This is a partial transcript of "The Big Story With John Gibson," August 20, 2004, that has been edited for clarity.

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JUDGE ANDREW NAPOLITANO, GUEST HOST: Three Palestinian activists are charged in Chicago with raising money for attacks on Israel. Attorney General John Ashcroft (search) says the men used bank accounts to launder money for the terrorist group Hamas (search). Two were arrested last night. The other is still on the loose.

I'm joined now by former FBI analyst Matthew Levitt (search). His book "Exposing Hamas" comes out next year. Mr. Levitt, the big question, how worried should we be about terrorists working right here, right now in the U.S.?

MATTHEW LEVITT, WASHINGTON INSTITUTE SR FELLOW: Well, they are, and we know that. The good news is we're doing a lot about it now and we hadn't before. One of the most disturbing things to me is that in the past, the FBI has said that the fact that terrorists are so successful at using the United States as a cash cow, a place to raise significant amounts of money, served as a disincentive against their conducting attacks here, and we, therefore, need to take into consideration the fact that while we are cracking down on their logistical support, financial support activities here, that removes that disincentive, and there are — there's evidence that even groups like Hamas that have not traditionally conducted attacks outside the west bank Gaza and Israel may start doing just that.

NAPOLITANO: All right. We know that it's been against the law in the United States since at least 1996 to provide material support to terrorists and we know, of course, that the lifeblood of terrorism, whether it's Hamas or Al Qaeda or any other group, is money. How do they go about raising money here in the U.S.? Do the actual contributors here in the U.S. realize they're giving to a terrorist organization, or is there some so far a scheme or a trick going on?

LEVITT: There are both. A few weeks ago there was another indictment in Dallas regarding the Holy Land Foundation for Relief and Development (search) and in that case you had donors who were giving money because they were just trying to help people in need and then you had other donors who were very knowingly giving money to Hamas. In this case we're dealing with two different things. One, one of the three individuals… lead a charity organization which is since defunct, the al-Aqsa Education Fund, which was engaging in similar activities and some people were giving money not realizing it was going to Hamas and others very much knowing it was.

The second half of this current indictment that was put down in Chicago involves senior political — and I use that term in quotes — leaders of Hamas… engaging in business practices and all kinds of scams and investing from here in Hamas attacks there.

NAPOLITANO: Who are the contributors in the United States? Are they middle class Arab-Americans who want to help the Palestinians and think that they're contributing to a hospital or a school or a legitimate charity, or are they big-money people who know exactly where their money is going?

LEVITT: It's a combination of both, but the majority of donors, I believe and I believe the government believes, are people who are just trying to do the right thing. When the president announced in the rose garden in December 2001 the freezing of the funds of the Homeland Foundation, he said just this, that one of the greatest issues here is that this is a fraud on the American people who are trying to do what is a very American tradition of giving to people in need, be they Arab-Americans or others, trying to do the right thing and there's a tremendous fraud here. The homeland foundation in its last year of operation, raised $13 million. It's the largest Muslim charity in the United Sates. Much of that money went to Hamas and that's a huge fraud on the American people, American Muslim people.

NAPOLITANO: If it's a fraud, and I believe it is and you know this better than anybody, then the people whose money is actually making its way out of the pipeline in the middle east have no idea where the money is going. It's only the middle men, the guys who were invited today — who were indicted today that know what's happening.

LEVITT: They certainly know it's happening and then there's a middle category. There will be conferences and people will talk on the sidelines. There will be some major donors. There will be people who are engaged as fund-raisers, may not give a lot of money themselves, but will raise a lot of money from other unwitting individuals. So there is a core of people who know very well what they're doing. Those are the people we have to deal with. The government obviously has no interest in prosecuting people who gave money to these organizations just thinking they were doing the right thing.

NAPOLITANO: OK. Matthew Levitt, former analyst for the FBI. The book is "Exposing Hamas" coming out next year. Thanks Matthew.

LEVITT: Thank you.

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