to have an engagement, even if they decide to do it, it should be short, accompanied by sanctions, with concrete preparation for much tougher sanctions together with the Russians and others.

And we keep telling the world, as we did before, we do not remove any option from the table. We recommend to others to do the same, and we mean what we say.

VAN SUSTEREN: When you talk about sanctions, though, and you talk about the United States or other countries, you know, geographically we're far away, and so we can afford to be on a different timetable.

You aren't. You're close, and you've had direct threats. So are you really -- I mean, can you be as patient as these other countries, or do you find a heightened necessity in light of the fact that you're geographically close, they're moving their programs, and they make very overt threats to your country?

BARAK: I think that Ahmadinejad and the Iranian and nuclear military plan is not a threat just for Israel. It's a major challenge to any conceivable world order.

Following what happened a few years ago in Pakistan and what probably awaits us there, following what happened recently in North Korea, to let Iran turn into nuclear would be the ends of any nonproliferation regime, and the start of the countdown toward nuclear devices in the hands of some terrorist groups.

So basically I think it's a threat for the whole world. It could be stopped short of physical action only by intimately coordinated sanctions that will be won by the Americans, Russians, Chinese, in the case of Iran, even India, and, of course, the Europeans.

And to the best of my kind of capacity to look around, I don't see this kind of intimate, well-concerted and coordinated and coherent sanctions effort. And that will lead us to a point where, I believe, anyone with common sense should be able to pass judgment on what should be done in order to avoid Iran turning into another Pakistan or North Korea.

VAN SUSTEREN: Are you satisfied, though, to wait to see what the world does? I mean, yes, it has enormous importance to all of us, all around the world, whether or not Iran is a nuclear power or not, enormously important.

But can you afford to be as patient, or is Israel willing to be patient and see how sanctions work and sort of talk about it a little more, or do you feel a heightened timetable?

BARAK: We probably feel the urgency the way you would probably feel it if the whole story would have happened in Cuba rather than in the Middle East.

But I think that everyone should understand and realize time is short. Our intelligence communities are basically telling us the same concrete message -- they are determined to defy and defeat the whole world and manipulate it in order to reach nuclear military capability.

That should be stopped. Engagement, if ever it will take off, should be, I believe, short, limited in time, not the kinds of safe haven for a certain delusion, but a concrete action to make sure that if further steps will be needed, it will be legitimized and justified by the publics of the free world.

VAN SUSTEREN: And as a defense minister, Israel's defense minister, how long do you think you can wait?

BARAK: We think that the engagement of a few months cannot make a major change. But it should be several months, not several years.

(END VIDEOTAPE)




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