This is a rush transcript of "Special Report With Brit Hume" from May 14, 2007.

BRIT HUME, FOX NEWS ANCHOR: Next on SPECIAL REPORT, the Republican field prepares for its first debate in a state and region that has been crucial to GOP presidential prospects for de cades. We are in South Carolina in force for the big doings. We'll also tell you why Christmas this year may be a political season. And elsewhere, the administration is ready to engage Iran on its role in Iraq. The vice president weighed in on that today. And the search continues for the missing U.S . soldiers in Iraq. Meanwhile, a key Taliban leader is dead in Afghanistan. All that right here, right now. Welcome to Columbia, South Carolina. I'm Brit Hume. The Republican presidential candidates will be gathered here at the Coger (ph) Center at the University of South Carolina tomorrow night for their second nationally televised debate, which will air right here on the Fox News Channel. Since 1980, no Republican has lost the South Carolina primary and gone on to win the nomination. We have "You Decide" team coverage tonight of the latest in the polling, the primaries and the positions. Cor respondent Steve Brown is standing by. But first let's go to chief political correspondent Carl Cameron with a report on a new poll suggesting some movement in the race here. Carl?

CARL CAMERON, FOX NEWS CHIEF POLITICAL CORRESPONDENT (voice-over): — shows that Rudy Giuliani and John McCain are in a dogfight for first place.


CAMERON (voice-over): The latest survey by respected Republican pollster Whit Ayres, who's unaligned with any campaign, shows John McCain at 25 percent, leading Rudy Giuliani by five points. But the poll has a 4.4 percent margin of error. Fred Thompson at 16, Newt Gingrich at 12 percent, and Mitt Romney at eight. Lee Bandy, who's covered South Carolina politics for more than 40 years, says McCain had a double-digit lead for months and Giuliani closed the gap even though most disagree with his socially liberal views.

LEE BANDY, POLITICAL COLUMNIST: And Rudy kind of snuck up on him. It does surprise a lot of people that Rudy is running as strong as he is in a state like South Carolina, which is very conservative.

CAMERON:For McCain, South Carolina is tricky. It has one of the nation's largest per capita populations of active and retired military, many of whom agree with his ardent support for the Iraq mission. But there are bitter memories of the nasty 2000 primary battle against George W. Bush. For instance, McCain has said he's deeply ashamed of himself for having then said he supported the state's display of the confederate battle flag, a statement he now says was not straight take, but rank pandering. And polls show that while 66 percent Republicans view McCain favorably, 28 percent view him unfavorably, the highest negatives in the GOP field. By contrast, Rudy Giuliani, whose liberal views on abortion, gays and guns are at odds with many in the Palmetto State GOP still has the highest favorability, 74 percent, with only 18 percent viewing him negatively. Former Tennessee Senator Fred Thompson, a southerner, who has yet to even visit South Carolina as part of his pre-campaign candidacy, has 70 percent name I.D. here. Newt Gingrich today on "Good Morning America" reminded South Carolinians that he may enter the race this fall.

NEWT GINGRICH, FMR HOUSE SPEAKER: I think right now it is a great possibility.

CAMERON:Then there's Mitt Romney. South Carolina is proving hard to crack for him. He's been running ads steadily, and that's raised his name recognition to a highly competitive 87 percent, but he remains mired in fifth place, in single digits, behind two candidates who aren't even running yet and only 54 percent view Romney favorably.

BANDY: He comes across as the perfect candidate. People are a little leery of someone who looks perfect and comes across that way. The other reason is his faith. This is southern Baptist country. As we say down here, this is the buckle on the Bible Belt. The southern Baptists consider Mormons part of a cult.


CAMERON:In fact, southern Baptists per capita have some of their largest populations right here in South Carolina. That same poll shows that when John McCain and Rudy Giuliani go head-to-head, McCain, but it's statistically insignificant, 47 to 46 percent. That is despite McCain's baggage from 2000 and Rudy Giuliani's social liberalism. One last thing Brit. We have some signs behind us here. You can get an idea of how the anticipation is growing in South Carolina, here in Columbia. No Rudy Giuliani signs, lots of Mitt Romney, lots of John McCain and other candidates, but Rudy Giuliani not a particularly pronounced presence here at least tonight. Brit?

HUME: OK Carl, thank you. As Carl mentioned, South Carolina has played a significant role in early primaries but other states have begun scheduling their own primaries even earlier. Steve Brown has a look at how party officials here are likely to deal with that. Steve?

STEVE BROWN, FOX NEWS CORRESPONDENT (voice-over): Brit, when it comes to the 2008 presidential contest calendar, South Carolina is on the move. And for that you can blame Florida.


