This is a rush transcript of "Special Report With Bret Baier" from December 28, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: This was a serious reminder of the dangers that we face and the nature of those who threaten our homeland. Had the suspect succeeded in bringing down that plane, it could have killed nearly 300 passengers and crew.

(END VIDEO CLIP)

ANGLE: There is President Obama with his first comments on the matter today.

Let's bring in our panel, Steve Hayes, senior writer for The Weekly Standard, A.B. Stoddard, associate editor of The Hill, and syndicated columnist Charles Krauthammer.

So the president comes out today, he says that, and he also says we're going to hold them accountable, them being whoever is responsible for this.

But the alleged terrorist is being handled as a criminal suspect rather than a captured terrorist. To what extent does that determine what we're able to learn from this, gentlemen, about what future attacks might be planned and how this one was actually planned itself?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: It means we will learn be absolutely nothing. The minute he gets a lawyer and his Miranda rights, it's over.

The question people have to ask themselves is this guy, who tries to blow up an American airplane, who is an Nigerian, who is not an American, is captured, does he have the right to remain silent or do we have the right to interrogate him in order to find out who sent him, who equipped him, who armed him, and who trained him?

It is a question of whether we're serious about this as a war or whether it's a mere, as Bush — as President Obama said, isolated extremist. He is not an isolated extremist. Obviously he is connected to Al Qaeda. Obviously he was in Yemen. Obviously there is information he has.

And the question is, are we going to treat him the way that we're treating Khalid Sheik Mohammed with a trial and in this case a right to tell us nothing, or what FDR did when the German saboteurs were captured in the United States and he ordered a secret military trial and they were executed. They had no rights.

I mean, this confusion which starts at the top with the Obama administration — remember, he declared at the beginning of his administration that there's no War on Terror. They won't use the term. Well, he may have called off the War on Terror, but Al Qaeda has not.

ANGLE: A.B., what do you think on this point?

STODDARD: Well, I was surprised today that the president made such measured remarks considering his administration had to walk back their comments about how the system had worked.

And that was — the coordinated message both from Robert Gibbs, White House spokesman, as well as Homeland Security Secretary Napolitano about how this is going to work. And of course she had to backtrack and say...

ANGLE: While we're talking about this, let's hear what she said. You are saying that she and Robert Gibbs, White House press secretary, had essentially the same message. We're going to hear what she said on Sunday and then what she said this morning. So let's listen, Homeland Security Secretary Janet Napolitano.

(BEGIN VIDEO CLIP)

NAPOLITANO: The system has worked really very, very smoothly over the course of the past several days.

No secretary of homeland security would sit here and say that a system worked prior to this incident that allowed this individual to get on this plane.

(END VIDEO CLIP)

ANGLE: So yesterday the system works fine, today the system did not work fine. That's what you're talking about?

STODDARD: I think the official initial response when we did not hear from President Obama, from his administration was laughable. It was a huge error. The fact that they made those statements and had to walk them back today was a huge mistake, and they knew that.

That's why I'm surprised that when President Obama did go to cameras, he wasn't more emphatic about this incident, and all he called for was a thorough investigation. He called it an isolated incident.

I think that he is — I think that he is taking a very measured -- it is classic Obama style. He is taking a measured response, that the American people think his response that this is the first time that Democrats have governed in the age of terrorism post-9/11, this is their test. And they will fail it if the public believes his response is inadequate or insufficient.

ANGLE: And there is one other — Steve, before I get to you, there is one other thing I want to listen to, something that President Obama said today that Charles alluded to. Let's just listen to one other comment he made today.

(BEGIN VIDEO CLIP)

OBAMA: This incident, like several that have preceded it, demonstrates that an alert and courageous citizenry are far more resilient than an isolated extremist.

(END VIDEO CLIP)

ANGLE: "An isolated extremist." Do we know that this was an isolated extremist?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: He is the president so I will be respectful and say that was stunningly foolish for him to say that.

There is ample evidence and growing evidence that this was anything but an isolated extremist, that alarm bells were going off all over the place, whether it was his father notifying the U.S. embassy in Lagos, whether it was the British authorities notifying that he was put on their watch list.

What I think this indicates is that the president wishes this were an isolated extremist. It's not an isolated extremist, and it looks increasingly as if he were part of the Al Qaeda and the Arabian Peninsula, which has as its leaders two former Guantanamo Bay prisoners that.

That is the reason the president is downplaying this. It complicates everything he wants to do with Guantanamo Bay, it complicates everything he wants to do on national security.

And the problem here is that this is the all ultimate law enforcement mentality. He wants to believe — he has sent a message to the bureaucracy that these folks, whether it is detainees or suspected terrorists, are innocent until proven guilty.

And it is precisely the opposite of the way President Bush handled these matters, where he assumed people are bad and did not give them to the benefit of the doubt. The president is doing this. He also said that this person allegedly tried to detonate a bomb. His entire announcement was based on the premise that that's in fact what this person did. He sounded like a defense lawyer.

ANGLE: The frame of mind seems to have started early on, Charles, when you had Janet Napolitano, who rather than use the word "terrorism" used the phrase "man-caused disasters."

And remember, her department issued a report early in the year in which she warned of the threat of the returning American soldiers who might not fit back in society and who might join right-wing extremists engaging terror or isolated lone wolf incidents against the United States. Is that the threat that America is facing?

