This is a RUSH transcript from "The O'Reilly Factor," January 6, 2010. This copy may not be in its final form and may be updated.

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BILL O'REILLY, HOST: In the "Miller Time" segment tonight, the first Miller exposition of the year. So let's bring in the sage of Southern California's, who's riled up over the underwear bomber.

You know, I find myself now, this is how demented I am, looking forward to hearing what you're going to say about — you know, this story is old. It happened on Christmas day. But underwear bomber Miller style. Go.

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DENNIS MILLER, FOX NEWS CONTRIBUTOR: Well, first off, I haven't seen you since Christmas Day. So nice to see you again, Billy. Hope you had a happy holiday. I had a great Christmas. My wife — I'm a history buff like you. My wife got me a documentary about the Hindenburg called "The System Worked." So it was everything I wanted. You know, you were asking about Napolitano. How can she say that the system worked? And you said you hope to ask her some day. Bill, I can give you the answer. What happens if she's just not that smart? You see that cocksure thing. Imagine, uttering the words after a passenger had to tackle a guy who was trying to shoot a syringe of explosives into his underwear over the city of Detroit after flying from Amsterdam where he didn't even have to present a proof of his identification to get on.

Guess what? I just don't think that she's that smart. And I think you can take that up the ladder. President Barack Obama might be smart, but I'm not sure he's wise anymore, because there's some stupid stuff going on here, Billy.

O'REILLY: All right. Now, when you say this stupid stuff, you want to clarify that? What is offending you?

MILLER: Yes, sure.

O'REILLY: Go ahead.

MILLER: Marc Lamont Hill saying they want a kangaroo court right now. Listen, you know, he needs to be pancaked on something like that. We don't want a kangaroo court. We're just wondering, when a person who isn't a U.S. citizen tries to blow up American citizens over the city of Detroit, why within a day is he into our court system getting all the rights accorded us as U.S. citizens? Why is a military tribunal now thought to be a Canada radio court? And why is waterboarding the worst thing in the world.

Listen, I think we figured out a loophole here on a guy like this. Listen, we don't waterboard in this country. What we're going to do is act on your wishes. Tell us what we want or we're going to put these undies back on and blow them up. Nobody can quibble with that, can they?

O'REILLY: OK. So you're basically mirroring my talking points in the sense that President Obama's presented himself to you and to me and to the rest of the American people as a guy who is very, very concerned about the rights of the terrorists. I think that's absolutely true. And I think the president would say that flat out. He's concerned about their rights.

So now we have three attacks in the last six months. Three terror attacks. And Americans are starting to go, hmm, maybe we should not be so concerned about their rights and be more concerned about staying alive. I think that's the president's problem.

MILLER: You can't stop — you can't stop all these instances.

O'REILLY: No, you can't.

MILLER: What you have to do is put a look on your face up front, and Bush and Cheney did this, and this guy doesn't. He's a little soft on this. You have to put a look on your face that says, hey, don't screw with us. And they think they can screw with us now.

O'REILLY: Now, if you were Usama bin Laden, if Miller, if you were running al Qaeda, would you have sent...

MILLER: I'd be dead. I'd be dead.

O'REILLY: We'd get you. We'd get you. Because — but would you have sent a 23-year-old moron from Nigeria to blow up the airliner with the explosives in his shorts? Would you have gone that way? See, that tells me Al Qaeda has pretty much downgraded here. If you compare that to 9/11, it's a pretty — pretty far fall. And that's the only optimistic thing about this whole crazy incident.

MILLER: Well, that kid is a beautiful mark for them. A 23-year- old kid, child of the privileged, convinced that he's going to pay in perpetuity in eternity if he doesn't right his ship karmically on this planet. And there's only one way to do it, and that is to prove his worth, like taking out some of the Great Satan. That kid looks like a great mark to me. I mean...

O'REILLY: It's an amateurish deal. You know? It was like...

MILLER: Really?

O'REILLY: Yes. Explosives in your shorts?

MILLER: Billy, when you take a Nigerian kid and send him over to Amsterdam and get him on the plane that's going to the United States in the exact seat you want him, and the only thing that happens is you can't get the bomb off, imagine getting a bomb on the plane. If you're going to look at that and say it's "Ted Mack's Amateur Hour," I'm going to depart from you there. That is spooky close to pulling it off. Spooky close.

O'REILLY: OK. I just think that what — what has happened now is that they are incapable — they being Al Qaeda — of launching the big strike, and they have to do this kind of stuff. Like small ball stuff. Now, 300 people dead in the air if the thing went off. That's not small ball, and they also, as we said, accomplish chaotic all over the world in the airports.

Now, let's turn to the Gallup poll, the most admired women in the United States in 2009. Hillary Clinton, your pal, won. She won. She edged out Sarah Palin by 1 percentage point. What do you say?

MILLER: Well, two things, Hillary, as I've watched her over this year, I've dug what she's doing a lot more than I've dug a lot of the other people in that administration. Holder, the press, Biden. Yes, Hillary looks competent to me, quite frankly. And plus, I told you in the past, there's the residual warm feeling for her, because America realizes she's been cheated on more frequently than a blind woman playing scrabble with gypsies. But she doesn't look like the problem back there. She's in the public eye on a day-to-day basis. The fact that Palin is only a point behind tells you that all this crap, about trying Khalid Sheikh Mohammed for $200 or for $200 million in New York, for running this thing through on Christmas Eve, all these things are starting to catch up with this administration.

And you know something? It's an angle on, angle off billiard shot here, Billy. If they keep up this craziness where we're not privy to this health-care thing or they're going to take this guy and try him in our court, and you get one Islamic guy with a bug up his tukus on the panel and he's going to get him off. I'm telling you, this guy is — Sarah Palin could be the next president of the United States.

O'REILLY: You know, look, she's definitely a player. There's no doubt. I mean, and the people who demean her on the other side are actually helping her. Anybody who runs down Sarah Palin now is actually helping her.

MILLER: I think they're looking — I think America is looking for a John Doe in that office.

O'REILLY: I do want to go on record and say — I didn't get the gypsy line. But I'm going to rewind the tape and look at it and try to figure it out.

MILLER: Well, like Marc — Marc Lamont Hill said, check the tape. It is a beaut.

O'REILLY: All right. Dennis Miller, everybody.

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