The following is a partial transcript of the Dec. 23, 2007, edition of "FOX News Sunday With Chris Wallace":

"FOX NEWS SUNDAY" HOST CHRIS WALLACE: We begin today with the war in Iraq, the progress by U.S. forces this year and what will happen in 2008.

Joining us from Baghdad, the architect of the troop surge, commanding General David Petraeus.

General, the Pentagon issued a quarterly report on Iraq this week with all sorts of numbers, but the bottom line was that violence there is down roughly 60 percent since the troop surge took full effect in June.

As we head into 2008, where do you see the war, sir?

GEN. DAVID PETRAEUS, COMMANDER OF MULTINATIONAL FORCES IN IRAQ: Well, as you noted, indeed, just about every category, every trend that we watch, is down, roughly about 60 percent — civilian deaths, numbers of attacks — thankfully, and touch wood, our casualties down substantially as well.

And as we go into the new year, we clearly want to build on the momentum that has been achieved by our forces working closely together with Iraqi forces.

And they have had a surge going on this year as well, by the way. They've added well over 110,000 new Iraqi soldiers and police, and that has been very, very important in enabling much of the progress that has been received.

WALLACE: But, General, that success is leading to new demands that you pull U.S. troops out faster. Take a look at this report this week in the Washington Post. "With violence on the decline in Iraq but on the upswing in Afghanistan, President Bush is facing new pressure from the U.S. military to accelerate a troop drawdown in Iraq and bulk up force levels in Afghanistan, according to senior U.S. officials.

General, are you getting nudges to draw down faster? And are you going to resist that?

PETRAEUS: We're not getting nudges. We are certainly aware of the strategic context in which we are operating. And obviously, we want to reduce the strain on our ground forces as much as we can, while recognizing that what has been achieved here remains tenuous and is still fragile in a number of areas.

We've been asked to look to the future. As you know, we have laid out the plan that will take us through the end of July and will result in the reduction without replacement of about one-quarter of our combat forces.

We're now looking beyond that. We're just starting the analysis, and we're looking at a scenario in which trends continue in a positive manner, in which there are some setbacks, and then something in between.

And that's what we'll focus on over the course of the next several months as we lead up to presentations to the Central Command, the Joint Chiefs, secretary of defense and the president, and then as I make a recommendation to them.

WALLACE: Well, let me ask you about that, because you are due to come back to Washington and report again in March.

Defense Secretary Gates said this week that if the conditions continue to improve that you could end up with only 10 brigades — that would be about 100,000 troops — in Baghdad — in Iraq, rather, by the end of next year. How likely is that, sir?

PETRAEUS: Well, that's what we're looking at right now, Chris. As I mentioned, we've literally just finished the process of getting all the back briefs from the commanders after we revised the joint campaign plan in response to the recommendations that were made back in September.

We're now carrying out that plan. And we are now just beginning the analysis that can help us determine the rate and the pace of possible reductions post-July.

WALLACE: And again, Secretary Gates made this very conditional. He said if security keeps improving. Is that kind of number, 100,000 by the end of 2008 — if security keeps improving, is that possible?

PETRAEUS: Well, I'd rather not get linked to such a number. In fact, I think he said in his press conference the other day that he did not want to mention numbers. I think it was sometime back, actually, that he did that.

But he was just out here. We had a very good one-on-one conversation. And he is very clear that this is conditions-based.

And so what we're doing now is examining the possibility of various conditions and what might be possible in terms of further withdrawals based on the various conditions that obtain.

WALLACE: General, while there has been substantial military progress, that quarterly Pentagon report also said that there's been very little movement toward national reconciliation by the central government in Baghdad.

When you testified before Congress in September, you said that it would be hard to stay in Iraq if there were not substantial progress by the Iraqi politicians within a year. Let's watch, sir.


PETRAEUS: We have very real national interests that extend beyond Iraq. They are true American national interests.

On the other hand, there clearly are limits to the blood and treasure we can expend in an effort.


WALLACE: General, three months later, do you stand by that statement? And can you understand why people are losing patience with the Iraqi government?

PETRAEUS: I certainly do stand by it, and I can understand the impatience. In fact, it is shared by Iraqi leaders.

I don't think you could ask any Iraqi leader about this and find one who would say that he or she is satisfied with the pace of their progress.

Having said that, were Ambassador Crocker here right now, I think that he would point out that there has been some progress in recent weeks — in particular, recent month or so, the passage of a pension law that was little noted but is quite significant in terms of national reconciliation, because it extends pension rights to tens of thousands of Iraqis who are denied those rights because of various policies implemented after liberation.

There's also the 2008 budget which distributes revenue very, very equitably and very much in line with the draft oil revenue distribution law.

We believe that there will be voting on that budget and, even more significantly, on a bill called accountability and justice, which is the de-Baathification reform law, within a couple of weeks of the council of representatives, the Iraqi parliament, returning from the recess for the Hajj and the Eid.

And there is also a discussion ongoing on some of the other legislation that had been focused on, rightly so, in the past.

