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The following is a transcribed excerpt from "FOX News Sunday," March 20, 2005.

CHRIS WALLACE, HOST: On this second anniversary of the U.S. invasion of Iraq, we want to talk about where we've been and where we're headed with the secretary of defense, Donald Rumsfeld (search).

Mr. Secretary, welcome back to "FOX News Sunday." Always a pleasure to have you here.

DEFENSE SECRETARY DONALD RUMSFELD: Thank you very much. Good to be here.

WALLACE: Let's start with what's happened in the last two years in Iraq (search). There have been some notable accomplishments: The brutal regime of Saddam Hussein (search) has been forced from power; 8.5 million Iraqis have defied terrorist threats and turned out to vote.

But it's come as a cost: 1,519 members of the U.S. military have been killed; 11,344 have been injured. Estimates are more than 20,000 Iraqis have been killed, and this country has authorized $142 billion for Iraq.

Mr. Secretary, looking back, what have you learned and what, if anything, would you do differently?

RUMSFELD: Well, I guess looking back, what you've learned is that it is a wonderful thing to see 25 million Iraqis liberated; to see their economy improve, as it has been; to see their political process move towards democracy; to have the successful election you mentioned; and now the seating of their constituent assembly.

The insurgency is continuing. It is at a lower level than previously, but at a higher level than had been expected, to be sure.

And my impression is that as the Iraqi security forces continue to develop — we're now over 145,000 Iraqi security forces — they will take increasing responsibility and that we'll see more and more of the insurgency dealt with by Iraqis. And as a result, I think it will diminish over time.

WALLACE: I'm sure as one who has to make all the decisions over your desk, frequently you sit there and go, "Gee, I wish I had that one back."

But is there one thing in particular that you look either to the planning of the war or the planning of the post-war that you sit there and say, "Man, I really wish I could have reconsidered that or knowing now what I knew then...

RUMSFELD: Well, given the level of the insurgency today, two years later, clearly if we had been able to get the 4th Infantry Division (search) in from the north through Turkey, more of the Iraqi Saddam Hussein Baathist regime would have been captured or killed. The insurgency today would be less.

What happened was we had to come in from the south, our 4th Infantry Division was blocked in the north.

As a result, by the time Baghdad was taken, the large fraction of the Iraqi military and intelligence services just dissipated into the communities. And they're still, in a number of instances, still active.

WALLACE: What about the argument that you failed to find a way — I know one of the things you say is that you couldn't keep the army around because they disappeared. But what about the argument that you should or could have found a way to keep some elements of the Sunni military leadership and given them a stake in the new Iraq?

RUMSFELD: Well, they have a stake, obviously. And today if you read everything, in terms of what people are saying in Iraq, the Shia (search)and the Kurds (search)are reaching out to the Sunnis (search). The Sunnis feel they made a big mistake by not participating in the elections. They are fully participating now. They do intend to be a part of the constitutional process.

As to the army, I just don't know what the answer to that is. The decision was made. It was made in Iraq. We have, of course, in the 145,000 Iraqi security forces, large numbers of former military, Iraqi military, including Sunni leadership today. They just aren't in the units they were in. But the units just disband. They went away.

And a lot of the units have a lot of Sunni generals and a lot of Shia conscripts that didn't want to be there anyway. So the minute they had a chance, they disappeared.

I don't think — I don't know this for sure, but I don't think it would have been possible to have maintained that organization, nor do I know if it would have been desirable. But it's a fair question.

WALLACE: There's also been some criticism over the last two years of you personally, that at times you seemed cavalier — some would say even arrogant — about the challenges we faced in Iraq. Here's a look at some of your greatest hits, including one from just a couple of days ago.

Take a look if you will, sir.

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RUMSFELD: You're thinking of Europe as Germany and France. I don't. I think that's old Europe.

(END VIDEO CLIP)

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RUMSFELD: That's nonsense. They know what they're doing, and they're doing a terrific job. And it's untidy and freedom's untidy.

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RUMSFELD: We've seen Spain do it abruptly — not impressive...

(LAUGHTER)

Did you say that?

(END VIDEO CLIP)

WALLACE: Is it possible, Mr. Secretary, that sometimes you're too quotable for your own good?

