This is a rush transcript from "Special Report," July 12, 2012. This copy may not be in its final form and may be updated.


JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We will continue to put pressure working unilaterally and with our partners on the Iranian regime until they make the right choice, which is to abide by their obligations to the United Nations, to the international community with regards to their nuclear ambitions.

GEN. JACK KEANE (RET), FOX NEWS MILITARY ANALYST: In the back of everyone's mind is the realization that the Israelis are probably running out of patience. They see the talks are not working. They see the sanctions are having some impact. But I think they remain convinced that the Iranians would not give up their nuclear capability just because of some economic setback.


BRET BAIER, ANCHOR: Well, Iran's activities, a ballistic missile tests, as Defense Secretary Leon Panetta sent an unclassified report to Congress a couple weeks ago saying that Iran continues to grow its missile and rocket inventories and the range, lethality, and accuracy of these systems. What about the actions of Iran? We're back with the panel. Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, when the presidential spokesman says we are waiting for the Iranians to make the right choice and abide by its international obligations, this is a country that our own State Department has declared year after year is the biggest exporter of terror in the world, and we're waiting for it to abide by its international obligations.  This is a farce and it's also a charade.

The talks that we've had, these supposedly last ditch talks in Baghdad, in Moscow, in Turkey, have essentially collapsed, but we pretend it's still going on. And as you report, what we have seen here not only is a nuclear program proceeding on unmolested, but they are also working on conventional stuff to make it accurate and lethal.

I think the -- so on that front we have done nothing. Everybody understands that. And our own DNI, the director of national intelligence, has said in testimony in Congress that, yes, our sanctions have had an economic effect. They have had zero effect -- he says that, not me -- he said it's had zero effect on their nuclear development. That is why the Israelis are not going to wait that long.

But I think what's happening under the radar is that we are building up in the Gulf the biggest naval armada possibly in history.

BAIER: We have two carriers in the region right now. They have added another warship. And there are mine sweeping operations that are in position.

KRAUTHAMMER: And submarines headed there, too, which I think isn't the United States or Obama warning Iran either you stop the nuclear enrichment or we're going to attack. But I think it is a deterrent as a way to say if the Israelis attack you, you don't attack us, because that will be suicide. You don't attack our bases, and you don't shut the Strait of Hormuz. And that I think is a very strong deterrent. And that means that Iran would retaliate against Israel, but there would not be a general war.  And I think that is a prudent policy on the part of this administration.

BAIER: A.B., meantime, the House speaker said the president is not using all of his options.

A.B. STODDARD, ASSOCIATE EDITOR, THE HILL: Well, I mean, I think that people are frustrated with how long the talks have gone on. They seem to be going nowhere, and they continue on. And as General Keane said, no one is convinced that they are really going to give up their nuclear ambitions because of these talks, even if they change the name of them every six weeks.

What is interesting about this report, what is significant about it is that there is -- that the analysts who have studied it note that there is a shift in tone, that normally Iran's capability is just sort of dismissed as ineffective or inaccurate, and in this report it's called, referred to as "formidable," and that it might signal that the administration is trying sort of to telegraph to the Israelis and others who might be proponents of a strike, that a military confrontation with Iran is going to be far more complicated and risky than previously thought. And it's interesting, you know, to see if that is going to have an impact on the Israelis. I think they are actually waiting until after November, but I'm happy to be wrong.

BAIER: Steve?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: This perfect distillation of the administration on Iran today at the Pentagon press briefing. George Little, the spokesperson, was asked by a reporter this question -- "What evidence is there that this administration has slowed Iran's military progress in the last four years?" George Little, who is a smart guy, a good spokesman, said "They clearly have been violation of the international obligations. We've expressed serious concern. There is a consensus to bring international pressure to bear." He could say nothing because the answer is we haven't done much to slow their military progress in the last four years, and I think that is a sad statement.

BAIER: Does Israel attack before the election, Charles?

KRAUTHAMMER: Well, I think they are ready to. They understand that the world is not going to do a thing. They have been facing this kind of a crisis three times in their history, and each time, '48, '56, and '67, Israel was told, "wait, we'll take care of it," and it attacked because it had to save itself. I think it will.

BAIER: You think it will. That is it for the panel, but stay tuned for a new roadshow in the campaign.

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