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This is a rush transcript from "The O'Reilly Factor," December 16, 2008. This copy may not be in its final form and may be updated.

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BILL O'REILLY, HOST: Now for two other opinions of [how America should deal with the Arab world], joining us from our New York studio, Pete Hegseth, chairman of Vets for Freedom, who served in Iraq in 2005 and 2006, and Dan Gerstein, a Democratic political consultant.

You know, it's hard to argue if you're not a Kool-Aid drinker, not an ideologue, but just an American, just somebody who wants his family and himself or herself kept safe, it's hard to argue that breaking Khalid Sheikh Mohammed by using water-boarding was the wrong thing to do. But you, Dan, still argue against it, do you not?

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DAN GERSTEIN, DEMOCRATIC CONSULTANT: Not just me.

O'REILLY: No, no, but I want to talk about you.

GERSTEIN: OK.

O'REILLY: You…

GERSTEIN: Well, John McCain and Colin Powell both argue against water-boarding, saying it's illegal and it violates Geneva Convention. And most importantly, it puts American soldiers at risk. When we use torture, it makes it more likely that American soldiers who are captured are going to be tortured. It doesn't make us safer.

O'REILLY: But Dan, look, I want you to put down the Kool-Aid for a minute.

GERSTEIN: I'm not drinking the Kool-Aid, Bill.

O'REILLY: And I'm not insulting you, but if you think for a minute that any American service person, soldier, Marine, Navy, Air Force, anybody, isn't tortured and brutalized when they're captured by Al Qaeda, then you're living in the Land of Oz, sir. OK? You're either willfully blind, and I know you're not…

GERSTEIN: But that's not what I'm saying, Bill. What I'm saying is…

O'REILLY: Yes, you are. That's what you're saying exactly. You're saying that because we used water-boarding on three captured Al Qaedas that our soldiers are in more danger.

GERSTEIN: No, I'm not saying that. That's what the American military says.

O'REILLY: OK.

GERSTEIN: Most American military leaders are against torture.

O'REILLY: That's not what they say. It's a divided debate. Now let's go over to Mr. Hegseth, who was in the military and doesn't say that, Dan. What say you, Pete?

PETE HEGSETH, VETS FOR FREEDOM: Well, I also served in Guantanamo Bay and know that the folks that we're holding there are very dangerous and seek every opportunity to get back to the battlefield and kill Americans. And they have intelligence, and Khalid Sheikh Mohammed had a great deal of it. And what we did was do everything we could to make sure that we kept our soldiers on the battlefield in future engagements and here at home safe because we had the intelligence we needed to pick apart these far- reaching, secretive networks that exist in keeping their mouth shut and not telling us where they are and what they do.

O'REILLY: All right.

HEGSETH: And we put ourselves at risk…

O'REILLY: So you don't have any problem with water-boarding Khalid Sheikh Mohammed, as Dick Cheney didn't have any problem, right?

HEGSETH: Personally in this particular instance, I don't.

O'REILLY: OK. Now the problem, the beef I have with Vice President Cheney, is that the Bush administration let this stuff get out of hand. They let the press define it as torture. And it's debatable whether water-boarding is or not, because it's used — and I think you know this, Dan — in some of our special forces training. Our own people are water-boarded, all right? But they let it get out of hand, Pete. And they also didn't try these people in a timely manner, which again gave the image of a gulag in Guantanamo. I've been there twice.

HEGSETH: Yes.

O'REILLY: You served there. It's not a gulag, but most of the world, Dan, thinks it's a gulag, you know? And that's a big problem.

HEGSETH: No, you're absolutely right. It's a PR problem. It's been a PR thing from the beginning. Anybody that visits, anybody that sees the way these guys are treated understands how far we bend over backward. My men in many ways lived in worse living conditions beside the fact that, you know, they were guards at the facility, than a lot of these guys did in Guantanamo Bay, Cuba. They would yell up to the towers saying, you know, we want to kill Americans. We're going to get back to the battlefield and take you out, because — but they're well fed, they're taken care of.

O'REILLY: Yes, I mean, they have what they need.

HEGSETH: They have access to legal representation.

O'REILLY: But they were roughed up right after 9/11 in Gitmo. Maybe a few months to a year after, they were roughed up.

Now Dan, when you see a guy like this Iraqi journalist throw his shoes and insult the president of the United States, after all the United States has put into building a democracy in Iraq, when you see this, how do you personally react to that?

GERSTEIN: Well, I don't defend it in any way. It's an insult. It's undignified. There is no defense for it. However, the idea that just because we took out Saddam, which was a great thing, don't get me wrong, somehow excuses all the incompetence and the bungling of the reconstruction, which has helped destroy this country…

O'REILLY: Which country?

GERSTEIN: Iraq. Our incompetence in running…

O'REILLY: Well, let me ask you something. Do you think — and nobody — I'm certainly not defending the war in Iraq the way it was waged — but do you think Iraq's better off now or better off under Saddam?

GERSTEIN: That's a false choice because…

O'REILLY: It's not a false choice. It's a choice — it's a reality.

GERSTEIN: Because on the one hand, yes, they're better off without Saddam, but they're not better off on the basis of the way we ran the reconstruction.

O'REILLY: All right. So you're saying that you don't believe Iraq as it is now with a guy throwing the shoe at the president and not being executed, it's not worse than it was under Saddam? Is that what you're saying to me?

GERSTEIN: No, I'm saying it's worse than it — it's much worse than it should have been because of the Bush administration's incompetence.

O'REILLY: How do you see that, Pete?

HEGSETH: No, I think Iraq — listen, President Bush athletically ducked that shoe coming at him. But thankfully over the last two years, he stood strong in principle when the surge, when others like many in the far-left wing of the Democratic Party said the surge would fail and would not work.

GERSTEIN: But Bill, I got to correct the record.

HEGSETH: Thankfully…

GERSTEIN: President Bush opposed the surge for several years.

O'REILLY: Yes, I know. But when it came down to crunch time, it was Bush who made the call.

HEGSETH: It was Bush who stood strong…

O'REILLY: All right.

HEGSETH: …in the face of…

O'REILLY: We're never going to — look, the Iraq thing is an unending debate, but I think we've got to be kept safe, and if Barack Obama's not going to use any coerced interrogation, I'm worried. Gentlemen, thanks very much.

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