This is a rush transcript from "Hannity & Colmes," October 31, 2008. This copy may not be in its final form and may be updated.

SEAN HANNITY, CO-HOST: And there is a new development tonight surrounding the Columbia University professor, Rashid Khalidi. Now, thanks to the Committee for Accuracy in Middle East Reporting in America, "Hannity & Colmes" has obtained a 1991 article that Khalidi wrote in the Middle East Report. It is an obituary of sorts for this man, named Abu Iyad, otherwise known as Salah Khalaf.

Now, Khalaf was a member of the PLO, but he's also been implicated as a member of Black September, the group that orchestrated the terrorist attack at the 1972 Munich Olympics which resulted in the murder of 11 Israeli athletes.

Black September has also been blamed for a 1973 attack in the Sudan that killed two U.S. embassy officials.

In the obituary, written by Khalidi, he makes no mention of Black September or any role that Khalaf in any sort that he's a terrorist and this was a terrorist attack, and instead praises him as, quote, "somebody who will be sorely missed by the Palestinian people to whom he has devoted his life."

Now as we showed you last night, our own Griff Jenkins tried to speak to Professor Khalidi, if you want to call him a professor, but he wouldn't talk to us.


GRIFF JENKINS, FOX NEWS CORRESPONDENT: Professor Khalidi? Hi, Griff Jenkins of FOX. Can I ask you a quick question?

What's your relationship with Senator Obama? Sir, can you clarify it, sir? I apologize for interrupting you, but you've become the centerpiece of the election. Will you at least call on the L.A. Times to release the video? Will you talk to us?


JENKINS: Were you the spokesperson for the PLO? Will you confirm that? You're at the center of the election, sir. Just some quick clarifications, then we'll leave. OK.


HANNITY: So Khalidi isn't talking, the L.A. Times will not release the video, showing Senator Obama at Khalidi's going away party. And real questions remain about just how close Obama is with this man, who seems to repeatedly praise terrorists.

Joining us now is former CIA director, venture partner with Vantage Point, and McCain advisor James Woolsey is with us.

I want to just lay more of a foundation here, because Khalidi also thought at the formation of Israel, he said that's a catastrophe. He was a PLO spokesman for Yasser Arafat at a time when they were viewed by our government as a terrorist organization. I mean, it doesn't get any more anti-Semitic than that, does it?

JAMES WOOLSEY, MCCAIN ADVISOR: Not really. This was late '70s, early '80s was, I think, when Mr. Khalidi was the director of WAFA in Beirut, which is the Palestinian press propaganda organization. He says he was not an employee, maybe there was some other arrangement, but from what everything appears, he was a director of that organization. And came back to the United States, I guess, in the early '80s.

Video: Watch Sean and Alan's interview with James Woolsey

HANNITY: I want to just remind everybody why this tape is so important, because on top of Reverend Wright, on top of Ayers and Bernadine Dohrn and Father Pfleger and all of this.

Last night on this program we also obtain a copy of this book, what you see right there. This is a book written by Bernadine Dohrn and by Bill Ayers who bombed the Pentagon and Capitol, New York City police headquarters. They're unrepentant. They brag about it. Ayers does when he stomps on the American flag, guilty as hell, free as a bird, what a great country.

But this book, sir, is — is dedicated. He was at this dinner with Khalidi. This book is dedicated, one of the dedications, to Sirhan Sirhan, the assassin of Robert Kennedy.

And in this book it also goes on to say, "Our final goal is the destruction of imperialism, and socialism is the opposite of capitalism imperialism."

Why do you think that more people aren't as concerned about this as I am?

WOOLSEY: Well, this is an odd set of relationships in kind of an odd neighborhood, maybe, in this particular part of Chicago. You have Mr. Ayers and Ms. Dohrn who, as you said, not only were terrorists, back in the '60s, but still say, at least Mr. Ayers does, that his great regret was that he didn't set off more bombs.