RUMSFELD: I don't know. Time will tell. I enjoy life. I feel fortunate to be able to be participating and contributing and have the chance to work with the wonderful young men and women in uniform that serve our country, volunteers every single one of them, and to work with them and to see the support they receive from their families that also sacrifice and serve.

WALLACE: Would you like to have any of those any of those phrases back?

RUMSFELD: It's a great privilege. Oh, no. No, no. I mean, you know, you get up in the morning and you do what you do.

WALLACE: All right. Let's talk about the situation...

RUMSFELD: Do you think that what the Spanish did was impressive?

WALLACE: Do I think?

RUMSFELD: Yeah.

WALLACE: Probably not, but I'm not sure that I would have said it as secretary of defense.

RUMSFELD: Well, would you want your word back?

WALLACE: Sure. Plenty of them.

RUMSFELD: I'm pleased with what I said.

(LAUGHTER)

WALLACE: All right. There you go.

You said something the other day that I'd like to explore, that the political process in Iraq, that the naming of a new government and, as part of that, the naming of a new defense structure, may actually weaken the fight against the insurgency, at least in the short term. Explain what you mean.

RUMSFELD: Well, my concern is this: Every time a new government comes in — and we're now in the process of fashioning a new government. We've gone from the governing council to the interim government, now to a transitional assembly and a transitional government that will be appointed in the days immediately ahead.

What happens?

Well, you're going to get a new minister of defense, a new minister of interior, you're going to get a new chain of command, a new prime minister possibly. You don't know if it will be new, but possibly.

And when those people come in, the important thing is that they be competent people, talented people, and that they recognize the turbulence in those departments, when you're in an insurgency and the ministry of interior, ministry defense forces are the ones that are going to actually deal with that insurgency, they have to be darned careful about making a lot of changes just to be putting in their friend or to be putting in someone else from their tribe or from their ethnic group.

This is too serious a business over there.

And the United States has got too much invested and too much committed and too many lives at stake for people to be careless about that. So we are urging those Iraqis that what they do is put in who you want — it's your country and your sovereignty — but be darned careful that you don't cause undue turbulence and weakness in the security forces because it's the security forces of Iraq that are going to defeat that insurgency.

WALLACE: And have you gotten any assurances from the people that it looks like will finally be leading this new Iraqi government, that they're listening to you?

RUMSFELD: Well, I think they're listening. I think that as they go through these negotiations as to who's going to be president, who's going to be the deputy president, who's going to be prime minister, who's going to be minister of defense, they're hearing what we're saying.

And what we're saying is that lives are at stake here, Iraqi lives and American lives and coalition lives.

And we expect them to be professional and mature and respectful of the contributions that have been made by the coalition countries and by the Iraqis that have been killed during this period and behave in a way that sets this country along a path of democracy and the ability to defeat that insurgency.

WALLACE: The number two man in the army, General Richard Cody (search), said this week that U.S. forces in Iraq will probably be drawn down by early next year. And some top officers are talking about a possible number in early 2006 of 105,000 Americans.

Is that realistic?

RUMSFELD: There are lots of people talk about this subject. It happens that those people aren't involved in the decision-making process.

The army's task is to organize, train and equip and plan to be ready for whatever might be needed. It's general Casey and General Abizaid (search), reporting to me, and they will make their recommendations to me.

I'll consult with General Myers (search) and General Pace (search), the chairman and the vice chairman of the Joint Chiefs, and we'll make a recommendation to the president.

And that has not been done, and it is not knowable at the moment exactly what.

We do know we're currently moving from 152,000 down to 137,000 or 140,000 because the overlap that we had for the election is over. And we expected that. It'll be down to about 17 brigades.

We know that the Iraqi security forces are growing by the week and taking over more and more responsibility. And we're working very closely in teams with them.

But when we'll be able to pull those numbers down remains to be seen.

WALLACE: Now, you expect the numbers to go up somewhat in the fall and the winter — excuse me, sir — as we have these new election, and you need more security?

RUMSFELD: It's possible. If General Abizaid says we need more folks because of the referendum on the constitution or more folks because of the election in December, obviously we would do what we could to respond to that. It's not clear he will. And we don't know from what level that would be.

WALLACE: OK.