BROWN: How do you feel about an October presidential primary?

UNIDENTIFIED MALE: If we have to go to Halloween and do our version of presidential trick or treat, that's where we'll be.

BROWN: The South Carolina Republican party chairman says he's prepared to do whatever it takes to preserve his state's place as the first in the south presidential primary. But right now it's second in the south because the Florida legislature last week voted to move the Sunshine State's contest to January 29th, four days before the South Carolina Republican primary.

JIM GREER, FLORIDA GOP CHAIRMAN: Although states may not be too happy with Florida, Florida is a dominant player, has always been a dominant player in selecting a president of the United States. We just moved the ball a little bit more forward to become even more relevant in the upcoming election. BROWN: No problem says the Palmetto State Republican chief.

KATON DAWSON, SOUTH CAROLINA GOP CHAIRMAN: We have a firm place in presidential politics here in South Carolina. We'll retain that at all costs. So we'll move our date accordingly.

BROWN: So what if the South Carolina GOP decided to select January 26th as its primary date, three days ahead of the new Florida date? Well, that could have the New Hampshire primary moving to January 15th because officials there say it must be at least seven days before any similar contest. That would cause Iowa to move to January 7th, because Iowa law says its ahead of any presidential contest by eight days. If South Carolina moved back any earlier, the contest calendar would begin in late 2007. And if that's not enough, the South Carolina GOP must also deal with the possibility of double voting. The South Carolina Democratic party primary is set for January 29th. It's likely the two parties will have contests on separate days. And in an open registration state, that means there's an opportunity, although an illegal one, for a South Carolinian to attempt to vote in both primaries.


BROWN: Now, the two Palmetto state parties are working together to try and coordinate things. So whichever goes first, the list of the voters will be passed off to the other. When will that South Carolina primary actually take place? The state party chairman has not said, holding those cards pretty close to the vest, but says he won't need much lead time; 24 hours is what he says is all he will need. Brit?

HUME: OK Steve, thank you. Later in our program, a Texas town wants landlords to enforce immigration laws. But up next, why the vice president thinks Iran is worth talking to and about what. Stay with us.


HUME: Vice President Cheney said today that Iran remains a key player in the Middle East and that it is in the best interest of the United States to continue talking with the Tehran government, despite disagreements over its nuclear program. Cheney spoke to Fox News on his way home from the region. We have two reports tonight, beginning with chief White House correspondent Bret Baier.


BRET BAIER, FOX NEWS CHIEF WHITE HOUSE CORRESPONDENT (voice-over): In an exclusive interview with Fox, after a meeting with Jordan's king in the seaside town of Aqaba, Vice President Cheney insisted the U.S. is not sending mixed messages by agreeing to sit down with Iranian officials in Baghdad.

DICK CHENEY, VICE PRESIDENT OF THE UNITED STATES: The Iranians have been interfering in the internal affairs in Iraq. And that subject will be discussed at the ambassadorial level. That has nothing to do with the fact that we are, obviously, opposed to what the Iranians are trying to do in the nuclear area. They appear to be determined to develop the capacity to enrich uranium, in order to produce nuclear weapons. The U.N. Security Council now has twice unanimously passed resolutions calling for an to end to that Iranian nuclear program. So far the Iranians have ignored it. They shouldn't ignore it. They ought to comply with the U.N. resolutions.

BAIER (on camera): So the dual track, is that fair to call it, duel track? Good cop-bad cop with Iran?

CHENEY: Good cop, bad cop in what sense?

BAIER: Well, I mean, you're sitting down with them and talking with them, and then you're delivering a message on an aircraft carrier with F/18s behind you.

CHENEY: And we'll stand with others to prevent Iran from gaining nuclear weapons and dominating this region.

BAIER: The vice-president said Iran supports Hezbollah in its attacks against Israel, is the prime state sponsor of terror, is trying to get a nuclear weapon and has been destabilizing Iraq.

CHENEY: The decision the president made is that there will be conversations at the ambassadorial on the issue of what Iran is doing in Iraq. Meanwhile, there are all these other issues that are of concern to us. And obviously, we need to take action to make certain we safeguard our interest.

BAIER (on camera): President Mubarak's spokesperson came out and said the Egyptian president told you that the Iraq issue and the Iranian nuclear issue cannot be resolved without restarting the Middle East peace process. Do you agree with that?

CHENEY: I don't want to characterize the conversations I had with any of the leaders. My experience has been generally throughout the region that everybody is focused on the Iranian situation. It's a top priority, if you will, in terms of concerns and the prospects of the Iranians developing nuclear weapons. The Israeli-Palestinian peace issue is obviously also important. But you can't retard or not work on one issue because the other one isn't solved. You have to address them both.