HANNITY: And he doesn't regret doing it even today, and Obama is still friends with him.


HANNITY: He pals around with him.

WOOLSEY: It's hard to tell exactly what their relationship was, but at least they served together on the Woods Foundation board. That's clearly known. And one of the grantees was Mr. Khalidi's American Arab Action Network, and the other was Reverend Wright.

HANNITY: I'm looking at — right there. There's — this guy started his — his political career in that terrorist's house. He started it in that man's house, a guy that stomps on the American flag, admits and brags about bombing the Capitol and the Pentagon. I just can't fathom.

WOOLSEY: This would be...

HANNITY: If you would have told me two years ago on paper that somebody could be elected and be friends with all these radicals — Sean Hannity, I think I studied politics — well, I wouldn't have believed it. But we're on the verge, potentially, of doing that?

WOOLSEY: This would be quite a neighborhood to go trick-or-treating, wouldn't it? I mean, if you go to Mr. Ayers' house, maybe something goes bomb, and you go by Reverend Wright's house and somebody shouts, "Goddamn America." I mean...

ALAN COLMES, CO-HOST: Forgive my — forgive my Halloween voice tonight.

WOOLSEY: Sure, Alan.

COLMES: If I could produce 500 people Barack Obama knows who eat apple pie, wave the flag, do the Pledge of Allegiance, and have, you know, typical, normal American lives, with white picket fences, could we then say he's linked to those people and we should celebrate those relationships?

You choose three or four people he knows, having nothing to do with what he would do as president. If I could choose a hundred more people for each of these people, who he also knows, would you accept that?

WOOLSEY: Sure, I think he gets to be involved with whoever he wants to be involved with. But this is really an odd thing with him and Bill Ayers on this board together and knowing one another to some extent, and the grantee being Mr. Khalidi for his Arab-American network organization.

COLMES: What about the grant that John McCain gave to Khalidi for half a million dollars? Is that acceptable? Is that OK?

WOOLSEY: Well, the Republican Institute, as I understand it, granted to an organization over in the West Bank that did polling.

COLMES: It was the organization led by Khalidi.

WOOLSEY: Mr. Khalidi was one of the directors of. There's nothing wrong with an organization being supported to do polling. I think the organization that Mr. Ayers and then Mr. Obama gave money to back in Chicago was considerably more radical.

COLMES: Well, the difference is that Ayers — Ayers did not control the money. Khalidi did control the money of that organization. And shouldn't John McCain have done more vetting before giving half a million dollars to a guy who you say has all these horrible qualities and is going to spend this money for who knows what? Doesn't that reflect badly on John McCain?

WOOLSEY: Alan, I think that's silly. I think the structure was that Mr. Khalidi was one of the directors of a polling organization, and it's fine to encourage polling in the West Bank.

COLMES: Khalidi was running the organization.

WOOLSEY: The only one that was doing that, the French and German foundations did the same thing for similar reasons.

COLMES: Mr. Woolsey, it sounds like a partisan argument, because it's not — the same standard is not applying. Khalidi was the founder of this organization. McCain did not vet him properly, gave him half a million dollars, and if he's — if he's this guilty and such a bad guy, McCain shouldn't have funded the guy, right?

WOOLSEY: Alan, that's just not right. The money was not given to Mr. Khalidi; it was given to a polling organization.

COLMES: Using your discussion (ph).

HANNITY: We've got to go, but Mr. Woolsey, there's one other point on this, too. And that there were 11 or 12 directors. This was not John McCain's decision, because I checked in with the campaign today, and they said it's absolutely, positively not true in terms of him being the person that made the decision. Nor was he — had any awareness about — about Mr. Khalidi.

But Barack Obama was at the Ayer — at this Khalidi dinner, praising Khalidi himself with Ayers, with Dohrn, and the other history of radicalism.

But Mr. Woolsey, good to see you. Thanks for being with us.

WOOLSEY: Good to see you, Sean.

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