updated 7/17/2006 1:17:19 PM ET 2006-07-17T17:17:19

Guests: Dan Ephron, Joe Biden, David Ignatius, Daniel Ayalon, Imad Moustapha

NORAH O‘DONNELL, MSNBC ANCHOR:  Tonight, attack and counterattack after the kidnapping of two Israeli soldiers today, Israel bombs Beirut, hitting the airport, destroying military bases and blocking its port.  The militant group Hezbollah fires back and hits the Israeli city of Haifa.  Is the Middle East on the brink of a full blown war?  Let‘s play HARDBALL.

Good evening, I‘m Norah O‘Donnell in for Chris Matthews.  The president of the United States says Israel has the right to defend herself.  Tonight the rest of the world watches with bated breath as the Middle East faces the prospect of a full blown regional war.  The U.S. vetoed today a U.N. resolution condemning Israel‘s actions and Israel‘s ambassador to the U.S. says his country is at war.  And he‘ll be here later in the show. 

Meanwhile, amid all this violence, crude oil reached an all time high today, $77 a barrel.  Plus, major political news out of Washington in the CIA leak case.  Valerie Wilson, the CIA operative who‘s identity was outed in the run up to the Iraq war is now suing the vice-president of the United States and other officials connected in the case.  More on this development later. 

But first, we have live reports from throughout the Middle East and we begin with NBC‘s Martin Fletcher, who joins us by phone from northern Israel, near the Lebanon border.  Martin, thank you for joining us.  Tell us, what is the very latest? 

MARTIN FLETCHER, NBC NEWS CORRESPONDENT:  Norah, right now I‘m standing in the Israeli coastal town of Nasiriyah, which has received about 20 to 30 Katyusha rockets, about another half a dozen fell just as I was driving into town a few minutes ago.  The whole northern part of Israel now is sleeping in bomb shelters as Hezbollah is firing rockets here.  While at the same time Israeli warplanes and helicopters are still pounding targets in Lebanon, both targets of Hezbollah and also targets of infrastructure.  Of course you‘ve heard that the airport has been closed there after Israeli warplanes bombed the runways there. 

And all signs are, Norah, that the Israelis are getting ready to up the stakes even further, to attack Beirut in an increased and prolonged way they say.  Tonight they dropped leaflets, helicopters dropped thousands of leaflets over the area of south Beirut, that‘s the Hezbollah strong hold, where many of the Hezbollah leaders live, and those leaflets told the people if you live near the home of a Hezbollah leader, leave your house.  This is a very clear signal that Israel is starting to get ready to start trying to kill the Hezbollah leaders. 

O‘DONNELL:  Could that attack on Beirut come tonight, Martin? 

FLETCHER:  I can‘t say for certain, but everything is certainly pointing in that direction. 

O‘DONNELL:  And what can you tell us about the involvement of Syria and Iran, with Hamas and Hezbollah? 

FLETCHER:  Well, it‘s very significant.  You know, Israel is attacking Lebanon because that‘s the address, it‘s their country from which Hezbollah is operating against Israel, but everybody knows that the real address is first Syria and then Iran.  It‘s Iran and Syria, particularly Iran, that finances them, gives ammunitions and has done for a long time both to Hezbollah and to Hamas, and certainly to the militant side of Hamas any ways, and certainly all of Hezbollah, so the real address is Syria and Iran, but for Israel anyway, that‘s really impossible at this stage to contemplate how they would attack Iran or how in some way make Syria and Iran pay for this.  So the address has become Lebanon, simply because after all it‘s Lebanese territory, from which Hezbollah is attacking Israel, therefore the Lebanese government should be held responsible. 

O‘DONNELL:  And quickly Martin, let me ask you, Secretary of State Condoleezza Rice has just spoken about the situation while she is in Germany, urging Israel to exercise restraint.  Any sign that Israel plans to do that? 

FLETCHER:  No sign at all.  In fact, the opposite.  The prime minister, Ehud Olmert‘s response to Condoleezza Rice‘s call for restraint was to tell her, he told her this evening, look, we‘ve been attacked.  He said Israel has been attacked, we have every right to defend ourself.  Ehud Olmert told Condoleezza Rice if you have anything to say to anybody in the region, he said, you need to talk to the government of Lebanon, not to us.  Israel is defending itself and Lebanon is the address in order to stop all this.  That‘s what Ehud Olmert said to Condoleezza Rice.