BAIER: Do you think there's a link between solving these problems and the Middle East peace process?

CHENEY: I think we have to address all the problems and we don't have the luxury of ignoring any of them.

BAIER: On the debate about Iraq at home, do you believe someone who opposes the war wants terrorists to win?

CHENEY: I think they have to be responsible for the consequences of the policies recommendations they make. If, in fact, they advocate complete withdrawal of U.S. forces from Iraq, then they are to some extent accountable for what would happen were that policy followed. Now, I think there's been not enough attention paid to the consequences that would flow if we were to adopt the policies that have been recommended by a majority of the Democrats. Nancy Pelosi and 169 Democrats last week voted for immediate withdrawal from Iraq. I think that would be a disaster. Everybody I have talked to in the region out here, everybody, thinks it would be a disaster.


BAIER: The vice-president now heads back to Washington after hours of meetings with Arab leaders. He says he's encouraged by what he's heard. The question now is whether the meetings will translate into a change on the ground in Iraq. In Aqaba, Jordan, Bret Baier, Fox News


JIM ANGLE, FOX NEWS CORRESPONDENT (voice-over): I'm Jim Angle in Washington. Vice President Cheney also made clear that Iraq is playing with fire in another respect.

CHENEY: We are confident that there are a number of senior al Qaeda officials in Iran, that they've been there since the spring of 2003. About the time that we launched operations into Iraq, the Iranians rounded up a number of al Qaeda individuals and placed them under house arrest.

ANGLE: But intelligence sources say the Iranians only put the al Qaeda figures under lose house arrest and then only after the U.S. and others raised questions about the terrorists. Current and former intelligence officials say the al Qaeda figures in Iran include one of bin Laden's sons, as well as Saif al Adel, described as the head of military operations for the group. Another man, Abd al Aziz al-Masri, is known in al Qaeda circles as the group's nuclear chief.

CHENEY: They have been held there for some time. What activities they have been engaged in, I'm not at liberty to discuss.

ANGLE: But former CIA Director George Tenet wrote in his book about one disturbing episode, in which the U.S. learned that the al Qaeda leaders in Iran were getting messages from Abu Bakr, the terrorist leader in Saudi Arabia, messages saying the group was negotiating for the purchase of three Russian nuclear devices. Tenet writes that Saif al Adl sent word that "no price was too high to pay if they could get their hands on such weapons," something many say al Qaeda is determined to acquire.

ROBERT RICHER, FMR CIA ASSOC DIR OF OPER: We know they were looking at how you build a dirty bomb. We know from documents they were looking at online, things of how you build a bomb. They want that.

ANGLE: Tenet disclosed that the CIA had two face-to-face meetings with the Iranians. Officials tell Fox the U.S. urged Iran to deport the terrorists to their countries of origin. Iranian leaders refused to do that, but did tighten their control over the group after U.S. intelligence told them about efforts to get a nuclear device, and warned that if any terrorist attack against Americans were to come from Iranian territory, it would be held responsible.

JAMES PHILLIPS, HERITAGE FOUNDATION: The administration is being prudent to warn Iran ahead of time that if something eventuates such as what happened with the al Qaeda people in Afghanistan, that the Iranian government would face the same consequences as the Taliban.

ANGLE (on camera): Apparently that made an impression on Iran and they started keeping a closer watch on al Qaeda. They understood how bad it would be, said one former official, if there were another terrorist attack and it was learned it had been planned in Iran. In Washington, Jim Angle, Fox News.


HUME: Opening statements began today in the Miami trial of Jose Padilla, an American citizen accused of conspiring with two other men to provide support to Islamic extremists around the world. Padilla was originally accused of plotting to detonate a radioactive bomb in the U.S. He was held in a Navy brig as an enemy combatant for three and a half years. That allegation, however, is not part of this trial. Defense attorneys today accused the government of distorting the meaning of words such as Jihad and Mujahadeen. Afghan authorities said today they buries the body of the Taliban leader Mullah Dadullah in the southern province of Kandahar. Dadullah was killed by U.S. forces this weekend. He was the Taliban's top military commander and his death is widely regarded as the biggest blow against that organization since its hold on Afghanistan was broken back in 2001 and Taliban extremists began their insurgency. Still ahead on SPECIAL REPORT, wait until you hear the choice words Congressman David Obey has for some of his colleagues. In the meantime, we'll tell you what the Pentagon knows about three American soldiers missing in Iraq. Stay tuned.