And we get Obama today in which he says that this incident in Detroit was a serious reminder of the nature of those who threaten us. And yet he denies the nature of those who threaten us. He calls them violent extremists. A guy who shoots an abortion doctor is a violent extremist.

The nature of the threat that we are facing is jihadism, young Muslim males dedicated to a religious ideology and cult who go around the world blowing up trains and planes and killing innocents, that's the threat. It is a word he dare not use.

And unless he does admit that, you get the whole misdirection of the Department of Homeland Security and of all of our efforts. These people are illegal enemy combatants and have to be treated as such and not as a criminal who gets his Miranda rights.

ANGLE: Ok, that's all for this topic.

Anti-government protestors have escalated their demonstrations in Iran, and President Obama embraces what he called their "courage and conviction." The panel will discuss that after the break.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: For months the Iranian people have sought nothing more than to exercise their universal rights. Each time they have done so, they have been met with the iron fist of brutality, even on solemn occasions and holy days.

(END VIDEO CLIP)

ANGLE: And we're back with our panel, as you see what happened on the streets of Tehran, where you had protestors going out and taking a rather aggressive approach to the police, burning some of their vehicles and, in many cases, taking sticks and batons and so forth away from the police and going after them.

You can't quite see it here, but you do get a sense for how many people are out on the streets.

We're back with our panel. Obviously, this was a remarkable display in Tehran, Steve, where you had people out on the streets, yet again, trying to protest the government, but also trying to make a point with the government. It is remarkable that they continue to be so aggressive and in the face of such repression from the government.

HAYES: Well, they're watching their friends be slaughtered in the streets, be shot in the street, and they're continuing to march forward. It is really an extraordinary display of courage and, I would say, the aspirations of human freedom.

And it is one of the reasons that I think the president's statement fell so flat. He deserves credit I think for speaking out, finally, and much quicker than he did...

ANGLE: For including something in his public statement on Iran.

HAYES: He did. He condemned the violence and he said in effect we support those who are protesting.

But what was his action item here? He said we call on the Iranian regime to meet its international obligation. Are you serious? They are daily supporting terrorists. They are killing U.S. soldiers in Afghanistan and Iraq. They are enriching uranium, all in contravention of its international obligations.

Why does he think that because he they will suddenly turn and face the U.N. and start listening to U.N. directives? It was a silly statement and I think it demonstrates a lack of seriousness on the president's part.

ANGLE: A.B., international obligations has now been something that has been high on the list of priorities for the Iranian government.

STODDARD: It never was. When President Obama took office and decided to engage the Iranians and the regime he gave himself a self- imposed deadline for the end of this year for the Iranians to comply or be contained. That turned out, obviously, to be impossible.

And so now it's really a moment where President Obama has to pivot. Is he going to support the opposition movement there and attempt to help them undermine and potentially overthrow the regime?

What does he do about sanctions, sanctions that either help the opposition movement and undermine the government, or do you somehow end up with sanctions that just bolster the regime and help them continue to oppress their people?

And that's the critical moment here for President Obama. The time is running out. December 31st is Thursday, so we're watching to see what action, as Steve mentioned, he is actually going to take beyond his words.

ANGLE: There is one other comment from President Obama today on this. Let's listen to that.

(BEGIN VIDEO CLIP)

OBAMA: The decision of Iran's leaders to govern through fear and tyranny will not succeed in making those aspirations go away. As I said in Oslo, it's telling when governments fear the aspirations of their own people more than the power of any other nation.

(END VIDEO CLIP)

ANGLE: Now, strong words, Charles, but what is the administration doing and what can it do with a regime that is so obstreperous?

KRAUTHAMMER: Flaccid words, meaningless words. He talks about aspirations. He talks about rights. He talks about justice in the statement he made.

This isn't about justice. It isn't about a low minimum wage. This isn't about an absence of a public option in healthcare. This is about freedom. This is a revolution in the streets. Revolutions happen quickly.

There is a moment here in which if the thugs in the street who are shooting in the crowds stop shooting, it's over and the regime will fall. The courage of the demonstrators and their boldness isn't only a demonstration of courage, it is an indication of the shift in the balance of power. The regime is weakening.

This is a hinge of history. Everything in the regime will change if the regime is changed. Obama ought to be strong out there in saying it is an illegitimate government. We stand shoulder to shoulder with the people in the street.

He talks about diplomacy. He should be urging our western allies who have relations to cut them off, isolate the regime, to ostracize it. He ought to be going in the U.N. at every forum and denouncing it. This is a moment in history, and he's missing it.

ANGLE: Steve, you talked in the past about the one lever that we have with them, and that is refined gasoline.

HAYES: Right. I think, in a way, it's too late to really do anything. But if he pushed forward with sanctions on refined gasoline, one of the — I think, one of the likely results is the message it would send. It is really more the message it would send than the actual accomplishments of the sanctions.

He would be saying, people, we have given you time. You have passed your deadline. We are now serious about doing. But I agree with Charles, what he can do is more of this kind of exaltation to raising the international community against an illegitimate and corrupt and deadly regime.

KRAUTHAMMER: And use all of our radio in the region and in Europe to flood people Iran with real information.

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