The following is a rush transcript of the March 14, 2010, edition of "Fox News Sunday With Chris Wallace." This copy may not be in its final form and may be updated.

CHRIS WALLACE, ANCHOR: Karl Rove was the focus of intense interest during his years in the Bush White House. Now he tells his side in his new book, "Courage and Consequence," in which he admits some mistakes, defends other actions and takes some shots at President Obama, and he joins us today to talk about all of it.

Karl, welcome.


WALLACE: You write a little about Barack Obama and not much of it is good. You say that — you describe his audacious hypocrisy, and for all his talk about being above politics, you say, "Chicago politicians will always be Chicago politicians." Question: Do you think this president is a phony?

ROVE: No, but I think he ran as a centrist and has governed as a non- centrist. He holds himself out as some bipartisan, post-partisan kind of politician, but in reality he is a very — you know, a hyper- partisan who's failed to reach across party lines when he had a terrific opportunity to do so in the aftermath of his victory.

WALLACE: Now, the president — and we've obviously been talking about this for the previous half hour — is mounting an all-out effort to pass health care reform, even delaying a foreign presidential trip.

Do you think — I mean, just what's your gut say to you? Will the Democrats pass this? And if they don't, how damaging is it to the Obama presidency?

ROVE: I — you know, look. It's a 40-60 shot, 40 percent that they pass it, 60 they don't. But on the other hand, I don't count out the speaker of the House and her ability to sway votes. As you say, it's 211-220 today.

You know, they're going to try and find some additional vote — they're going to lose some additional votes and then they're going to try and find some additional votes. And it's going to be one wild week to watch it.

Ironically enough, I think he's going to be better — he would be better off if he didn't pass it, as long as he immediately came back and said, "I'm going to take elements of this and try and get things done this year to deal with insurance reform and deal with this problem and deal with that problem," so there would be incremental progress on things that both parties would largely agree on.

But he passes this thing, I think they lose the House of Representatives this fall.

WALLACE: Let's talk about your years on the front lines. You had your first political fight, you say in your book, at age nine...

ROVE: Right.

WALLACE: ... when you put a Nixon bumper sticker on the basket on your bicycle. How did that go?

ROVE: It went well until the little girl across the street of about three years and 30 pounds put me down on the sidewalk and wailed the heck out of me, gave me a bloody nose. And I've never liked losing a political battle since.

WALLACE: So — but you have to point out that she was older and bigger than you.

ROVE: Well, you know, it — you know, that might not have mattered, because I was a little guy and pretty much of a nerd, but...

WALLACE: Over the years, critics talked — you say you didn't like to lose a political fight — about a Roveian style of campaigning, which one...

ROVE: Right.

WALLACE: ... critic called fear- and smear-based anything goes.

ROVE: Yeah.

WALLACE: Where do you draw the line on what's fair and what's not fair in terms of attacking an opponent?

ROVE: Yeah. Well, first of all, embedded in that view is the belief that the American people can be easily manipulated by those kind of tactics. And frankly, I got greater respect for the voter than that.

If you're going to attack somebody, it has got to be seen as fair, and appropriate, and relevant, and credible. And it can't be done late. It's got to be done early enough that people can say, "Oh, OK, I have time to digest this. I'm not going to just disregard it," because a lot of last- minute attacks in politics — whether they're true or not, people discard them.

But you know, we — our system is based around competition, and so there are going to be points of disagreement. But you go out there and throw yourself a mudball, you know, you're going to get — you're going to get a bad result for you, not for him, not for your opponent.

WALLACE: So what's — in that — saying it's got to be fair and it's got to be...

ROVE: Relevant.

WALLACE: ... credible, and it's got to be relevant...

ROVE: Right.

WALLACE: ... what's on this side of the line and what's over the line?

ROVE: Well, it's like good art. You know it when you see it. And as a result, a lot of people think they understand where that line is, and they launch an attack that blows up in their face, because it's not from the perspective of the voters on the right side of the line.