HUME: Thousands of American troops in Iraq are still searching for three U.S. soldiers who disappeared after their observation post was attacked on Saturday. Four American troops plus their Iraqi translator were killed. Today a group tied to al Qaeda warned U.S. forces to abandon their search or further risk the captives' safety. National security correspondent Jennifer Griffin has an update.


JENNIFER GRIFFIN, FOX NEWS NATIONAL SECURITY CORRESPONDENT (voice-over): Day three in the search for three missing soldiers in one of the most dangerous parts of Iraq, al Qaeda infested orchards and ravines southwest of Baghdad. While the military says it is following up on tips from local Iraqis, an al Qaeda group claiming to have abducted the three, delivered on its website an unmistakable warning not to continue the search for them. Quote, "your soldiers are in our hands. If you want safety for them, stop the search and stop looking for them. We are sure you wish all the soldiers of your army were killed rather than captured and in our hands."

MAJ GEN WILLIAM CALDWELL, MULTI NATL FORCE IRAQ SPOKESMAN: At this time we believe they were abducted by terrorists belonging to al Qaeda or an affiliated group. This assessment is based on highly credible intelligence information.

GRIFFIN: The search continued in the area known as the triangle of death, around the towns of Mahmudiya and Yusufiya. Four thousand soldiers fanned out across the area as helicopters flew overhead. Troops went door-to-door, entering homes, searching beneath floor boards, hoping to find the missing soldiers hidden possible in some kind of makeshift dungeon.

UNIDENTIFIED MALE: The U.S. troops stormed into the area. They were speaking loudly in English. They arrested two guards in the mosque. One of them was injured. They also arrested someone from my apartment block.

GRIFFIN: Eight Iraqis were detained today. Two suspected insurgents were caught dressed as women, covered in the traditional Muslim Abiya (ph). They were placed in the back of an Iraqi truck. The incident took place before dawn Saturday. An explosion was heard. A drone was sent to survey the scene. It showed two humvees on fire. Two backup units were called in, but their movements were slowed as they encountered three separate roadside bombs on their way to the attack site. The first response team arrived 40 minutes after the initial explosion.

CALDWELL: We are doing everything we can to find these brave and courageous soldiers. Everyone who wears this uniform in combat understands and lives by the soldier's creed. One of its key tenets is I will never leave a fallen comrade.


GRIFFIN: The search continues tonight as we speak. It comes almost a year to the day, exactly in the same location, U.S. soldiers were kidnapped by an al Qaeda group last year in June. Three days later, after they were kidnapped, their bodies were returned. And they were brutally mutilated and tortured. Brit?

HUME: Jennifer, thank you. President Bush today ordered several federal departments to begin regulating fuel efficiency and greenhouse gases from auto emissions. Mr. Bush said the issues will take time to resolve, but this, he said, is a matter of national security.


GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Our dependence on oil creates a risk for our economy, because a supply disruption anywhere in the world could drive up American gas prices to even more painful levels. Our dependence on oil creates a threat to America's national security because it leaves us more vulnerable to hostile regimes and to terrorists who could attack oil infrastructure.


HUME: Environmentalist organizations reacted with faint praise. The president of the National Wildlife Federation said, quote, better late than never. And House Speaker Nancy Pelosi said Mr. Bush's announcement means that regulations will bog down in the inter-agency bureaucracy. Students at the University of California at Berkeley are protesting the school's decision to accept funding from an energy company to conduct research on sources of alternative fuels. School administrators say the joint venture will only add luster to the University's reputation but the students say the school is selling out. Correspondent Claudia Cowan reports.


CLAUDIA COWAN, FOX NEWS CORRESPONDENT (voice-over): U.C. Berkeley is on the verge of becoming the nation's premier biofuel research center, beating out a who's who of other top schools for the largest corporate funding package in American university history, 500 million dollars from energy giant B.P., formerly British Petroleum.

ROBERT BIRGENEAU, US BERKELEY CHANCELLOR: It's not good enough to do work in the laboratory. We have to figure out how to translate it to the marketplace. so we have to bring energy companies along. And that's what we're doing.

COWAN: This deal landed Chancellor Birgeneau and some Cal scientists on the pages of eco friendly "Vanity Fair" magazine. But while that group was posing by one tree on campus, students were climbing another, living in this Redwood to protest the agreement.

JASON AHMADI, UC BERKELEY STUDENT: When 500 million dollars is coming from British petroleum, it seems clear who is running the university. I don't think it's the state. I don't think it's the people. It seems to be these corporate interests.

COWAN: It's not just students who are objecting. A group of professors is circulating a petition asking U.C. to reconsider.

