The following is a rush transcript of the June 21, 2009, edition of "FOX News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, HOST: Hello again and happy Father's Day from FOX News in Washington.

Here is the latest from Iran. According to state-run media, at least 10 people were killed and more than 100 injured Saturday when thousands of protesters supporting presidential candidate Mir Hossein Mousavi defied the country's top leader and demonstrated against last week's disputed election.

The government made good on its vow to crack down and it called the protesters who were killed terrorists.

Joining us to discuss the fast-moving developments are three experts on Iran, Democratic Senator Evan Bayh, a member of the Senate Intelligence Committee; Congressman Pete Hoekstra, the top Republican on House Intelligence; and Karim Sadjadpour, with the Carnegie Endowment for International Peace.

Let's begin with those pictures from the streets of Iran.

Congressman Hoekstra, what are we seeing in those pictures of the rioting, according to your intelligence sources? Is this a general uprising against the government or isolated protests? Are we witnessing the start of a revolution or another Tiananmen Square crackdown?

REP. PETE HOEKSTRA, R-MICH.: Well, I think that you're seeing perhaps both of those, Chris. You are beginning to see this protesting to begin spreading and spreading across Iran and growing in Tehran.

At the same time, the real question here is what is going to be the response of the regime. It appears that since the Friday sermons, the intent of the regime is to be more violent and more repressive in cracking down these protests and stopping them.

We'll now have to see which side is going to be more successful and how they'll respond to each other.

WALLACE: And, Senator Bayh, according to your intelligence, what is it that the protesters want? Is this still about getting Mousavi president or new election, or is it about a more general broader challenge to the ruling regime?

SEN. EVAN BAYH, D-IND.: Well, they'd certainly like a fair and open election, Chris, and there are clear indications that that did not happen.

But what they really want is a better life. Unemployment is very high. I think it's about 30 percent inside Iran. Inflation is running in double digits.

If you're a young Iranian — and they have a very young population — and you look to the future, there's just not much hope for you, and particularly for women in that society who have been denied opportunity for a long time. If you're an educated woman, there's just not a very bright future.

So Mousavi is a — is a way to achieve a better life for them. So a fair election, yes, but what they really want is more opportunity within a very repressive autocratic society.

WALLACE: Let's pursue this, Mr. Sadjadpour, about what's at stake here. Depending on which side wins — Ahmadinejad and the supreme leader Khamenei and the Revolutionary Guard on the one side, or Mousavi and the protesters on the other — what's at stake here in terms of the future of Iran and also in terms of relations with the U.S. and even Israel?

KARIM SADJADPOUR, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE: Well, first, I would say, Chris, that the harrowing images of the last several days really underscore for you the brutality of the regime and the bravery of the Iranian people. And in a way, the regime could lose by winning.

What I mean by that is if they continue to clamp down with overwhelming force, they're losing legitimacy by the day. And what we may start to see is what we saw in the late 1970s with the shah. And that is that the main arteries of this regime are going to collapse.

We might start to see strikes from the merchant classes, the bazaar, strikes from the oil ministry, which could really cripple this economy.

WALLACE: And what does it mean if Mousavi were to win? Because he is a product of the — he was the original prime minister with the ayatollah Khamenei. He is a product of this regime. So would he really represent a dramatic change?

SADJADPOUR: Well, what I would say, Chris, is that the Mir Hossein Mousavi of pre-June 12th is different than the Mir Hossein Mousavi of post-June 12th. I think before the elections, he took a fairly tempered, moderate approach.

But now red lines have been crossed, and he's challenging the authority of the supreme leader, Ayatollah Khamenei. So I think that Mousavi and his supporters want a fundamentally different Iran than they did — than they were asking for pre-June 12th.

WALLACE: Let me ask you about a different aspect of that. And is this the people versus the government? Because in fact, there are some very powerful people in the ruling regime, like Rafsanjani, the former president, who is backing Mousavi. A couple of ayatollahs have issued fatahs against cracking down on the protesters.

So is this the people versus the ruling clerical regime, or are there, in fact, splits within the clerics?

SADJADPOUR: Well, what's unprecedented about this moment, Chris, is that historically we have seen the people versus the regime. Now we have unprecedented fissures amongst revolutionary elites themselves.

And I think the vast majority of not only the Iranian people but also Iranian officials behind closed doors recognize that this "death to America" culture of 1979 is bankrupt in 2009.

WALLACE: Congressman Hoekstra, now that this has, as you say, become a full-scale crackdown on all the protesters, with a number of the leaders of the protests being arrested during the week and, we gather, overnight, what's should the U.S. do?

What should President Obama say and what should this country's policy be towards Iran?

