This is a rush transcript of "Special Report With Bret Baier" from December 29, 2009. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The reviews I've ordered will surely tell us — that what already is apparent is that there was a mix of human and systemic failures that contributed to this potentially catastrophic breach of security.

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CHRIS WALLACE, GUEST HOST: Well, that was President Obama late this afternoon addressing the attempted Christmas day terror attack for the second time in as many days.

Let's bring in the panel: Fred Barnes of The Weekly Standard; A.B. Stoddard of The Hill and syndicated columnist Charles Krauthammer.

The president tried again today to get out ahead of the outrage over the lapses that led or contributed to this man getting on this plane and attempting to set off a bomb.

Charles, how did he do, the president do this time?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, this was an exercise in image repair. The president pretended that there was — the reason he came out a day after his first address was because there was new information, and he cited the fact that the Nigerian attacker's father had appeared at the embassy. Of course that was known already earlier in the weekend.

And secondly he said that whereas the information had left the U.S. embassy in Nigeria and arrived in Washington, it hadn't been properly shared, but everybody knew that as well.

WALLACE: So why did he come out?

KRAUTHAMMER: Because there's outrage here at the incompetence of this administration, the fact that his secretary of homeland security, who's clearly over her head, had gone out on Sunday and pretended the system had succeeded and then had to walk it back.

And then when the president came out himself after waiting three days, he appeared detached and cool and he spoke about this as a criminal act — speaking about a suspect, alleged attempt, about it as an isolated extremist. In fact, we already knew about the connection in Yemen.

This is an attempt by the administration, by the president himself, over and over again, to disconnect these kinds of attacks from the War on Terror, which of course he declared over at his inauguration and which, unfortunately, Al Qaeda has not.

And as a result of that, you know, people ought to ask him, do you still believe he is an isolated extremist? People ought to ask him — and today he repeated the word "extremist" over and over again. What kind of extremist is he? Is he a jihadist"

And lastly people ought to ask him, are you still intent on releasing the 80 Yemenis in Guantanamo? Lieberman said Iraq was the war of yesterday, Afghanistan the war of today, and Yemen the war of tomorrow. It will be a lot easier to handle these 80 Yemenis in Guantanamo than in the wilds of Yemen, which is where they're going to end up if released and plan more attacks on the United States.

WALLACE: I'm just getting a report, A.B., as we're talking, and, Doug, where does it come from? Who's reporting it? Fox can confirm that the CIA had apparently been tracking this fellow, Abdulmutallab, since August. And so it seems that the lapse, the failure to connect the dots, if you will, really is more egregious than we even knew about.

A.B. STODDARD, THE HILL: This is amazing. I agree with Charles that the president came out to try to get ahead of the outrage, because he acknowledged no outrage yesterday.

This is just a staggering story, the fact that this man — what we know, there will be a next time and we won't be lucky enough to have a warning from someone's father, and why this man was able to stay on this broad list and never make it to a selectee list where he would require more screening or a no-fly list, now to learn the CIA has been tracking him and that we don't — we still have him on a plane, possibly without passport but definitely one-way, no luggage, in cash, all the warning signals ignored, is just so incredible.

And the president has to acknowledge that everyone is asking these questions. Everybody knows this was a systemic failure.

WALLACE: Fred, it's interesting, this is not the first time that this president, this administration has had this problem of being slow off the mark to kind of understand where the public's mood was, I think particularly back to last June when there were an awful lot of people around the country and the world were outraged by the carnage in the streets after the Iranian election day after day after day before finally the president caught up with public opinion.

And he seems to have taken, what is it now, about four days, five days, to have caught up with public outrage about the lapses that led to this guy being on that plane.

FRED BARNES, EXECUTIVE EDITOR, THE WEEKLY STANDARD: He has been awfully slow, but I think there is something, and I think you were on to something Chris a minute or two ago when we heard that the CIA had been tracking this guy. Sure, the president wants to get out ahead of public opinion or at least on the right side, but he also wants to get out ahead of the facts.

When he used the word "catastrophic" — catastrophic is a pretty extreme words, that's a tough word. So you know there are more facts coming out. The first one is about the CIA having tracked this terrorist.

There are other things, too. It's been reported that the terrorist actually had met with — at least once and maybe more times — the same imam in Yemen who had been doing all the e-mails with Captain Hasan ...

WALLACE: Major Hasan.

BARNES: Didn't mean to demote him — Major Hasan of the Fort Hood massacre.

And now we hear another story going around that his father, the Nigerian banker, didn't just go to the U.S. embassy once. He went there three times.

And yet all these things happened and he still gets on the plane.

WALLACE: You know, Charles, you talked about Janet Napolitano, the secretary of Homeland Security, former governor of Arizona, and you said you think she is over her head.

This phrase that she used last week and in several appearances on Sunday shows where she said "the system worked" is now going to rival George W. Bush during Katrina saying "You're doing a heck of a job, Brownie." Now it is becoming part of the national conversation.

KRAUTHAMMER: It's unfortunate, but whatever happens in her career, this will be how we remember her: The person who said two days after an attack that almost killed 300 Americans that the system had worked.

She was a decent governor. She shouldn't be in this position. She has no experience and her reaction was entirely inappropriate.