TAD PATZEK, UC BERKELEY ENVIR ENGIN PROF: They have the cash. We have the researchers. Well, let's fit the two together. It sounds like a good idea. The problem is that after our researchers become corporate researchers, there won't be any public research left, period, in the country. And this cannot be good.

DAN KAMMAN, UC BERKELEY PUBLIC POLICY PROF: Berkeley is not selling out. Berkeley is finding a way to redirect what former oil companies are doing in a more sustainable way.

COWAN (on camera): The proposed Energy Bioscience Institute is expected to get final approval this summer. Critics fear the high dollar partnership with BP will compromise research and tarnish the university's anti-establishment image. But university officials are convinced B.P.'s half billion dollar grant will bolster Cal's reputation and give some of the world's top scientists the opportunity and resources to change the global energy picture. At U.C. Berkeley, Claudia Cowan, Fox News.


HUME: Deputy Attorney General Paul McNulty submitted his resignation tonight. McNulty cites family finances as a reason. But there is also word he's angry about being linked to the matter of the U.S. attorneys who were dismissed last year. He's to have irritated his boss, Attorney General Gonzales, by testifying at least one of those fired was —


HUME: And now the most riveting two minutes in television, the latest from the "Political Grapevine." There is more to that story we brought you last week about Democratic House Appropriations Chairman David Obey's eruption against colleague Dennis Kucinich during a meeting of House Democrats.The Politico reports Obey says the anti-war Kucinich accused the Democratic leadership of trying to privatize Iraqi oil reserves. Obey said, "this isn't the first time that Dennis has twisted the facts." He called the Kucinich claim a "falsehood" and said other Democrats were tired of it as well. As for two colleagues who said that Obey's response had been profane and offensive, Obey said Diane Watson was "clueless" that he had already addressed Kucinich's concerns in another meeting. And of Maxine Waters, Obey said, "Even I could win a charm school award against her." Another former federal prosecutor is suggesting he was fired for political reasons. Karl Warner says he was never told why he was dismissed as U.S. attorney for southern West Virginia in 2005. The Justice Department disputes any political motive, but says unless Warner signs a privacy rights waiver it cannot give the actual reason for his dismissal. The Associated Press reports a state legislative audit turned up e-mails in which Warner had offered to secretly contribute to a county political campaign, which could have been an ethics violation, but the donation was never made. Barack Obama appears to be falling into deepening trouble with the leadership of the Congressional Black Caucus and specifically the African-American leadership of Detroit. Obama last week delivered what was called a "scalding" speech in the Motor City, castigating the major American automakers for driving the country's dependence on foreign oil. Detroit Democratic Mayor Kwame Kilpatrick told Newsweek magazine that Obama "left a lot to be desired with that message." And the mayor's mother is Carolyn Kilpatrick, the chairwoman of the Congressional Black Caucus. She was not pleased when Obama joined other Democrats in pulling out of a presidential candidates' debate scheduled for Detroit, co-sponsored by the Black Caucus and FOX News. Republican presidential candidate Sam Brownback says he'll probably go down in history, but not the way he would want.

Out in Wisconsin the other day he used a football analogy to make a point about the need to focus on families. "This is fundamental blocking and tackling," he said, "This is your line in football. If you don't have a line, how many passes can Peyton Manning complete? Greatest quarterback, maybe, in NFL history." The trouble is, in Wisconsin, the only quarterback who counts is the legendary Bret Favre of the Green Bay Packers. The crowd booed Brownback. He finally apologized and put his head in his hands, saying, "That's really bad. That will go down in history. I'm not sure how I recover from this," Sam Brownback. It is quite possible that John McCain will find himself on the defensive during tomorrow night's debate when the issue of illegal immigration comes up. McCain is courting the conservative vote, but his position on this subject may not fit in. Congressional correspondent, Major Garrett has the story.


MAJOR GARRETT, FOX NEWS CORRESPONDENT (voice-over): When the lights go up on the FOX sponsored presidential debate in South Carolina, America will know if the Senate will produce a bipartisan immigration reform bill, one simultaneously fraught with potential and peril for Arizona's John McCain.

SEN JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: Well, I've been heavily involved in the immigration discussions and formulation of a bill that I hope we can reach agreement with soon.

GARRETT: McCain has abandoned the bipartisan immigration bill he helped write last year, one many conservatives derided for pushing "amnesty" for an estimated 12 million illegal here now. Talks are now moving toward tougher requirements for illegals to work, less so-called chain migration and greater emphasis on skilled immigrant workers. For a campaign rooted in the promise of tacking big problems with bipartisan compromise, immigrations experts say a grand compromise more in line with GOP wishes might pay John McCain some dividends.