HOEKSTRA: Well, Chris, if we look back to the campaign last fall, you know, the — there were those that said our president was going to be challenged in the first six months of his presidency. I think that's exactly what you're seeing.

The president is being challenged in a very different way than what many of us expected that he would be. And I think that the president has also prepared himself for this opportunity. He's gone to Europe. He's gone to the Middle East. He's made the speech at Cairo.

And you know, what he did is he polished America's image. Now what he has to use is he has to use that new credibility and to speak out on behalf of the Iranian people.

This is now about America. It is about President Obama. And it is about leadership. This is a real opportunity. This is potentially a game changer in Iran. It is an opportunity that the president and America have to leverage off of.

WALLACE: So be a little bit more specific, Congressman Hoekstra. What would you like to see the president do, particularly when the fate of Iran and the situation there, which side is going to end up winning, hangs in the balance?

HOEKSTRA: Well, I think, you know, yesterday the president came out with a written statement. But this president is a great orator. This president needs to come out.

He needs to speak to the American people but, more importantly, he needs to speak to the people of Iran, the people of the Middle East, and he has to make a forceful statement on behalf of the people on the streets for freedom and democracy.

You know, this is a country that very soon is going to have nuclear weapons. This is a repressive regime. This is an opportunity to get some new leadership in here, because the question with Iran going into the future is not about whether they will have a nuclear weapon or not.

It is about what — what regime will have control of those weapons and whether they will be integrated into the international community or whether they will be a pariah in the international community. This is the opportunity for the president to help shape this debate and get new leadership into Iran.

WALLACE: Senator Bayh, you have been a longtime expert on Iran and actually a proponent for a long period of time on tougher sanctions.

You've, in fact, even introduced resolutions that would call for sanctions against any companies that send gasoline back to Iran. You really want to tighten the economic screws. Is this the time to do that?

BAYH: Chris, it's been the time to do that for quite some time, to try and restrain their nuclear program, so I was for that long time before this election.

But let me say I think the president is handling a rapidly evolving, very complex situation about as well as you could expect. He has put us clearly on the side of the reformers, clearly on the side of fair and free elections, clearly condemned the violence.

But he's done it in a smart way, because as Karim was pointing out, this regime is rapidly losing legitimacy with its own people. There's some polling data from other countries in the Islamic world suggesting they're losing legitimacy in the rest of the Islamic world.

We should not let them change the narrative to one of being, you know, meddling Americans, American western imperialism, that sort of thing, because historically that sort of narrative has resonated that would — might allow them to change the subject within Iran and in the rest of the Islamic world. Let's not let them do that.

So we've got to be smart about this. And I think the president is being smart. So I'm in favor of tough action. But if you just go out and say, "Look, we're for regime change," and you know, a lot of tough rhetoric, but you're not prepared to do anything, then we look impotent, and that's not a place for a great power to be.

WALLACE: Congressman Hoekstra, you know, one of the problems here is the fact that the president came into office with a diplomatic strategy — what some people called the grand bargain — the idea that he would take regime change off the table in the hopes that Iran would then agree to change its behavior on terrorism, on nuclear weapons.

How much is that diplomatic strategy dead because of the events that we've seen over the course of the last week? If the Ayatollah Khamenei and President Ahmadinejad prevail, should the U.S. continue — can the U.S. continue — to try to engage them diplomacy?

HOEKSTRA: Well, what the president is doing — I think he's stubbornly holding onto this belief that negotiations with the current regime is the best way forward.

I really think — and I do agree with Senator Bayh here — that a combination of speaking out forcefully and at the same time maybe moving forward with sanctions will bring about the kind of change and will — to let us take advantage or will let the Iranian people — this is about the Iranian people — let the Iranian people take advantage of this opportunity that is in front of them.

As to whether speaking out forcefully undercuts the voices of freedom and the voices of protest pretests in Iran, you know, I don't buy that for a minute. Us speaking out forcefully on their behalf — you know, the regime is going to accuse us of meddling whether we do or whether we do not say anything.

But if we're going to do something, we should speak out.

WALLACE: Now, let's look backwards a little bit. President Obama came under heavy criticism all this week for his cautious statements, and I want to play a clip of perhaps his most controversial statement. Here it is.


PRESIDENT BARACK OBAMA: The difference between Ahmadinejad and Mousavi in terms of their actual policies may not be as great as has been advertised.


WALLACE: Mr. Sadjadpour, first of all, is that true? The president went on to say either way, we're going to be dealing with a regime that's hostile to the U.S.

Do you believe that there is no great difference between what we would face with Mousavi as compared to what we have and would continue to face with Ahmadinejad? And how dispiriting was that statement to the protesters in the street?

SADJADPOUR: Well, Chris, I do believe that was a misstep by the president, and I think the White House acknowledges now in retrospect that was a misstep. And if you've noticed, the rhetoric has changed.