WALLACE: This gets to one of the central complaints about you and your time in the White House, and that is that you helped — and you address this in the book — that you helped destroy the political unity in this country after 9/11.

In January of 2002, just two months after the attack, you were speaking to a big GOP conference of GOP leaders, and you said the following, "We can go to the American people on the issue of winning this war. They trust the Republican Party to do a better job of protecting and strengthening America's military might."

At a time when the president was talking about how united the country was, was it a wise idea to turn the war on terror into a partisan issue?

ROVE: I wasn't suggesting a partisan issue. I was suggesting Republicans talk about what they were for. And that's what politics ought to be mostly about, is what are the two parties or what are two candidates in a race for? And I wanted...

WALLACE: But when you say we're going to go to the American people on the issue of winning the war...

ROVE: Talk about our support for the war, talk about...

WALLACE: But does it not sound as if — and we're talking about the war on terror now, not the Iraq war. The implication seems to be that the Democrats somehow weren't...

ROVE: Well, look. When Democrats say they're for health care, does by implication that mean Republicans aren't? No. It means Democrats are for health care, and it is up to the Republicans to go out there and say, "We're for health care reform and here's what we would do."

And I would say (inaudible) speech to the Republican National Committee in saying be focused on what we are for and go out and tell the American people what it is.

And look. There are a lot of things that Republicans did in the — in the — in those months that were absolutely vital to the security of our country. And we ought to be proud about our record and talk about it.

WALLACE: So when people say that you were the guy who broke the unity of 9/11, you plead not guilty?

ROVE: Look, the unity was broken by Democrats who, when we tried to come together on a homeland security bill, insisted upon, for the homeland security department, giving the labor unions an authority they had for no other department of the government; namely, the ability to unionize throughout the department — throughout the new department, regardless of whether or not...


WALLACE: You know, they say — but they were for the Department of Homeland Security and the president opposed it.

ROVE: And you know what? They were right. And we sat down and listened to their arguments and listened to their perspective and sat down and said, "You're right," and came back with a proposal for it.

But again, I repeat, their object was to give to the unions something when it came to the Homeland Security Department that under a policy established by John Kennedy and signed into law by Jimmy Carter didn't exist for every other department of the government.

WALLACE: All right. This brings us to the ad, the infamous ad, against Georgia senator Max Cleland. Let's watch.


NARRATOR: As America faces terrorists and extremist dictators, Max Cleland runs television ads claiming he has the courage to lead.


WALLACE: Now, you say you had nothing to do with this ad, but you also say in the book that it was factual and effective in pointing out Cleland's opposition on this issue of the Department of Homeland Security and whether or not there should be unionized members there.

There's a disagreement about the facts. My question is you have no problem about the idea — you say you didn't have anything to do with it — the idea of mixing up pictures of Osama bin Laden, Saddam Hussein and a Vietnam vet who lost three limbs.

ROVE: Let's step back. When talking about pictures, let's take one step further back. This ad was in response to one where Max Cleland showed himself with President George W. Bush in which he claimed he and President Bush were worked together on — to effect a Homeland Security Department when, in reality, this ad that you just showed goes on to show 11 separate votes where Max Cleland voted against President Bush's position.

This ad was designed to say not we question your patriotism, but we question your credibility because you're saying something that's fundamentally not true. Now, would I have done that ad? I wouldn't have done that ad. I would have done — I would have made the point in a different way. But I don't — Max Cleland goes around saying they morphed Osama bin Laden's face into my face, and they didn't. They...

WALLACE: No, but they do have pictures of bin Laden and Saddam Hussein and the next second a picture of Max Cleland.

ROVE: That's right. But they transitioned — and look, I'm not going to get into the mechanics of the ad, but I think the ad worked, because Max Cleland ran a setup ad that was untrue, and this ad was true. He was voting against President Bush on homeland security and in view of the labor unions, and he turned it very adroitly into being a victim.

But the fact of the matter is Cleland lost that election because he was far too liberal on questions like this than the people of Georgia.

