Following is a transcribed excerpt from Fox News Sunday, Dec. 29, 2002.

TONY SNOW, FOX NEWS: North Korea, last week, disinvited U.N. weapons inspectors and announced plans to fire up the Yongbyon nuclear reactor, a move that could enable the nation to build nuclear weapons. The Bush administration hopes economic and diplomatic isolation will force the communist country to relent. Here with more is Secretary of State Colin Powell.

Secretary Powell, James A. Kelly, our assistant secretary for East Asian affairs, is heading off to South Korea to talk with the government. Is he also going to speak with the North Koreans?

POWELL: Not at this time. He'll be going to South Korea within the next week or two to consult with our friends and allies. We believe it's very important that, with this serious situation we are facing, we stay in close touch with our friends and allies.

And I'm very pleased that the entire international community has come together on this issue, to say to North Korea, "You're moving in the wrong direction. This is not the right thing to do. And you'd be better off cooperating with the international community to find a way forward to end this uranium enrichment program that we have discovered and also to put the plutonium program at Yongbyon back under international supervision."

SNOW: Is there any doubt in your mind that the reactivation of the Yongbyon reactor is designed not for domestic energy for the North Koreans but instead for weapons development?

POWELL: It certainly has that capability. It doesn't make sense to reactivate it for electrical production. It's only five megawatts; it's peanuts. It will barely produce enough electricity to run itself. And so there is a danger then that it could be used for reprocessing spent fuel rods into weapons-grade plutonium, and that's of concern to us.

The North Koreans say they're doing it for electricity. I don't know if this is brinkmanship or whether or not they're serious, but we're taking it seriously. But we don't believe it rises to a crisis atmosphere. Nobody's alerting forces. It's a serious problem, and we're deeply engaged in trying to do something about it.

We discovered this problem. I mean, everybody thought the agreed framework froze North Korea's nuclear aspirations. It turned out that it was misdirection. While everybody was watching Yongbyon and seeing that it was frozen, the North Koreans had started moving in a new direction with respect to the enrichment of uranium.

And this didn't happen just in the last year or two. It's a decision they made and a program they started four or so years ago. And we found out about it this summer, and we confronted the North Koreans with it.

We wanted to talk to the North Koreans, saying, "Look, you've got to stop this kind of activity, stop with the weapons proliferation. And the United States and all the other members of the international community are standing ready to help you, in bettering your economy and providing for your people." And they didn't respond to that...

SNOW: So why -- it seems that it's completely contrary to their self-interests to pursue the course they have. Why do you think they've done it?

POWELL: I don't know. They do many things that are contrary to their self-interest. I mean, if you think of where we were just six months ago, the Japanese were prepared to begin normalization discussions and a huge economic package in due course for the South Koreans.

SNOW: Ten billion dollars.

POWELL: Ten billion dollars perhaps. We were about to put two railroad lines through the demilitarized zone, from south to north. The Russians want to bring the extension of the Trans-Siberian railway through North Korea, South Korea. North Korean soccer teams were on their way -- were in South Korea. So there were a lot of things under way.

The president had given a speech in South Korea that said, "I have no hostile intent toward the north. We're not going to attack the north, we're not going to invade the north." And then suddenly we discovered this. And it wasn't anything we were looking for, but our intelligence community (ph) said, "Look, look, this is real." And we had to share it with the international community. We had to show it to the North Koreans and give them a chance to step back from this dangerous course they were on, and they did not.

Now what they are saying is, "We were in violation of our obligations when we started this enriched uranium plant, and now we're going to be in violation of our obligations once again when we start up Yongbyon." Are we supposed to suddenly reach out to North Korea and say, "You're scaring us to death and therefore we want to appease you in some way or do something which suggests we have to reward them for this...

SNOW: We will not appease them, correct?

POWELL: We can't appease them. I mean, they will not -- the wrong lessons will be drawn from us stepping forward and saying, "We are so concerned and afraid of this that we will do whatever it takes, whatever you ask us."

POWELL: This is what we saw in the past. They created the same situation in 1994. The agreed framework did stop plutonium from being developed into weapons for a period of eight years, but it did not stop North Korean ambitions. So we have to do it right this time.

SNOW: A lot of Americans, when they see this story, are reminded of what was happening when the Iraqis were building the Osirak reactor. The Israelis came in and bombed it in 1981.