TAMAR JACOBY, MANHATTAN INST: John McCain would like to see this issue solved and off the table. GARRETT: But risks persist. McCain's insistence on legalizing illegals here now could leave him open to continued accusations of embracing amnesty.

BRIAN DARLING, HERITAGE FOUND: In this issue, immigration reform is huge stray from the conservative base. I think you will see conservative as this issue becomes more high profile, become very upset in the primary states of Iowa, New Hampshire and South Carolina. GARRETT: McCain tells GOP audiences across the country that as a mater of national security, illegals have to be located and given an opportunity to obtain legal working status. He brands calls for deportation impractical.

MCCAIN: If you think you can round up 12 million people and put them in jail, that's fine. I'd be curious where you're going to build all those institutions to hold them.

GARRETT: Intense closed-door Senate negotiations are moving toward requiring illegals here now to return home if they want to become U.S. citizens. But those who don't want to become citizens, could apply for a so-called Z-visa allowing them to work, but forbidding them from gaining citizenship. Immigration hard-liners see this as approach tougher than last year's bill, as amnesty in disguise.

DARLING: You pay a $3,500 fine every three years and you can stay forever. There are illegal immigrants that can stay here indefinitely that may choose not pursue the pathway to citizenship and this would grant them amnesty.

GARRETT (on camera): Sundown Tuesday, that's the deadline for a Senate immigration deal. Negotiations likely to go down to the wire. McCain is not the most important Republican in these talks. Fellow Arizonan John Kyle is. Now Kyle rejected McCain's immigration bill last year as too lenient, so to gain credit and some presidential momentum this year, McCain will have to follow one of his own immigration adversaries, such is the intersection between legislative and presidential politics. In Washington, Major Garrett, FOX NEWS.


HUME: Citizens of a small town near Dallas have approved a measure that would make it illegal for anyone to knowingly rent property to an illegal immigrant. The proposed law passed overwhelmingly but critics say enforcing it would impose an unfair burden on landlords and amount to unfair discrimination against would-be tenants. Correspondent Chris Gutierrez reports.


CHRIS GUTIERREZ, FOX NEWS CORRESPONDENT (voice-over): The Dallas suburb is Farmers' Branch is home to roughly 28,000 people. And those looking to rent an apartment now may first have to prove their legal U.S. residence. Councilman Tim O'Hare is looking to hold landlords accountable.

TIM O'HARE, FARMERS' BRANCH COUNCILMAN: It's pretty simple, they have to get documentation from people that are going to rent property in their facility—in their complex.

GUTIERREZ: On Saturday citizens in Farmers' Branch voted to pass an ordinance that would charge property managers with a misdemeanor and fine them up to $500 a day for not checking a tenant's legal status.

TIM SCOTT, ORDINANCE SUPPORTER: The citizens of Farmers' Branch are sending a message that they believe in the law and they want the federal government to do something about the illegal immigration issue.

UNIDENTIFIED MALE: You attacking Spanish speakers, now you're playing with fire.

GUTIERREZ: The issue has sparked protests. Civil rights groups, citizens and property owners have filed several lawsuits to stop the ordinance. They say it puts landlords in charge of implementing laws only enforced by the federal government. Some are even calling city leaders racists.

ELIZABETH VILLAFRANCO, ORDINANNCE OPPONENT: If you one of you—you know, looked at right along with the other ordinances about, you know, about the blacks sitting at the back of the bus, about the water fountains and about the, you know, not being able to use toilets everybody else used. That's how bad.

GUTIERREZ: Still the measure passed by more than 2-1 margin. Supporters say it will improve the economy and quality of life in their city.

O'HARE: Just in the last six or eight months, since the ordinance has been in the public eye has been voted on, our sales tax revenues are up more 10 percent on average per month, we've had new businesses have moved in. The occupancy rate is up 20 percent for new businesses.

GUTIERREZ: O'Hare says the town has already spent $300,000 in legal fees over this ordinance and he hopes private donations would offset any future court costs. But opponents who claim to challenge the law say their concerned that taxpayers, themselves included, will have to foot the bill. The ordinance is set to go into effect next week. But pending litigation could keep off the books and in the court for years. In Farmers' Branch, Chris Gutierrez, FOX NEWS.


HUME: Next on SPECIAL REPORT, the FOX all-stars on Rudy Giuliani, John McCain and why Mitt Romney can't get into the front-runner ranks here in South Carolina. We'll be back in a moment.



LEE BANDY, POLITICAL COLUMNIST: The verdict sneaked up on him. And it does surprise a lot of people that Rudy is running as strong as he is a state like South Carolina which is very conservative.


