This is a RUSH transcript from "The O'Reilly Factor," February 2, 2010. This copy may not be in its final form and may be updated.

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BILL O'REILLY, HOST: Now for the top story tonight: a tense exchange earlier today between Senator John McCain and Defense Secretary Robert Gates. The subject? How to handle captured foreign terrorists.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, R-ARIZ.: Secretary Gates, do you believe that the Christmas bomber should be tried in civilian court or by military commission?

ROBERT GATES, DEFENSE SECRETARY: Senator, I would defer to the attorney general on the proper jurisdiction for such people.

MCCAIN: When you filled out your form when we confirmed you for the United States Senate, you signed that you would give your honest and candid opinion in response to questions. Do you want to give me an opinion?

GATES: My honest opinion is that I think that the attorney general's in the best position to judge where these people get tried. After all, we have a…

MCCAIN: Thank you very much. And do you believe it was possible in 50 minutes to exhaust the possibilities for getting — and getting all of the information that was needed from the Christmas bomber?

GATES: I'm just not in a position to know the answer to that, Senator.

MCCAIN: Given your responsibilities to the men and women who are serving in the military in the defense of this nation, I hope you will come to a conclusion as to how enemy combatants should be treated, because I view that clearly in your area of responsibility, not the attorney general, who has obviously botched this one very, very badly.

(END VIDEO CLIP)

O'REILLY: Wow. And there's proof to back up McCain's statement on Holder.

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As we reported, civilian lawyers for Ahmed Ghailani, charged with bombing two American embassies in Africa, are trying to get charges thrown out, saying Ghailani was denied a speedy trial. He was held in Gitmo for more than three years.

The U.S. attorney in charge of the case, Preet Bharara, who works for Holder, says Ghailani had vital intelligence about Al Qaeda and was detained for that reason. Bharara opines that national security must override civilian justice, i.e. Miranda and a speedy trial.

Of course, that's correct, but Attorney General Holder is doing the exact opposite in some cases, causing people like me and John McCain to doubt Holder's competence.

Now most Americans agree with Senator McCain. Civilian trials for captured overseas terrorists aren't necessary and create more problems than they solve. And the lack of interrogation in the underwear bombing case is simply embarrassing.

To his credit, President Obama ordered the FBI to put together a terror interrogation squad last summer. Inexplicably, that has not yet been done. Another example of bureaucracy not looking out for us.

So there's no question the president is taking major heat on the terror front. Closing Guantanamo Bay, not working out. Civilian trial for Khalid Sheikh Muhammad, falling apart. Botching the interrogation of the underwear guy, unbelievably dumb. That's three strikes.

Now some of the president's supporters say the White House reversing itself on the Khalid Sheikh Muhammad trial shows the president listens to his critics. But my question is this: That scenario was deeply flawed from the jump, so why didn't a smart guy like Barack Obama know that? And why didn't the president's men and women clue him in?

That's what worries me, ladies and gentlemen. This is just common sense. When you have foreign killers stalking America, you don't treat them like embezzlers. You isolate the terrorists and extract as much information from the person as possible. You're not going to defeat terrorism with Miranda rights. Again, why does President Obama not know this?

In the end, the Obama administration will sink or swim on two things: the economy and terrorism. So far both are not going well. Or am I wrong?

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