WALLACE: You write about the war in Iraq, and you say a couple of different things. On the one hand, you say that if the president — and you make it clear he did not know — if the president and congressional leaders had known there were no WMDs in Iraq, that they never would have gone to war.

On the other hand, you have a chanter, the chapter in which you describe this — the chapter is "Bush was Right on Iraq."

ROVE: Right.

WALLACE: Right about what?

ROVE: He was right that in the aftermath of 9/11 we had to go on the basis of the broad consensus in the intelligence community that Saddam had WMD and represented a threat to the United States.

This was a bipartisan opinion shared not only by President Bush and Republicans but by a lot of Democrats, including people who even opposed the war resolution like Barbara Boxer and Ted Kennedy said Saddam had a WMD.

WALLACE: All right. I'm not arguing that, because — but what was he right about? Because he obviously was wrong on WMD.

ROVE: Well, look. He was — he was right that we had to go on the basis of the information that was available to us in the aftermath of 9/11, make judgments on that basis.

WALLACE: Let's do a lightning round about some of the major players that you have dealt with in your years here in Washington. Laura Bush. You say in the book that you were never quite sure where you stood with her.

ROVE: And I think that was on her part deliberate. I mean, you know, she was a very strong advisor to him and had great insights into people and events, and...

WALLACE: So why would she keep you at a distance?

ROVE: Well, you know, I think — Laura's, first of all, a very private person, but I think — I think that was the way to manage Rove. Rove was a little rambunctious at times.

WALLACE: So they'd keep you a little bit off-balance?

ROVE: Right, exactly.

WALLACE: Colin Powell. You say that he looked down on you as a politico. And I must say, it comes through in the book you didn't think much of him either.

ROVE: Oh, I think the world of him. I think he is a great leader and I think he was a terrific secretary of state. But I did get under his skin. And whenever I got under his skin he would address me as Private Rove and demand that I drop and give him 20 push-ups.

WALLACE: Democratic congressional leaders Harry Reid and Nancy Pelosi.

ROVE: Harry Reid and I share a common Nevada root. I tried to develop a cordial relationship with him but he was, as you will see in episodes in the book, breathtakingly political in his approach to virtually everything and unreliable even when he was with you.

WALLACE: And Nancy Pelosi?

ROVE: Very tough. Very liberal. And you know, there's — she's got a lot of skill in keeping that coalition together.

WALLACE: While you admit mistakes in your book, you say that George Bush did the big things right. But I want to put up a poll that was taken by Fox News Opinion Dynamics last week of the Bush presidency. Thirty-four percent approved of the job he was doing. Fifty-eight percent disapproved.

Obviously, the economy was in the tank at that point. But why do you think at the end there was such negative opinion about the Bush presidency?

ROVE: Well, he'd spent two years on the end of receiving end of daily blows from a wide group of people running for the Democratic nomination for president. And you know, he had to make consequential and tough decisions, particularly the surge, which at the time was unpopular and now has been seen to be valid and right.

But you know, at the end of eight years, particularly big consequential years like that, and particularly when there are lots of Democrats beating up on you, your ratings go down.

WALLACE: Finally — and we've got less than a minute left — you are still a relatively young man, a pup of 59. After reading this book and sitting beside you on election nights — and I've got to say it's the best show in politics to ride shotgun with you — it's obvious you still love politics. You still love policy. Do you ever miss being inside the game?

ROVE: You know what? The great thing is I can do things that I want to do and, you know, some of them under the radar. And I — you know, I was speaking at the — some of them not under the radar — speaking of the Allegheny County Republican Lincoln Day dinner, and — on Friday night, and last night in Chester County.

So I get a chance to do a variety of things. And you know, I don't know what life holds, but each chapter has been interesting and I've got a bunch more chapters yet to go through.

WALLACE: Karl, thank you. Thanks for coming in today.


WALLACE: Always a pleasure to talk with you. And good luck with the book.

ROVE: Thanks.

WALLACE: Coming up, our Sunday panel on health care reform and this week's dust-up between the Supreme Court's chief justice and the president.

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