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


MOUSSA ABU MARZOUK, HAMAS SENIOR LEAD ER (via translator): Today we are celebrating this historical occasion for all our people in the occupied territories and in occupied territory's jails. This good news has ended a period of Palestinian history that was controlled by division.

AZZAM AL AHMED, FATAH HEAD OF DELEGATION (via translator): All political factions will soon be invited to Egypt, who played a vital role in reaching this agreement and whose leadership supervised the process since 2009.


BRET BAIER, ANCHOR: Hamas and Fatah reconciling after a long time. They'll hold elections in a year, the new government will be made up of independent candidates not affiliated with either party. Egypt, the new government of Egypt is said to have brokered this deal. Before the break we asked do you think the reconciliation, between Palestinian factions, Hamas and Fatah will last? 95 percent of you think it will not.

We're back with the panel. What about the prospects of this peace deal? Steve?

STEVE HAYES, SENIOR WRITER, THE WEEKLY STANDARD: Well, I share that skepticism. I think if you look at what's happened over the past three years with Hamas and Fatah going at each other, adherents going at each other in the streets, this does not bode well for them internally.

I think if you take a bigger picture look, everybody loses in this. I think the Israelis lose for obvious reasons. I think Fatah loses because it now will be commingled with a terrorist group, which will limit the U.S. aid potentially that it receives. It will limit its ability to conduct business with other countries in the world, potentially. Hamas I think probably gains the most out of this because it may get some additional credibility on the international stage, perhaps. But I think --

BAIER: Isn't this what everyone was talking about, that the Palestinians need to be unified in order to negotiate effectively with the Israelis?

HAYES: Well this is -- yeah, but I think brings to an effective end any kind of serious negotiated peace deal. I mean this is not -- the Israelis are not going to now join hands to eagerly negotiate with Hamas. I mean it would be sort of like the United States negotiating with Usama bin Laden. It doesn't make any sense.

And this I think points to the bigger picture and it's the failure of the administration policy. If you go back two years and look at what the Obama administration wanted to do in the region, it wanted rapprochement with Iran, it wanted the peace process to be reinvigorated, and it wanted to distance itself from George W. Bush's freedom agenda.

You've now seen the freedom agenda take off with rapid speed. You've now seen Iran reject all of our overtures, and I think with this you've seen the peace process totally fall apart.

BAIER: Karen?

KAREN TUMULTY, WASHINGTON POST: Well, it does put the administration in a spot because they cannot have any kind of dealings with Hamas unless it, one, renounces violence, recognizes Israel, and agrees to abide by the old peace deals. And it also comes at spot when the administration's own efforts at peace were pretty much in a rut. George Mitchell, who was supposed to be handling all this, has not even been in the region since December.

BAIER: Charles, the Palestinians have seen some growth in the West Bank. They're seeing growth of eight percent or so. When I was over in Israel talking to Shimon Peres, the president, he said that bottom-up growth is how they saw the Palestinians coming to the table. Is it possible in Gaza they said we need some of that growth, too, and we need to merge with these two?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: I think it's going to have the opposite effect. What it's going to do, it's going to undermine all the growth, all the construction of civil society that the Palestinians have been engaged in on the West Bank up until now.

The reason is this - and that's why it's so ominous. This shows us the intentions of Mohammed [sic] Abbas, the leader of Fatah. He's a guy who's had every opportunity to make a peace deal. He was offered peace in 2008 he rejected it. The Obama administration put pressure on Israelis for a ten-month moratorium. So negotiations could start. He didn't join it until the last month, and then he walked out.

And now, knowing that the United States will not supply any support or funds to a government involving Hamas, he joins with Hamas knowing there will have to be a cutoff -- it's already being discussed in Congress -- which will undermine the entire civil society, construction, the growth of the economy that has been everyone's hope for the Palestinians. You construct the institutions, you grow the economy, you produce a middle class, and then you have the basis of a Palestinian state and stable peace. He's undermining all of this. Why? Because he has no intention of negotiations and offering a serious offer to the Israelis.

This way he never has to negotiate. He can go to the U.N. in September as he will and have a paper Palestinian state declared but nothing on the ground, no concessions, and it will undermine all the efforts of constructing a civil society that have been going on for two years.

BAIER: But if as you say, the administration made it clear, which it would have, that if Hamas joins up that it can't deal with Mahmoud Abbas, is this thumbing his nose at the Obama administration?

KRAUTHAMMER: That is why it's ominous. It's an official thumbing of his nose. Up until now, he has been avoiding the negotiations, walking out, making excuses. This is to me an official declaration of independence. I'm no longer working with the Americans. I'm prepared for a cut-off. All I care about is the Arab street, working with Hamas and working with Egypt and other Arab countries. It means we are at a dead end on the peace front.

BAIER: That's it for panel, but stay tuned for a follow to a "Grapevine" story we brought you a couple of weeks ago, a case of mistaken identity of a national treasure.

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