O‘DONNELL:  Thank you very much, Martin Fletcher in Israel.  Stay safe, Martin.  And now we‘re joined by “Time Magazine‘s” Nick Blanford and he joins us now by phone from Beirut.  Nick, let me ask you, we heard Martin mention this, they are dropping leaflets, the Israelis are dropping leaflets in Beirut, warning civilians to get out of the way.  Does that mean an attack is imminent? 

NICK BLANFORD, “TIME MAGAZINE”:  I‘m sorry, this is a very bad line. 

I couldn‘t hear the question. 

O‘DONNELL:  Israel is dropping leaflets in Beirut, warning civilians to get out of the way.  Does this mean an attack if Beirut is imminent? 

BLANFORD:  Yes, this is the latest development by the Israelis.  We‘ve had a day of escalation down in south Lebanon and in Beirut, beginning this morning with the airstrike against Beirut‘s international airport in which the three runways were cratered and which has effectively shut down the airport for the time being.  The Israelis have been knocking out a lot of infrastructure targets in south Lebanon, particularly bridges crossing rivers and road bridges as well which have had the effect of shutting off a lot of south Lebanon from the rest of the country.  There were some rumors earlier on in the day that the Israelis were planning to hit Beirut‘s southern suburbs, which is the Hezbollah strong hold, where they have all their main offices there. 

(CROSSTALK)

BLANFORD:  Nobody was abandoning the offices, that civilians living in the area were remaining in their homes.  But I think that the dropping of the leaflets combines with this steady escalation that we‘ve seen over the last 24 hours, we‘ll have a lot of people in the southern suburbs extremely nervous at the moment and considering packing their bags and heading out to safer areas. 

O‘DONNELL:  And Nick, specifically address why is Israel bombing the Beirut Airport? 

BLANFORD:  Well, Beirut‘s airport is something of a strategic target.  We‘re right in the middle now of the Lebanese tourist season, this is a very important time of the year for the Lebanese economy.  The economy is not in good shape at the moment and Lebanon relies on the influx of tens of thousands of tourists, a lot of them Arabs from the Gulf, they escaped east of the desert for the cooler weather in the Lebanese mountains and also Lebanese expatriates, people who live overseas in the U.S., in Europe, Africa, Australia and they like to come back during the summer months to see their families.  So by striking the airport, they‘ve effectively shut Lebanon off.  They‘re also imposing a naval blockade of Lebanese seaports at the moment, so the only exits in and out of Lebanon is by the land border with Syria. 

O‘DONNELL:  An effort to strangle Hezbollah, not only to make sure that Syria or Iran cannot bring in additional supplies, but to make sure they can‘t leave.  Alright, thank you Nick Blanford. 

Now let‘s take a look at the roots of this conflict.  We‘ve asked HARDBALL‘s David Shuster to give us the details. 

(BEGIN VIDEOTAPE)

DAVID SHUSTER, MSNBC CORRESPONDENT:  The fierce incursion into southern Lebanon is pay back for terror attacks in northern Israel.  An Israeli response has now become the most ferocious and sustained military action in Lebanon in 10 years.  Today Israeli artillery bombarded positions held by Hezbollah terrorists, destroyed escape routes, including bridges and roads and disabled a Lebanese power station.  Israeli forces also blockaded Lebanese ports, blasted two military bases and bombed runways at the Beirut Airport.  Altogether, more than 50 people have been killed and 120 injured. 

Earlier this week, Hezbollah guerrillas crossed the border, killing three Israeli soldiers and capturing two others.  This followed a series of Hezbollah rocket attacks.  Israeli officials say the military response now is aimed in part at keeping Hezbollah from taking the captured Israelis from south Lebanon into Syria and then Iran.  Hezbollah fighters, sponsored by Iran, operate in southern Lebanon without interference by Lebanese forces.  Israeli officials said today they hold Lebanon‘s government responsible.  In Germany, President Bush was quick to back Israel, but he also tried to south Lebanon‘s western friendly leadership. 

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:     Israel has a right to defend herself.  Every nation must defend herself against terrorist attacks.  Secondly, we, whatever Israel does though, should not weaken the Sonora government in Lebanon. 

