This is a rush transcript from "Special Report," January 28, 2011. This copy may not be in its final form and may be updated.

BRET BAIER, HOST OF "SPECIAL REPORT": Let's bring in our panel now for some reaction to all of this. Stev e Hayes, senior writer for The Weekly Standard, Nia-Malika Henderson of Washington Post, and syndicated columnist Charles Krauthammer.


CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I thought that was a very fine line the president drew. And I thought it was a good line. It was clear from the speech that president of Egypt just made he is not leaving, he is not shaken and he is ready to tough it out, unlike for example when the Shah began collapsing. He showed a lot of steel. He was paternalistic -- "I care about my people and the poor."

Looking at the riots in the streets, you would think that he is being unrealistic. The issue hinges on the army. Mubarak is from the army. He used to be head of the air force, so he has strong connections with the army. If the army stays with him, he could possibly stay in power. It's not a guarantee. It will depend on whether the riots in the street turn on the army or not.

But if you look at the pictures, whereas the rioters attack police, they kind of cheered and waved and welcome the army because it's considered a national institution. It carries a lot of prestige. It was involved in the revolution in the early '50s against the monarchy and the victory in the 1973 war, so it has a lot of affection.

The United States is saying to the president of Egypt if you try to tough it out, we'll stay with you if you bring in secular reformers in the government, if you begin a transition, and ultimately if you leave, but it would be not immediately in the middle of the riots as a rout and a surrender but in transition in the months to a democratic regime.

BAIER: Hosni Mubarak, the Egyptian president, spoke to the nation earlier tonight in Egypt. He talked about a new government that will be formed he said tomorrow, today Egypt time. Take a listen.


HOSNI MUBARAK, EGYPTIAN PRESIDENT (via translator): We need to be aware of any escalating violence. And I am responsible, I hold up to my responsibility, leave it to my responsibility, and I will not allow this at all. I will not allow fear to take over the citizens. This is why I will not let it control our destiny and our future.


BAIER: And a defiant, Nia, President Mubarak.

NIA-MALIKA HENDERSON, THE WASHINGTON POST: Indeed. I think one of the questions that's raised now is whether or not this is "a moment of promise," as the president said, President Obama. I think the question is whether or not the people believe Hosni Mubarak is the person who can make this a moment of promise and chart out a course for change. And obviously we'll see that he'll bring in a new government tomorrow.

I think one of the problems with Egypt is over these last 30 years of his rule, there hasn't been an alternative political class, there hasn't been a class that's been groomed, so he's gonna be the one who's picking these folks.

Another -- I think-- critical moment will be the elections. These are coming up on this year. I think maybe some people were expecting that he would maybe say that he wouldn't seek re-election. That's something he obviously didn't say. And there's talk he's actually grooming his son to replace him. So there are a lot of critical junctures coming up ahead for Egypt.

BAIER: Steve, before we take a break, your thoughts?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: Well I think what we saw from President Obama represented the slightest of shifts from what we have been getting out of the White House earlier today. If you listen to Robert Gibbs during his briefing. He seemed to almost concede that Hosni Mubarak was unlikely to survive this. He wouldn't say it outright but that was certainly the impression you got from listening to Gibbs. President Obama, in fact, said precisely the opposite. That he intends to work with Hosni Mubarak to implement the kinds of reforms that Mubarak spoke of in his speech.

I think the White House is just trying to figure out exactly what's happening on the ground here so that they can make their next step.

BAIER: OK, more from the all-stars on all of this -- the political implications, the policy implications -- and what it means broadly for the Middle East when we come back.


BAIER: You're looking live from the White House, President Obama just delivering a statement from the state dining room in which he said what's needed now are "concrete steps that advance the rights of the Egyptian people."

The U.S., of course, a big provider of aid to Egypt. The U.S. military provides $1.3 billion annually to Egypt, and USAID has provided more than $28 billion in economic and development assistance since 1975. Just last night, Vice President Biden was asked about Hosni Mubarak, the Egyptian president, he said, "I would not refer to him as a dictator." We're back with the panel. Steve?

HAYES: Well, in fact, he is a dictator and he has been for quite some time. What's most interesting about this especially in respect to his speech -- the Hosni Mubarak gave tonight. You've seen the people on the streets, you expect that they would react to that with some degree of skepticism. And the reason they would, is that they've heard these things before. Back in February of 2005, remember, Hosni Mubarak gave a speech in which he called for free and fair and open elections. And it made a huge international splash. It made a big splash in Egypt. The Egyptian press, Al-Ahram, a newspaper that's close to his government said it was the founding of a second republic in Egypt, that it was that big a deal that he had said these things, made these promises. And then, of course, he promptly jailed Ayman Nour, the chief opposition candidate, and brutally repressed people who were speaking out at the time.

