This is a rush transcript of "Special Report With Bret Baier" from May 5, 2009. This copy may not be in its final form and may be updated.

BRET BAIER, "SPECIAL REPORT" HOST: So what about the latest moves from this administration when it comes to Israel, to the Palestinians, and to Israel's concerns and potential action in regards to Iran?

Let's bring in our panel, Juan Williams, News analyst for National Public Radio, Nina Easton, Washington Bureau Chief of "Fortune Magazine," and syndicated Charles Krauthammer — Charles?

CHARLES KRAUTHAMMER, SYNDICATED COLUMNIST: Well, I think this argument over a two-state solution is a complete red herring.

There is no Israeli government, including Netanyahu's government, that would not accept a settlement in which a real Palestinian state genuinely accepted a settlement that ends the war with Israel and recognizes a Jewish state.

The problem is such a partner doesn't exist and hasn't existed ever. For the last nine years, you've had in Israel under Sharon and Olmert governments which accepted a two-state solution, have engaged in negotiations, and have essentially offered what Israel offered nine years ago under Ehud Barack, who's now the defense minister, with Bill Clinton assisting in that offer of a Palestinian state and a settlement in perpetuity with Israel.

The Palestinians rejected it at the time. They have rejected it ever since, which is why all the negotiations over the last eight years have failed. It's never been the Israeli problem. It's been the fact that the Palestinians will not accept a Jewish state.

Look, the Palestinians already have a state. It's called the Gaza. It's independent. There are no Israelis in Gaza. It's a terrorist straight that has been at war with Israel ever since the day the Israelis left. It's an ally of Iran and Islamic radicalism.

The Israelis and Americans understand that if you have a Palestinian state of that sort in the rest of Palestine, it will be a catastrophe.

And what Israel is saying today is unless you talk about what kind of Palestinian state, that it can't be a Gaza state. It has to be a state that accepts Israel and accepts the peace, all talk of a two-state solution is irrelevant and is headed nowhere.

BAIER: What about, Nina, how this administration is positioning this ahead of Prime Minister Netanyahu's visit in two weeks?

NINA EASTON, WASHINGTON BUREAU CHIEF, "FORTUNE" MAGAZINE: Well, I think Charles is right. The focus here is how to make progress with the Israelis with Netanyahu's government, which has resisted embracing the two-state solution.

But as we saw, AIPAC, that lobby group, applauded Joe Biden today when he said stop building settlements. AIPAC lobbyists went up to the Hill to get members of Congress to sign a letter saying "We want a two- state solution."

So Israel, despite some resistance from the prime minister, is not really the problem. The problem — but I do think the Obama administration can create this illusion of progress in the coming weeks, as the prime minister's visit comes up, so it will look like there's progress.

But Charles is right. Long term, you need to find, you know, moderate Palestinian force enough to actually support it and renounce violence against Israel.

BAIER: Juan?

JUAN WILLIAMS, SENIOR CORRESPONDENT, NATIONAL PUBLIC RADIO: Well, I mean, obviously you need a group of Palestinians who are willing to acknowledge that Israel has a right to exist.

But at the moment, the problem is that any kind of moderate force in Palestinian life is being forced to extremist proportions. I mean, the extremists always dominate.

Now, why is this? Well, don't forget, Israel is an occupying force. Don't forget, when Vice President Biden talks about settlements, when he talks about outposts, when he talks about the need for allowing Palestinians more freedoms, he is speaking to things that are aggravating the situation that are in Israel's control.

Then you have in Israel have a conservative government take control, and Netanyahu send out suggestions — Peres says it's not true, but everybody around town has been hearing that Netanyahu is backing off of this two-state solution and looking towards what he's described as a more political and security track, which suggests they want to get tough, that they think that there is progress to be made by getting tough with the Palestinians.

It's not apparent to the White House, I can tell you.

KRAUTHAMMER: Juan, if the problem is Israeli settlements and occupation and this oppression, why is it that when Israel made an offer that was witnessed by the United States at Camp David in the year 2000 to end all occupations, remove all settlers, and have a peace, it was rejected by the Palestinians.

They did not even have a counteroffer, and six weeks later, they started a terror war against Israel?

WILLIAMS: Well, I think you have to go back to players like Yasser Arafat, and the fact that people, I think, were, insincere, Charles. I think they were corrupt. And, again, I think they're governed by extremists.

So the question is, re you going to live in the past and back in those negotiations, or are you are going to try to go forward and say we are making a sincere effort?

KRAUTHAMMER: Let's live in the present. And who among the Palestinians would accept this same offer today? And the answer is no one.

WILLIAMS: We don't know. But if you want to give up — you can't give up before your start the negotiations.

KRAUTHAMMER: Edward Olmert offered it over and over again over the last three years, and he got a "no." That's why we don't have a peace today.

BAIER: President Obama is trying to overcome resistance in his own party to his lack of plans for Guantanamo Bay, his current plans for dealing with global warming, and the other things. The panel weighs in on that after the break.



REP. NEIL ABERCROMBIE, (D) HAWAII: We're not here today providing an alternative to the activities now taking place in the energy committee, which have essentially stalled, stalled to the point that the president himself had to come to Capitol Hill today to speak with the Energy Committee members to see if they can advance what is, at best, a peripheral aspect of dealing with the whole question of dealing with alternative energy and climate change.