SHUSTER:  European leaders today accused Israel of disproportionate force in responding to the attacks.  Israel‘s military action is similar in many ways to another kidnapping two weeks ago in the Palestinian territory of Gaza.  Hamas terrorists launched an attack, snared an Israeli soldier and then offered to swap him for prisoners in Israeli jails.  Israel refused and hit back hard.  Tanks and troops rolled into Gaza, attacking militant Hamas leaders and engaging in gun battles with Palestinians across the territory. 

Over the last two weeks, more than 50 Palestinians have been killed.  But hundreds of thousands of Palestinians have suffered, as Israel has further tightened an economic blockade in Gaza.  Israel‘s response in the Palestinian territory and now in Hezbollah-controlled southern Lebanon has outraged Arabs across the Middle East.  But the predictability of Israel‘s counter attack has left analysts convinced that the kidnappings in Israel were a deliberate provocation, backed by the radical governments of Syria and Iran. 

Leaders in both countries have extensive links and influence on Hamas and Hezbollah, and the terror groups and their supporters in Iran, Syria, and across the Middle East benefit when Muslim passions against Israel are inflamed.  The fear in Washington is that the violence between Israel and its radical Muslim enemies could turn into a regional war. 

(on camera):  Despite the awareness all across this city that the situation is fluid and could escalate, the Bush administration and members of Congress are remaining firm.  Officials throughout the U.S. government are expressing support and solidarity with Israel, as America‘s best ally in the Middle East tries to take on terror organizations that have been festering along her borders. 

I‘m David Shuster for HARDBALL in Washington. 

(END VIDEOTAPE)

O‘DONNELL:  Thank you, David Shuster. 

Let‘s go now to Jerusalem, where “Newsweek‘s” Dan Ephron is standing by on the phone.  Dan, let me ask you, in the past, Israel has adopted a more restrained approach.  Now Secretary of State Condoleezza Rice is urging them to exercise restraint, but that‘s not what Israel is going to do, is it? 

DAN EPHRON, “NEWSWEEK”:  Well, it doesn‘t look like it, based on the events of the last 24 hours.  And I think it‘s not just Israel, but I think what we‘re seeing is—well, I hesitate to say unprecedented, but we haven‘t seen an attack like this from the Lebanese side in a good long time. 

And I think the Israeli strategy is to try to hit Lebanon so hard, that the Lebanese government itself actually reins in Hezbollah and does the job for Israel.  This has been an Israeli strategy.  Instead of going after the guerrillas solely, you go after the government that protects them and that gives them, you know, room to operate until things are so bad in Beirut that they actually manage to rein them in. 

O‘DONNELL:  In fact, that is what some are saying could be one positive outcome of this, if it does not cause a larger regional war, that what it may do, in fact, is finally rein in Hezbollah.  Is that possible? 

EPHRON:  Well, it‘s hard to see.  I think on the plus side, we‘ve seen Lebanon in the past year shake off the influence of Syria, of the Syrian intelligence inside Lebanon, but I think that it‘s a much more complicated situation with Hezbollah which was, for years, just a guerrilla group, but is now also part of the political mainstream almost I would say, in Lebanon. 

It‘s part of the coalition, the governing coalition, and I think politically, it would be very hard for the Lebanese government to put pressure on Hezbollah, not only to lay down its arms and stop the attacks against Israel, but also to stop amassing a large arsenal of rockets and missiles. 

O‘DONNELL:  All right, Dan Ephron, thank you very much. 

Now, while most of the attention today shifted to the Israel-Lebanon border, the Israeli military continued its offensive in the Gaza Strip.  For the latest, we go now to NBC‘s Fred Francis in Gaza City. 

Fred, it is good to see you.  Let me ask you, this all began more than two weeks ago with the capture of an Israeli soldier.  What‘s happened today? 

FRED FRANCIS, NBC NEWS:  Well, nothing really.  The drumroll, the drumbeat, the pressure, stayed on the Hamas government here in Gaza all day today as it has for the last two weeks.  The thump artillery shells, the Israeli army has driven a wedge into the center of Gaza to try to split the area. 

The people of Gaza have been suffering.  There‘s no electricity, people haven‘t been paid in five months.  It‘s the kind of pressure that if nothing had happened in Lebanon might have worked eventually.  They might have gotten a soldier back, albeit having to give up any number of the 9,000 prisoners that Israel holds. 

