This is a rush transcript from "On the Record," December 23, 2009. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: There is breaking news tonight. Usama bin Laden's family has been found in Iran. Six of Usama bin Laden's children and one of his wives are reportedly in Iran. They have been there under house arrest since the 9/11 attacks.

For years no one has been sure where the family members were or even if they were alive. How big is this? Former U.S. ambassador to the United Nations John Bolton joins us live. Nice to see you ambassador. Are they prisoners or are they visitors, or what are they? and how important is this?

JOHN BOLTON, FORMER U.S. AMBASSADOR TO THE U.N.: It's a little bit of both. Obviously they left about the time just before the response by the United States and Afghanistan to the 9/11 attacks. Let's face it, it is better to be in Iran than living in the fine caves of Waziristan.

But there's also very little doubt this is a gilded cage, an enormous benefit of Iran to have Usama bin Laden's family under their control, because it is a way of pressuring him and the Al Qaeda movement, even though it is largely a Sunni group of extremists and the Iranians are Shia, having Usama's family there definitely gets attention.

There is also some question of whether the family members have been allowed in and out of Iran coordinating Al Qaeda activities. So from Iran's point of view it is a win-win situation, and very big news that it has finally been confirmed that that's where they are.

VAN SUSTEREN: I have a hard time believing he's warm and fuzzy about his family or that he would even care. A guy who could do what he did, why should he care if his family gets murdered, killed, or arrested? It's hard for me to understand he'd care.

BOLTON: I think it's as much of a case of some of his sons were very much involved in his terrorist activities. If Iran indeed has been facilitating their continued involvement in Al Qaeda's activities, that's significant.

It is also significant in the ongoing contest between Iran and Saudi Arabia. These after all are Arabs from Saudi Arabia, and this gives Iran bargaining chips vis-a-vis the Saudis.

VAN SUSTEREN: Why has it been such a secret? Even to his own family apparently.

BOLTON: It was rumored that the family left Afghanistan anticipating an American attack after 9/11. And it was rumored they had gone to Iran.

But consistently from that time, Iran has been emphatic in denying that they were there, that they knew where they were. So that to me is a piece of evidence that Iran has used this connection to influence Usama's activities and for their own purposes.

VAN SUSTEREN: Other big news in Iran of course are the protests that are going on in Iran and this may be another opportunity, or this may be an opportunity for us.

BOLTON: It's clear that the regime remains very unpopular. The demonstrations I think are growing across Iran. But the fact is, not during this administration and not under President Bush have we done enough really to give material assistance to the Iranian dissidents.

So I take a pretty pessimistic view, it's hard to see how the dissidents, unarmed as they are, can stand up to the Revolutionary Guard.

VAN SUSTEREN: In June when the election happened of Ahmadinejad it took many days before the president came out and said something, and I think he condemned the attack on the protestors, but there was criticism that he missed an opportunity to feed the protestors and say we're behind you.

Is that something -- is there something we could do now? I know you are pessimistic, but what would you recommend we do now? Are we back to another one of those points?

BOLTON: It's better late than never is the answer. I would start now overtly and covertly to give material assistance to the dissidents. You can make some progress.

I'm not one who criticizes the president for not being more vocal in his support for the opposition. The U.S. too many times over the years has encouraged people to rise up against dictatorships, Hungary against the Soviets in 1956, the Kurds and the Shia against Saddam Hussein after we expelled the Iraqis from Kuwait in 1991.

We encourage people to rise up. They get slaughtered and we don't do anything about it. I think we should support the dissidents with real material assistance, tangible kinds of things, not just rhetoric.

VAN SUSTEREN: Ahmadinejad and the Iranians are snubbing the world about the end of the year as a deadline to disband their nuclear weapons program. Now what?

BOLTON: No wonder that they are, because every time the president has set a deadline, the deadline has slipped. If I was Ahmadinejad, I wouldn't worry about another deadline.

I think our options are running down to very few. And I think the most likely outcome is that Iran gets nuclear weapons. I think it's a mistake to think that the president is going to get any economic sanctions from the U.N. Security Council or from even a combination of willing countries like the European Union and Japan.

The fact is Iran is too close to putting together a nuclear weapon for us to stop them at this point. I think only military intervention stands between Iran and nuclear weapons.

VAN SUSTEREN: And that changes everything?

BOLTON: I think that is a dramatic step and obviously a very unattractive option. But when you consider that the only alternative is Iran with nuclear weapons, that's even more unattractive.

VAN SUSTEREN: That's what I mean by unattractive, that if they get nuclear weapons to whole balance in the whole area changes.

BOLTON: Absolutely. This is what we mean by proliferation. It won't stop there. Saudi Arabia, Egypt, others will get it too.

VAN SUSTEREN: At that point, we can call it a day. It will be proliferation madness.

BOLTON: If you think the Middle East is unstable now, wait until half a dozen countries in that region have nuclear weapons.

VAN SUSTEREN: Ambassador, thank you, sir.

BOLTON: Thank you.

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