BAIER: The president didn't actually go to Capitol Hill. House Democrats, many of them, went to the White House, the president trying to quell a revolt over climate change legislation, and made an adjustment, had to back off the centerpiece of his plan, a tax on 100 percent of emissions beginning in 2012.

Then you have the Gitmo issue. You have Representative David Obey saying "I personally favor what the administration is doing on Guantanamo Bay, but there's not a concrete program. And, basically, we're not going to give the administration money to close Gitmo until there is a program.

So what about this? Is it a problem?

We're back with the problem — Juan?

WILLIAMS: What you're seeing is, this is a very interesting moment in terms of Washington politics. These aren't Republicans that are bucking the president. These are Democrats.

And I think you are seeing now Democrats, especially Democrats with regional interests that are at variance from the administration policy, becoming louder voices.

But, you know, Obey is interesting one. He is also saying that when it comes to Afghanistan, he gives the president about a year. On Gitmo, he's demanding, and I think this is extremely rational, I don't know how you can disagree with it, give me a plan for how you are going to go about closing Guantanamo Bay. Are you are going to bring those people to the United States? Is that what you're suggesting? Let's have a discussion.

And the Obama administration doesn't have a plan. Therefore, he is going to be an obstacle, and he's a fellow Democrat.

EASTON: I think he has got a problem both on the left and the right, or center of his party. On the left, on the Gitmo issue, he doesn't have a plan. The lefty blogs now are raising concerns about whether he is really going to close Gitmo when he said he was going to close it.

Secondly, he did this other — made this other decision last week where he said — where the word was that he is possibly going to turn to military commissions to prosecute some of these prisoners, which is — just really sent the left ballistic.

And on the center side, I mean it was no secret that this cap and trade was going to be a problem, and the Senate already resisted it.

And I thought it was kind of a strange decision on the White House's part to punt this, once again, to take a major policy like this and punt it to the two most liberal members of the House, Ed Markey and Henry Waxman, and let them — and liberal coast members, not rust belt people. And they didn't bring those people into the process.

BAIER: If you want to hear what Charles has to say on this topic, stay tuned. You may you noticed the panel segments are a little different tonight. We're making room, more room for the panel. We're starting earlier, continuing our discussions.

More on this topic after the break.


BAIER: Continuing our discussion about the administration working with House democrat and getting some pushback. We're back with the panel — Charles?

KRAUTHAMMER: I'm happy, I'm even honored to inaugurate the extra panel segment.

On Guantanamo, it isn't often that in Washington you get to actually witness poetic, but this is a perfect example. Obama has grandstanded on this for a year and a half. He basked in the applause. He's in Europe, he attacks Guantanamo. He promises he will close it. And of course, he loves the warm reception.

The problem was it was never an issue of geography. It was always an issue of policy and principle. What do you do with Khalid Sheik Mohammed, whom cannot release, no ally will take, who you cannot have in federal court because he was not read his Miranda rights, but that you're going to have to hold onto.

And the reason there's all of this anger and pushback in Congress is because he is going to have to end up on American soil. That's inevitable.

I would say, you know, unless the British will give us St. Helena, or the Italians will give us Elba, and I think he may seriously end up on a Hawaiian island. I'm serious about this — perhaps a leper colony, one of those evacuated leper colonies.

You want to have them outside the contiguous 48 in a place in which if he escapes, he actually has to paddle, and where you are going to have, as Nina indicated, military commissions.

You cannot have him in federal court. And it's nice to see Obama have to eat crow on the commissions, because there is no other way to try him in which he is not going to end up released as innocent.

BAIER: Maybe Alcatraz, in the House speaker's backyard.

KRAUTHAMMER: Excellent, in San Francisco. And the view is excellent, I am told.

EASTON: And it's not far away from the ACLU offices if he needed some assistance —

KRAUTHAMMER: There are sharks in the water offshore, as well.

BAIER: I know you wanted to circle around to cap and trade.

EASTON: Well, just again, this is one of those cases, just like Charles is talking about with Gitmo, where leading and governing is so much more difficult and complex than actually running for president.

And in this place, cap and trade is a situation where you're going to be reorganizing the entire energy economy. It's huge, and there's going to be a lot of losers as well as winners.

And we focused on some of those — the regional players who are going to be hurt, the factories, the consumers, and so on.

But I think what hasn't been focused on enough yet, and what will come into focus, is that it will have a broader impact of hurt on people in that in order to ease the pain, they will have to spend more money in subsidies both to consumers and factories, and that is going to mean it's going be more expensive.

And that raises the prospect of tax hikes down the road.

And, I think, again, these are very politically dangerous waters to walk into.

And I thought it is interesting that Chris Van Hollen, the congressman who is running the political campaign for the Democratic House members, sees the political costs in some of this. And he's one of the people that was resisting raising —

WILLIAMS: That's only if it does not get through in the Senate.

And so —

BAIER: Does it get through? Quickly.

WILLIAMS: I don't know it at this point. But what you are seeing is you are seeding the field in the House. And that's why Henry Waxman is upset with Chris Van Hollen.

But, again, it's all among Democrats.

KRAUTHAMMER: It doesn't have a chance in the Senate.

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