But I didn't get the impression that this had made a tremendous impact on the demonstrations in Tehran and elsewhere.

WALLACE: But going back to the original question, would there be a difference, Mousavi versus Ahmadinejad?

SADJADPOUR: Absolutely. And what we have to recognize is this movement is much bigger than Mir Hossein Mousavi. This is not about Mir Hossein Mousavi anymore. This is about the political and social and economic discontents which have been brewing in Iran for three decades now.

WALLACE: Let's look at how the statements of President Obama and Secretary of State Clinton have evolved this week. Here's a series of clips.


OBAMA: It's not productive, given the history of U.S.-Iranian relations, to be seen as meddling.



SECRETARY OF STATE HILLARY CLINTON: Our intent is to pursue whatever opportunities might exist in the future with Iran to discuss these matters.



OBAMA: The government of Iran recognizes that the world is watching.


WALLACE: Mr. Sadjadpour, several questions. First of all — and this speaks to something that Senator Bayh and Congressman Hoekstra were discussing — what about this argument that if the president speaks out, it somehow empowers and gives more ammunition to the Iranian regime to say that these protesters are just puppets of the United States?

SADJADPOUR: Chris, that is a big concern I have as well, and that's why I think the president's rhetoric so far has been well calibrated.

And the historical analogy which concerns me, Chris, is Iraq in 1991 when George Bush senior encouraged Iraqis to rise up. Saddam slaughtered them, and then the rest of the world didn't criticize Saddam for the slaughter but they criticized George Bush for encouraging Iraqis to speak out.

So I think this regime is looking for the United States to step into this trap so they have the license to slaughter the Iranian people and accuse them, you know, of being American (inaudible).

WALLACE: But they're already saying this. In fact, you had President Ahmadinejad today say to the U.S. and Britain, "Stop interfering." So whether we do it or not, they're going to accuse us of doing it.

SADJADPOUR: Chris, I really defer to the leaders of these opposition movements themselves in Iran, the opposition leaders in Iran, and I have not heard from any of them who say that the United States should become directly involved.

They've all said that the United States should continue to denounce human rights abuses, and our plight should continue to be broadcast throughout the world, but none of them have asked the United States to play a more active, defiant role in domestic internal Iranian policy.

WALLACE: Let me try to wrap this up with all of you gentlemen.

And, Senator Bayh, let me start with you. Where are we headed? I mean, I know it's almost impossible, but your best guess and also obviously the intelligence you're getting — where are we headed?

Will the regime be able to silence the opposition? Will it grow? And if the regime is able to hold onto power, will they become even more radical or more moderate?

BAYH: My best guest, Chris — and this situation is evolving, you know, so quickly — is that we're looking at a process of evolutionary change that's going to take some time.

I mean, we all hope it will be sooner rather than later and that we'll get a legitimate democracy that wants to engage with the rest of the world tomorrow.

But the forces of the regime — the military, the secret police, the gangs that they employ in the street — are such that it's — they're just not going to go away overnight, so — but they're starting, as Karim mentioned, to lose their legitimacy among the Iranian people.

And so if we stand in solidarity with the Iranian people — don't meddle. They're going to accuse us of that no matter what. But give them no credible evidence they can point to so the Iranian people and the rest of the world know that we're handling this the right way.

Then I think over time those fissures will continue to grow within their government, and in the fullness of time we'll see a more legitimate Iranian regime.

But as much as I wish I could say that's going to happen tomorrow, I think this is a process that is going to take some time to unfold. They'll try and crack down. Regrettably, this is bad for the Iranian people, but it's also bad for the regime, because they're losing their legitimacy both at home and abroad through these repressive brutal tactics.

WALLACE: Congressman Hoekstra, we have less than a minute left; why don't you share that with Mr. Sadjadpour — your thoughts about where we're headed.

HOEKSTRA: Excuse me, Chris. I think we are moving forward. We need to stand with the people. We need to recognize that we need to focus on what our strategy is going to be in the future.

This is a regime that's going to have nuclear weapons soon. They are going to continue to be a brutal and a repressive regime.

We need to now start getting the international community prepared to deal with that reality and to deal with it much more effectively than what we had — than what we've done over the last eight to 10 years to try to stop them from getting nuclear weapons.

WALLACE: And, Mr. Sadjadpour?

SADJADPOUR: I wanted to just echo Senator Bayh's comments. I thought they were spot-on. And I am hopeful. It's a moment of tremendous fear and tremendous hope, but I am hopeful that the will of the vast majority of the Iranian people will eventually be realized.

WALLACE: Gentlemen, we want to thank you all so much for coming in today to discuss the latest developments there, and we will stay on top of this story. Thank you all.

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