But the president also, it's his reaction, the reason he showed up again today because yesterday he just looks cool and detached and unconcerned. He shows up without a tie and then he says in his statement, "We will not rest until we find those involved," and then he hops into a golf cart and continues his game.

You know, this is serious stuff. You have to demonstrate seriousness. And the fact that he continually avoids speaking of the nature of the enemy, which is jihadism, is a sign of him not willing to acknowledge what every American understands is reality.

WALLACE: All right, real quick.

BARNES: Let me say one other thing: You can't avoid the impression that rather being on offense in the fight against terrorism, they're on defense.

I agree with Senator Dianne Feinstein said the other day that, look, if you're going to err in the war on terrorism, err on the side of overreacting rather than under-reacting. The Bush administration's policy was to overreact. It seems like the Obama policy is to under-react.

WALLACE: And we should point out that Dianne Feinstein is the Democratic chairman of the Senate Intelligence Committee.

BARNES: Indeed.

WALLACE: All right, we have to step aside for a moment, but when we come back, Iran continues its crackdown on pro-democracy protestors. The panel weighs in on that, next.

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(BEGIN VIDEO CLIP)

MANOUCHEHR MOTTAKI, IRANIAN FOREIGN MINISTER (via translator): Cheap remarks by some foreign officials supporting Iran's opposition movement are typical of their disgraceful record and their contradictory and inconsistent interactions with Iran.

(END VIDEO CLIP)

WALLACE: That was Iran's foreign minister condemning comments from President Obama and other foreign leaders supporting anti-government protestors.

And we're back now with the panel. There were two big developments today. First of all, Iranian President Ahmadinejad dismissed the opposition rallies — the anti-government rallies in the streets — as foreign-backed, quote, "nauseating masquerades."

And an intelligence report out of Vienna says Iran is trying to smuggle 1,300 tons of uranium ore into the country because it's running out of the material to make enriched uranium.

Fred, what do you make about it?

BARNES: Things get worse and worse. It is time now for Obama to tell the Iranians, look, their time is up. He has been nice to them and he offered his open hand and so on and wanted to negotiate. They don't want to negotiate.

And their regime now in Iran is at the tipping point. It is going to go one way or another. This is not just about an election that is stolen. This is about the future of Iran.

They are desperate to get nuclear weapons for one thing, thinking that would strengthen the regime, among other things. And it's not surprising, because we've heard this from many autocratic protestors around the world earlier, they want to know where President Obama is. Obama, which side are you on?

And I don't know which side he's on. He is certainly not doing anything to help the protestors. They want him to be loudly on their side. I don't think they expect him to come and send troops or to do anything tangible, but they want him to speak out on their side.

You know, for the Iranians like Ahmadinejad to condemn people and say foreigners are involved and the foreign minister said he was going to slap the British and so on, the Iranians are involved interfering in countries all over the Middle East, either through proxies or on their own — in Iraq, Lebanon, Israel — in many, many countries are.

WALLACE: A.B., there are growing calls for this and growing talk about this, that there is a tipping point here as to whether or not this regime is going to fall or is it going to maintain itself.

First of all, I question, having been in Iran, whether, in fact, the regime is in as much jeopardy of falling — it's pretty entrenched there. But does the president have anything to lose were he to say at this point with the failure of the last year of diplomatic engagement to say the regime is illegitimate, I'm on the side of the protestors and the era of engagement is over?

STODDARD: I think when there were negotiations on the table pending talks about a real transfer of uranium, he was treating Ahmadinejad as a legitimate leader. Those days are over. His own self-imposed deadline has arrived. This trial period has ended.

President Obama does not have to admit defeat but he has to make very clear to the Iranians, the opposition movement, the regime and to us what the consequences are for Iran's failure to engage and he has to do it soon.

We're all waiting for this Thursday's deadline. Time is running out. With the developments about uranium from Kazakhstan with the development in the streets of Iran, he really has to tell us right now what Iran is going to face for flaunting this engagement policy. It failed.

WALLACE: Charles, I was watching you last night at home, and I think you use the phrase an "inflection point" in the history of Iran. Do you really think that? Clearly your heart goes out when you see these demonstrators in the street and you see the way they are put down. Do you really think that they pose an existential threat to the regime?

KRAUTHAMMER: They do. I'm with you in think that it is more likely that the regime will prevail, but I think it's not at all impossible that the regime will fall.

And it happens in a moment. It happens always unexpectedly when the troops out there in the streets refuse orders and don't shoot. And when that happens, the regime is dead.

And remember how entrenched we had assumed the shah was? And that happened to him. The troops in the streets wouldn't shoot ...

WALLACE: Or Marcos or a lot of people.

KRAUTHAMMER: Exactly.

And that's why it is a possible historical inflection and we ought to be pushing as hard as we can to increase the odds of it actually happening, and the way to do it — look, the administration has said we don't want to say anything inflammatory. Remember in June, Obama had defended himself in saying if we support the demonstrators, they will pin this all on us and associate the demonstrators with the West.

Well, of course, we were silent in June and the Iranian authorities implicated us in those uprisings as well. So it's going to happen anyway. In other words, why not actively support if we're going to be blamed one way or the other?

And it's not just rhetorical support. We ought to be working with the Muslim allies in bringing to the Islamic Conference and also in the United Nations.

WALLACE: I hate to cut you off, but I suspect we'll be talking about this more. That's it for the panel.

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