HUME: That, of course, our old fringed Lee Bandy, one of the sagest observers of political here in South Carolina. He's been doing it for a long time and the Rudy of whom he was speaking, of course, is Rudy Giuliani and the person he sneaked up on is John McCain. And that is reflected in a freshly minted poll just out today from our old friend Wit Ayers. Let's look at the numbers reflected in the poll that show John McCain now ahead in South Carolina 25 percent, but that is down from earlier polls in terms of his lead in this state. Rudy Giuliani now at 20, Fred Thompson and Newt Gingrich two, as of yet, undeclared candidates, next and then Mitt Romney all the way down at eight. Now why is Mitt Romney No. 8 surprising? Let's look at the South Carolina name recognition in terms of the number of percentage of voters down here who have heard of these candidates. As you can see Giuliani and McCain nearly everybody has heard of them. But Mitt Romney, who is a relative unknown, has got his name recognition because of advertising in this state, all the way up to 87 percent. That puts him ahead of Fred Thompson, who despite his television career, only has 70 percent recognition in the state. And yet Romney remains behind candidates lesser known than he is. And two of whom have not yet declared. Some thoughts on this now from Fred Barnes, executive editor of the Weekly Standard; who joins me here, as well, Bill Sammon, senior White House correspondent of the Washington Examiner; and from back in Washington, Maura Liasson national political correspondent of National Public Radio—FOX NEWS contributors, all. Let's start with the McCain-Giuliani horse race, such as it is. Mara, any thoughts on how Giuliani has gained ground here on McCain—yeah, how he's gained ground on McCain when McCain seemed to be doing so much better here?

MARA LIASSON, NATIONAL PUBLIC RADIO: Look, I still think that McCain is still the front-runner in South Carolina. McCain has been working the state very, very hard. Giuliani has only made a couple of trips. And I think the Giuliani phenomenon is showing up in this poll just like it is nationally among Republicans where he's ahead of McCain in almost all the national polls. And I think even in some of the other early primary polls. I don't think people have started to focus. What's puzzling to me is if one of the reasons why Romney isn't doing as well, which as Lee Bandy suggested maybe it's his religion, people have focused enough on Romany to know that, I don't think they have yet focused on Giuliani to think of all the other ways the he's different from the typical South Carolina voter, Republican voter.

FRED BARNES, WEEKLY STANDARD: Here we're in a state where people care about the Republican race, because it's an early primary, probably the first southern primary, although they are squabbling with Florida about who's going to come first in the South. So, I think they have paid more attention to these candidates, but I do think that they have paid a lot to Rudy Giuliani recently because these gotten so much attention nationally over his stand on abortion.

HUME: I know, but that doesn't seem to hurt him.

BARNES: But I think it's going to. You know, you don't get these reactions immediately, I think you'll see that McCain probably gained some and Rudy loses some. Look, this isn't the final word, there's going to be a lot more to go on in this campaign, including a debate tomorrow night.

BILL SAMMON, WASHINGTON EXAMINER: As for Romney not doing as well in terms of actually support, I mean, he's doing better in name recognition.

HUME: He spent a fair amount of money here, as you can see—people know who he is. SAMMON: Yeah, his first block of state-wide ads were launched here in South Carolina. They were on for several weeks, they were off, they were back on now. I think they may be down now, he's doing some national cable buys. I talked to Romney's people today about this, to get them to try to explain this and they said look, obviously it would be better if they getting more support, but the process of getting your name out there, first step is getting people to recognize your name. That's not necessarily the same thing as knowing what you have done. I think people recognize Rudy Giuliani's name and they also know something that he's accomplished, namely his leadership in the wake of 9/11. People know John McCain, he campaigned here before, he ran here before so they know something about him. So, I think it's a process. We've go eight months before the first contest and I think once they get to know a little bit more about Romney, I think at least their hope is that he'll move up.

HUME: Mara, let's bring you in on that. Your thoughts on why it is that Mitt Romney, who's got people to recognize him at least, can't seem to get any traction?

LIASSON: You know, it's puzzling. I mean, why would Rudy Giuliani, somebody whose views are so liberal compared to the typical South Carolina voter be at the top of the heap and Romney who has, you know, now changed his views to become much more in line with that kind of voter, is not. I mean, maybe it's his Mormon religion, if you would expect that to hurt him, it is in South Carolina. But, look I think this debate is very, very important for all these reasons we're just discussing, people we're just discussing, people are going to hear a lot about Giuliani and abortion, they're going to hear a lot about the Confederate flag, they're going to hear a lot about issues that are of particular interest to South Carolina Republicans and I wouldn't be surprised if you see some kind of sorting out in these polls after tomorrow night.

