This is a partial transcript from "On the Record," July 19, 2006, that has been edited for clarity.

GRETA VAN SUSTEREN, HOST: Hezbollah says, "We welcome World War III," and now news that a ground war is possible in the coming days. Will this war turn into something much bigger? Is World War III really on the horizon?

Joining us here in Washington is former Secretary of State Madeleine Albright, nice to see you Madam Secretary.


VAN SUSTEREN: If the Israelis cross that line with ground troops into Lebanon what will that mean?

ALBRIGHT: Well, I think it obviously makes the whole situation much more dangerous because they have been then drawn into a territory that, as Shep described, is dangerous for them, landmines, et cetera, and they are not fighting from the outside but the inside.

And, one of the things that the Israelis wanted very much was to get out of Lebanon because they understood what the situation had been for them to be occupiers and they don't want to be occupiers. They just need to deal with Hezbollah as a military threat.

VAN SUSTEREN: Big picture if they do step over that line does that somehow invite Syria and Iran to take what — I mean most perceive them as having a role now but taking a much bigger role?

ALBRIGHT: Well, it depends again on what the spinout of this is. I think one of the problems always with something like this is not every detail is planned ahead and there can be some kind of an accidental bombing into the Syrian areas or the Iranians then decide that they aren't getting as much out of this as they wanted.

And so there are the unintended consequences of this and I think that is the problem in that we are at a crossroads time in all of this where this could go in a very bad direction of spreading into a regional conflict.

And what I think has to happen is to try to figure out a way to get a resolution that does, in fact, not allow Hezbollah to regroup and, at the same time, allows Israel to feel secure within its borders but does not in fact lead to a wider battle.

VAN SUSTEREN: But here's the problem. If you talk about a resolution, say like U.N. Resolution 1559, you know, this was supposed to disarm Hezbollah. It didn't happen. I mean what kind of security could any resolution ever really truly give Israel at this point?

ALBRIGHT: I didn't specifically mean a U.N. resolution. I meant some kind of a solution.

VAN SUSTEREN: All right. Well put one on the table for us then.

ALBRIGHT: Well, I think that what has to happen is this cannot be solved militarily in the long run. I think there has to be some diplomatic activity here and I would hope that there are things going on behind the scenes that would begin to lay out a diplomatic track because I think that that is the part that has to be dealt with.

There are a number of diplomats in the region and that all has to be built on. And, I hope very much that Secretary Rice is able to begin to take a much more active role in this.

I'm presuming that she is in New York, that she is trying to look at a diplomatic way to deal with this, because in the end I'm very worried about whether Hezbollah can be totally destroyed through military means without Israel getting more and more sucked in.

VAN SUSTEREN: How do you though negotiate or how do you — what kind of diplomatic solution could you possibly have with Hezbollah? If Hezbollah is indeed the terrorist organization, which is what the United States says it is, I mean it just seems impossible that you could ever — they could ever want anything other than the utter destruction of Israel.

ALBRIGHT: Well, what has to happen is that the government of Lebanon, the legitimate government of Lebanon begins to be able to control its own territory which it cannot do by itself.

Hezbollah has to be surrounded in a way that the territory is not dangerous and that the Lebanese government is in control but with the help of international forces of some kind.

And, the thing that is so interesting frankly about what is happening in the Middle East is the fact that some of the Sunni leaders in Saudi Arabia, in Egypt and in Jordan are very critical of what Hezbollah has been doing.

And so that particular aspect of it is something that I think needs to be strengthened. The Arab League has not been interested in what Hezbollah has been doing and I think that that is something that we need to work with.

VAN SUSTEREN: Would that or will that change if Israel continues to bomb like southern Lebanon or southern Beirut area and will that change if they go over into Lebanon? Does Israel then sort of lose that sort of moderate aspect of some of the other countries?

ALBRIGHT: I think that's one of the real dangers here because one of the other issues that goes on in some of the Arab countries is that the leaders may have decided to be critical of Hezbollah but the question is what the so-called street will think if it looks as though the Lebanese people are being injured more by Israel.

Israel is certainly within its rights to defend itself. I think everybody or most people that I know agree with that and that they having being attacked by the Katyusha rockets and having had their people abducted have a right to defend themselves.

The question is at what moment does this go, so to speak, in a different direction where they then look as if they are being much more the occupiers and the aggressors and they lose the kind of support that the Sunni leadership in various countries is putting forward.

I think the real danger here is what this does in terms of a Sunni- Shia conflict which is some of the things that we're seeing in Iraq. So, this is throughout the region various — I've described this many ways as a billiard table where one ball hits another and it's very dynamic horizontally and we have to be very careful that this doesn't totally spin out of control.

VAN SUSTEREN: And indeed it's a very precarious situation right now, at least it appears that way.

ALBRIGHT: It certainly is.

VAN SUSTEREN: Madam Secretary, thank you very much.

ALBRIGHT: good to be with you, Greta.

Content and Programming Copyright 2006 FOX News Network, LLC. ALL RIGHTS RESERVED. Transcription Copyright 2006 Voxant, Inc. (www.voxant.com), which takes sole responsibility for the accuracy of the transcription. ALL RIGHTS RESERVED. No license is granted to the user of this material except for the user's personal or internal use and, in such case, only one copy may be printed, nor shall user use any material for commercial purposes or in any fashion that may infringe upon FOX News Network, LLC'S and Voxant, Inc.'s copyrights or other proprietary rights or interests in the material. This is not a legal transcript for purposes of litigation.