You have said that we are not prepared to take preemptive military action. Have we ruled it out as a potential option for the future?

POWELL: We don't see as it anything we have to look at right now. The president, of course, always has every option. It's a standard phrase that we use.

But at the moment we're not looking at an action like that. I mean, it's now a functioning facility, so it would be a dirty hit. If one were to go after it, you'd contaminate an area.

And secondly, we are not looking to create a potential for conflict on the Korean Peninsula. All of North Korea's neighbors have looked at this askance and said, you know, "What's up?"

The Chinese have said clearly that they want a denuclearized Korean Peninsula. That is what President Jiang Zemin said to President Bush in Crawford when he was with him a few weeks ago. And so the North Koreans are flying in the face of that.

The Japanese have pulled back with respect to normalization. The South Koreans -- the new president-elect, President-elect Roh has made it clear that this will be an obstacle to future progress, and he is for progress.

SNOW: Let's run through a couple of options. Do you expect the United Nations Security Council to pass a resolution regarding North Korea?

POWELL: I can't answer that question yet. What we're waiting to see happen now is that in early January, perhaps as early as the 6th, the International Atomic Energy Agency will meet in Board of Governors session and make a judgment as to what North Korea has done and then make a judgment as to whether they bring that...

SNOW: So you expect the IAEA to bring it to the U.N., not the United States?

POWELL: The IAEA will make a decision on the 6th of January whether they're going to refer it to the United Nations or not. We are not, at the moment, preparing to introduce a separate resolution, but I don't rule out what might happen in the weeks ahead.

I've been in close touch with Kofi Annan, spoke to him about it a day or two ago.

SNOW: Then, now, there is a story -- the United States intercepted a North Korean vessel headed toward Yemen with Scud missiles. Now it's reported that those Scuds were not in fact intended for Yemen, but for Iraq. Is that true?

POWELL: It's reported in one paper, but I don't have any reason to believe that story is correct.

I talked directly to the president of Yemen as this was unfolding and spoke to his foreign minister, told him that we had decided to let the shipment go through with their assurances that it was always intended for Yemen and it was the last such shipment in an order that they had made some years earlier. We have an agreement from Yemen that they will not be importing any more weapons of that type.

SNOW: Are North Korea and Iraq cooperating militarily?

POWELL: I don't know if you have a specific question in mind. I don't know of any particular area of cooperation at the moment.

But as you know, North Korea is a proliferator, one of the concerns we have had, one of the concerns the previous administration had. And Iraq is always looking toward those countries that will proliferate the kinds of things they're trying to get their hands on.

SNOW: Now, we have said that we will intercept arms shipments coming from North Korea. Have our allies in the region -- the Chinese, the Japanese and others -- also agreed to try to intercept such arms shipments?

POWELL: We haven't been in touch with the Japanese or the Chinese and Russians specifically on the issue of interception. In the case of the ship we did stop and search its cargo and found the Scuds, we did it in cooperation with the Spanish navy, which did a terrific job. They did the job as part of our multinational interdiction operation in that part of the world.

SNOW: Let's switch quickly to Iraq. Iraq now is permitting some scientists to be interrogated by the United Nations, but they're doing it in the Al Rashid Hotel. I've stayed in that hotel. It's bugged. Can one credibly hold such interviews in a bugged hotel?

POWELL: Well, whether it's bugged or not is not the issue so much as whether or not the individual is free to talk. The first one who came in had a minder with him, somebody with him.

That's why we believe it is important that for those key people that we believe have knowledge that would be useful and who might have a willingness to share such knowledge, such interviews would be better held outside of the country, and also with protection for their families. And that's why we have pushed that, and that's why it is part of the U.N. resolution.

SNOW: Iraq has supplied a list of 500 names of scientists involved in various weapons programs. Do we think that's a legitimate list?

POWELL: I haven't seen the list and I don't think our intelligence community has had enough time to analyze the list. But it's a list that Dr. Blix had asked for, and Iraq made the deadline in providing the list.

SNOW: Final question. Has the president decided to use force against Iraq?

POWELLL: He has not. He hopes for a peaceful solution. But at the same time, we are taking prudent actions, positioning our forces so that they will be ready to do whatever might be required.

SNOW: Secretary of State Colin Powell, thanks for joining us.

POWELL: Thank you, Tony.