So I think if you're on the street in Egypt, you look at what Mubarak is saying and you're saying I heard this before. We've seen the results. It hasn't, he hasn't done what he said he would do.

BAIER: Nia, we've talked about the administration trying to walk the line here. They did not. The president did not speak out very firmly against, about the protest in Tehran that were put down by the Iranian regime. And yet this is a U.S. ally, the U.S. needs in the Middle East. It's a tough line for the president.

HENDERSON: It's a tough line. And you've seen everyone in the administration walking a very thin tightrope here because Egypt has been a beacon of democracy in many ways in the Middle East, even though they haven't actually been fair, and now you've seen that these younger people who are poor and struggling with inequality are really the ones who are rising up against Mubarak here.

So, so, yeah, I think one of the things that was most surprising that came out of some of the news today is the re-questioning of aid and whether or not this is something that the U.S. will continue to do and perhaps it can be used as a stick in terms of forcing our regime change and reform there.

BAIER: Charles, a lot of people are looking back to 1977, 1978, the beginning of the Iranian protests and the response by then, the Carter administration, and they're worried about the Muslim Brotherhood and possibly filling the void in this protest. What about that?

KRAUTHAMMER: Well, that history is exactly what is guiding the policy of the administration today and that speech that the president gave. On the one hand, you've got one assumption here, the Mubarak era is gonna end eventually, rather soon. He's 82. He's not going to have a future. He has to be succeeded.

The other hand we remember in the late '70s as you say when the Shah began to weaken and the United States kicked away the stool under him and abandoned him. At that point, it was over, and as we know, the Islamist took over. That's why --

BAIER: In the form of Ayatollah Khomeini.

KRAUTHAMMER: And the Islamic revolution from which we suffer even today. That's why the president was not ready to abandon Mubarak, but he is insisting that the transition start. And that's going to start with the new government.

Our objective here is to make sure that the Muslim Brotherhood, which is the Sunni equivalent of mullahs in Iran, Islamist, anti-American and would make the region -- put the region aflame, has to not achieve power. That's our ultimate objective. And arranging for a transition to a secular moderate regime is our number one priority.

BAIER: Quickly. After the president, President Obama and President Mubarak speeches tonight does Mubarak hold on to power?

KRAUTHAMMER: He does. I'm not sure he can. It depends on the army. If he says we'll try to help him into a transition.

HENDERSON: He stays at least until elections come in the fall.

HAYES: I think he's more likely to go than to stay.

BAIER: Matter of days?

HAYES: Yeah. I don't think he survives this.

BAIER: Next up, a lot, about how the Egyptian situation is being felt far from the Middle East. Stay with us.


BAIER: Recapping our top story, Egyptian President Hosni Mubarak has asked his cabinet to resign in the wake of violent anti-government protests throughout his country. This is the fourth day of demonstrations and the most intense. Mubarak is promising the formation of new government Saturday.

Moments ago President Obama said there must be change in Egypt and Mubarak must respond to his people. Earlier the administration threatened a decrease in foreign aid if Egyptian authorities used violence against protesters.

No kicker tonight. Quickly, a final thought from the panel. Steve?

HAYES: It's a tough line the White House has to walk because the prospect of the Muslim Brotherhood in power in Egypt is certainly discouraging. I think there's is a risk the White House could end up being on the wrong side of history here with President Obama's remarks seeming to get the back of Hosni Mubarak even with his words about the protesters.

And then just yesterday as the region is turning towards a messy democracy, you have the United States ambassador to Sierra presenting his credentials to Basher Assad.

ROSEN: Certainly something is happening in the Middle East. You've seen this in Tunisia, in Lebanon, protests there. In Yemen and now of course in Egypt. One of the most fascinating things about this is the emergence of social networking, Twitter, Facebook, as a real tool of democracy. And I think that's going to be something we see over and over again.

BAIER: Charles?

KRAUTHAMMER: Among the opposition in the streets is a very widespread, strong, democratic secular opposition. Our job is to make sure it isn't crushed by the more organized discipline Islamist as happened in Tehran in that revolution.

Our first attempt is to go with Mubarak and hope that he brings in the secular elements, because if he gets on a plane tomorrow and there's open season in the streets and no discipline and no rule, the Islamists could end up in control.

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