BARNES: You know I can tell you why Rudy's running ahead of Mitt Romney. He's a national hero, or at least and Romney is not. Look, Romney, we ought to learn a lesson from this too, Brit, and that is who is the leading money raiser among Republican candidates? Mitt Romney. Money does not equal support. They are two different things. You can raise a ton of money, as he has as a former business man and investment banker, and it doesn't mean he has support. There's something holding voters back, though.

SAMMON: His success is not limited to money. He's seen to have won the first debate, he wins straw polls. I think the guy is for real and to count him out at this stage of the game I think would be a big mistake.

HUME: OK, panel, pause for a moment here, we're going to come back and talk about Iran and some things the vice-president had to say about that, more next stay tuned.



DICK CHENEY, U.S. VICE PRESIDENT: We are confident that there are a number of senior al Qaeda officials in Iran. They've been there since the spring of 2003, about the time we launched operations into Iraq, the Iranians rounded up a number of al Qaeda individuals and placed them under house arrest and they're still there. What activities they've been engaged in, I'm not at liberty to discuss.


HUME: He says he's not at liberty to discuss those activities, which suggested that he and the administration know something about what the al Qaeda operatives in Iran are doing. Back with the panel to discuss this question of al Qaeda in Iran and the relationship of al Qaeda to the goings on in Iraq, as well. Fred, your thoughts on what about this and what implications it hold for the administration.

BARNES: Well, one thing you have to remember—remember, so often, I think it was the CIA and many others that said there could be no connection between Saddam Hussein and al Qaeda because al Qaeda is Sunni—or rather, the—Saddam Hussein was a Shiite and they are Sunnis, or I guess Saddam is a Sunni. But I'm going to fumble to my point, here one way or another, but the truth is the Iranians are Shiites, al Qaeda is Sunni, and yet, they are obviously working together here because they have one similar goal in mind. And the goal is not to create an Iraq that is stable, they want to destabilize Iraq and keep it that way because they think that's in their best interests. And because, and particularly to drive America out. Because America is the enemy of both al Qaeda and the Iranians.

SAMMON: And that's why you have the Bush administration now saying they will meet with the Iranians on the issue of Iraq, on the narrow issue of Iraq.

HUME: Isn't that a genuine shift?

SAMMON: It is a shift. But in fairness, you know, the president's detractors, I mean, you can't win for losing. I mean, when you don't meet with the Iranians are you're bad because you met with the Iranians, then you say, OK, well, I'll meet with the Iranians, you're a flip-flopper, you know. And I think it's important to distinguish between this meeting and a meeting that might be held about the nuclear ambitions of Iran. And on that front the Bush administration has not backed down from its refusal to meet one-on-one with the Iranians because the disputes are different. The dispute over Iraq is a one-on-one dispute, between us and Iran, we don't want them meddling in Iraq. The dispute over the nukes is the international community against Iran, so we want to be apart of the international community meeting with the Iranians. And I think Bush is holding his ground on that front.

LIASSON: Look, I think talking to Iran is talking to Iran. I mean, it's clearly a shift and something good may come of it or nothing may come of it at all, but what I think is interesting is the premise of talking to Iran about Iraq and our ambassador in the region, Ryan Crocker, has said this, is that somehow the U.S. believes Iran has an interest in a stable Iraq. Well, you know, Fred just raised the question, maybe they don't. Maybe they want to see Iraq as destabilized as possible, partly in order to push the American forces out and also to extend their own control there. But I think that's an assumption that is definitely unclear. What kind of Iraq does Iran want? And re they willing to work with us to create stability there?

BARNES: Look, look, I don't think that's unclear at all. We see what the Iranians have done in Iraq. They sent in weapons—they send them in, they were used against Americans, to kill Americans. They want to destabilize Iraq. And for our State Department to act as if—and I've heard State Department officials say this as you have Brit, to say that, well, it's really in the best interest of the Iranians to have a stable Iraq, well, nobody told the Iranians. Yeah, they got a funny way of showing it. That's it for the panel, but stay tuned to find out what President Bush may want to do when his term is over, that's next.


HUME: Finally tonight, President Bush will still be a pretty young man when he leaves office at the end of next year, and it seems he's been trying out for possible new opportunities when that time comes. He was at it again at those Jamestown Virginia festivities over the weekend.





HUME: And that's SPECIAL REPORT for this time, please tune us in next time and in the meantime more news is on the way—fair, balanced, and unafraid.

Watch "Special Report With Brit Hume" weeknights at 6 p.m. EST.

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