As well, the U.N. Security Council resolution was approved by the U.N. after a request by Iraq, by the submission of a letter by the Iraqi government.

And as you know, there's also been agreement between the government of Iraq and the government of the United States on an enduring security relationship that will be determined over the course of this year.

So there has been some. It's been halting progress, but there has been some. And there is — I think that, again, Ambassador Crocker would counsel that we should wait and see what does materialize in the course of the next few weeks literally when the council of representatives returns and embarks on the new year.

WALLACE: But, General, let me ask you about an area of continued stalemate. One of the keys to the decrease in violence in recent months are these so-called awakening councils, about 70,000 cities, many of them former insurgents who have come in from the cold and joined what are, in effect, neighborhood patrols.

But just yesterday, the defense minister, Obaidi, said, "We categorically reject them," the neighborhood patrols, "turning into a third military organization." He meant alongside the army and the police.

General, the government wants these patrols disbanded over time. Isn't that going to hurt your efforts to bring in the Sunnis?

PETRAEUS: Well, we absolutely agree with Minister of Defense Abdul-Qadir. He's a Sunni Arab, by the way, and he is stating government policy.

And it's important to understand that all of us, Iraqi and coalition alike, want to see these neighborhood watch organizations, so-called concerned local citizens, either incorporated into the legitimate Iraqi security forces — as is already the case in Anbar province, where well over 20,000 of them are serving in the police and the army alone.

As you get closer to Baghdad, it does, indeed, become much more challenging and problematic because of issues between Sunni and Shia.

These groups really started out being Sunni because, of course, that's where Al Qaida was, and that's where the associated insurgent groups were that needed neighborhood watches to help keep these areas clear after the sanctuaries were clear, because there were no Iraqi security forces in these areas.

So everyone wants to see them, and we expect — the projection is that some 20 percent to 30 percent of those serving in the concerned local citizen groups will eventually be incorporated in the Iraqi police or the army.

And even with respect to Baghdad, I believe we're up to about 6,000 names now that have made their way through a fairly bureaucratic process, a series of checks by intelligence agencies and so forth, and have been signed up by the minister of interior alone.

And they'll be in a probationary period and eventually be able to go to the police academy and become full-fledged members of the police. Others will go into various job training programs.

I just got a briefing today, in fact, on a variety of different initiatives that are being undertaken by the coalition with the full support of the government of Iraq and others being carried out by the government of Iraq.

So this has been a very difficult issue because, again, it involved largely Sunni Arabs, although I now point out that about 20 percent of those in the concerned local citizen groups are Shia, some in mixed elements, some in Shia-only elements.

Because you see signs of the Shia population also wanting to reject extremism — in this case, militia extremists who were seen as useful, I guess, back when Al Qaeda was a very, very lethal threat, but who are much less appreciated as the threat of Al Qaeda violence has receded, particularly in the Baghdad area.

Although I want to caution that Al Qaeda remains a very dangerous and very lethal organization, and it is one that will continually try to reconstitute and one we must pursue tenaciously and relentlessly.

And that is what we and our Iraqi partners are doing.

WALLACE: General, it seemed to us that you haven't been in the news much recently, which probably is a good thing from your point of view, since you came back from Washington in September.

But we decided to check it out, and the Media Research Center says that the three evening network evening newscasts did 178 stories on Iraq in September when you were here. But in October, as the surge took hold, there were 108 stories. And in November, that dropped to just 68.

General, any thoughts about why success in Iraq isn't news here at home?

PETRAEUS: Well, clearly, there are other more newsworthy items — the political campaign issues in the states, understandably; challenges in Pakistan and other places.

And so as you note, probably this is a sign of progress, that, in a sense, no news is good news. In fact, actually, there was one nightly news show a week or so ago that said the news from Iraq is that there is no news, that there were no attacks in a certain area or something like this.

So again, we're not reluctant to see that. The only reluctance would be that America continue to remember its soldiers, sailors, airmen, Marines and civilians who are serving out here in this very important endeavor.

WALLACE: Finally, and you just mentioned it, General, the presidential primaries are about to begin.

Some pundits have suggested that perhaps just like General Dwight Eisenhower in the early '50s, that you might at some point take off your uniform and run for president. Any interest in that, sir?

PETRAEUS: None, Chris, at all. Thank you. I have great respect for those who do choose to serve our country that way. I've chosen to serve our country in uniform.

And I think that General Sherman had it right when he gave what is now commonly referred to as a Shermanesque response when asked a similar question.

WALLACE: So are you giving a Shermanesque response — if elected, you will not serve?

PETRAEUS: I am, Chris. And I don't think it would ever get to that point anyway.

WALLACE: General, we want to thank you so much for taking this time to talk with us.

And to the men and women under your command, we wish all of you a safe and merry Christmas. And you can rest assured Americans have not forgotten about any of you, sir.

PETRAEUS: Well, thanks very much, Chris, especially at this season. I think we all should be grateful for what those great young men and women are doing and for the sacrifice of their families who are enduring separation back home.

It is a privilege to serve with America's new greatest generation here in Iraq.

WALLACE: Thank you, sir.