RUMSFELD: But we want to do what makes the most sense for that country to see that they're successful.

WALLACE: President Bush has named Paul Wolfowitz (search) to be the new president of the World Bank — Wolfowitz, of course, your deputy secretary of defense and one of the architects of the Iraq war. And not surprisingly, there has been some criticism.

I want you to take a look, if you will. The German development minister has said, "The storm of enthusiasm in Old Europe" — so you see how those phrases come back to haunt you?

(LAUGHTER)

RUMSFELD: That's not haunting me.

(LAUGHTER)

I don't feel haunted.

(LAUGHTER)

WALLACE: "The storm of enthusiasm in Old Europe is muted." A former economist at the World Bank (search) said Wolfowitz is "the embodiment of Americans, forcing other societies to adopt American values whether they want them or not."

Your reaction, sir.

RUMSFELD: Who said that?

WALLACE: That was a former economist at the World Bank, Mr. Easterly.

RUMSFELD: Well, I know Paul Wolfowitz. And he is an enormous talent. He's brilliant. He's dedicated. He cares greatly about this world that we live in and about suffering and how we can make this a better world.

I think he's a superb choice. He's a seasoned diplomat. He's been ambassador to Indonesia. He's done a wonderful job at the Department of Defense. And I think people in a year or two or three will recognize what an inspired choice he's been by President Bush.

WALLACE: Italy: The latest word from Italy is that Italian military officials informed their U.S. counterparts that they had freed this Italian Journalist, Giuliana Sgrena (search), and were headed to Baghdad airport and that they did this 20 minutes before she was shot.

Question, sir: Did the Italians give the U.S. military advanced notice?

RUMSFELD: There's an investigation underway. That's the proper way to handle this. We've done an unusual thing and included Italians, selected by the prime minister, in the investigation.

It will not take forever. We'll know the answers to all of those questions.

We do know it was a tragedy that that individual was killed and others wounded. And it seems to me the appropriate thing is to wait and see what the investigation produces.

WALLACE: Do you have any sense? I mean, this happened over two weeks ago. It involves a very limited number of people.

RUMSFELD: Sure.

WALLACE: When do you think we're going to know?

RUMSFELD: Soon we'll know.

Let me go back to old Europe.

What I said was absolutely correct. Europe, when I was ambassador to NATO (search)in 1972, 1973, 1974, really had 15 countries in NATO, for example.

RUMSFELD: Today they've gone to 26 countries in NATO. We've brought in all the Eastern European countries, the Baltic countries — most of the Eastern European countries.

Now it's 26 nations, and the center of gravity shifted from 15 to 26. That is a new Europe. That is a new circumstance.

And to say it, it seemed to me, not in a derogatory way in any sense, but just to say it is to recognize reality. Otherwise it would not have had such currency that it seems to have had.

So I don't think it was a stunning comment, and it certainly wasn't in any way denigrating anything.

WALLACE: But is it something that the secretary of defense should say when we're trying to build up an alliance with, among other countries, the old Europe?

RUMSFELD: Well, as a matter of fact, there were two or three countries criticizing the president of the United States and the United States of America, two or three countries out of 26.

And people were saying: Europe is against you. And I was saying: Europe isn't against you; there's 26 countries there. We ended up with the vast majority of those countries helping in Afghanistan, helping in Iraq.

Europe wasn't against us. There were a few countries that were against the president's policy.

WALLACE: Finally — and it's hard to believe, looking at you, and listening to you, but you are now — correct me if I'm wrong — the oldest secretary of defense ever, and the second-longest serving.

Is that correct, sir?

RUMSFELD: I'm certainly the oldest. I have not gone back to check whether I'm the second-longest serving, but...

WALLACE: Have you given any thought to when you might want to step down?

RUMSFELD: No, I haven't.

It's up to the president. The president — we all serve at the pleasure of the president. I feel very fortunate to be able to serve my country.

I'm in good health. And as I said, I think the chance to work with the men and women in uniform, these volunteers who are so courageous and are doing such noble work around the world, is a very special privilege. And I'm honored to be able to work with them.

WALLACE: Mr. Secretary, I can't think of a better place to end this conversation. Thank you, as always, for coming in. Please come back.

RUMSFELD: Thank you.