But all of that went out the window, when the Hezbollah guerrillas crossed the border into Israel, killing eight Israeli soldiers and kidnapping two others.  So right now, you cannot expect, nobody can expect, knowing the Israeli government and knowing Hezbollah and knowing Hamas that this is going to end anytime soon, Norah. 

O‘DONNELL:  Fred, you‘ve covered the Middle East for decades.  Explain to everyone exactly what‘s going on, that Israel is essentially fighting a two front war, on two sides of its border with Hamas and Hezbollah and how Iran has essentially funded Hezbollah for years, and Syria backing Hamas.  The leader of Hamas even, I think, lives in Damascus.  Are Iran and Syria working together to drag Israel into a war? 

FRANCIS:  Well, I don‘t think there‘s any question about that.  I think people in Damascus and Tehran will tell you flatly how much they support Hamas and how much they support Hezbollah.  You know, when the Israeli—when the Iranian leader came to Damascus, he was courted like a king here, just recently. 

Are they trying to pull them into a wider war?  I don‘t think that‘s possible.  Are they trying to get them into the kind of war they have now, this two front war?  Sure, and they‘ve really done it.  I mean, it‘s the last thing that Israel wanted. 

Even though it had planned this Gaza attack for a long time, the

Israelis knew at one point when Hamas got elected here, this government

that doesn‘t want Israel to exist, that one day they would have to come in

they didn‘t think it would be this soon—and try to overthrow this government. 

For six years, Israel has been plotting how to go into southern Lebanon, route out Hezbollah.  They didn‘t want to do it right now, but they are going to do it.  A wider war?  I don‘t think so.  A long, two front conflict, which could go on for months?  Very, very possible, Norah. 

O‘DONNELL:  And quickly, Fred, how deeply does the U.S. have to get involved? 

FRANCIS:  I think you heard President Bush say it today, Israel has a right to defend itself and I don‘t think they‘re going to get involved.  You know, this is—as far as the United States is concerned, this is about Syria, this is about Iran.  Let Israel take care of Hamas and Hezbollah—Norah. 

O‘DONNELL:  All right.  Fred Francis in Gaza City.  Fred, stay safe. 

And coming up, we‘ll talk more about the politics of this crisis with the “National Review‘s” Kate O‘Beirne, the “Washington Post‘s” David Ignatius, and HARDBALL political analyst Bob Shrum.  Plus, the top Democrat on the Senate Foreign Relations Committee, Joe Biden. 

You‘re watching HARDBALL only on MSNBC. 

(COMMERCIAL BREAK)

O‘DONNELL:  Welcome back to HARDBALL.

Is the situation spiraling out of control?  Is the region on its way to a full-scale war? 

Senator Joe Biden of Delaware is the top Democrat on the Senate Foreign Relations Committee, and he‘s just returned from the region and Iraq.  Senator, first let me ask your reaction to what is happening today in Israel with Lebanon. 

SEN. JOE BIDEN (D), DELAWARE:  Well, you know, I just listened to your reporter on the scene.  I think he had it pretty right.  I think it‘s going to not spiral into a full-blown war, but I do think there‘s going to be an awful lot of trouble for the next several months and I don‘t think our exhortations from here about let the Israelis take care of Hezbollah and Hamas and us encourage Syria not to act.  I mean, we‘re kind AWOL here in terms of generating international pressure on Syria and on Lebanon, to deal with what is an obvious, obvious breach of security on the part of Hezbollah. 

O‘DONNELL:  You know, senator, I was so struck today by one of the reports in the “Washington Post Today,” specifically by Robin Wright, that pointed out the challenges that President Bush is facing, three fronts in the Middle East, Iran, Iraq and Israel and at the center of all of those is Iran, trying to fiddle and influence in all three of those situations.  What more do we need to do now that Iran, part of the axis of evil, is essentially complicating matters for not only Israel but the United States. 

BIDEN:  Well you know, one of the things we should have done two years ago is speak with them.  Actually have direct contact with them.  If you notice, we took two and a half years to even get to the point where we said we would sit down with our European allies and deal with them, and so what happens is now we‘re so bogged down in Iraq, because of the absolute, because of not such a sound policy as to how to proceed by this administration, that the rest of the area knows that they can pretty well act with impunity without a whole lot of concern about U.S. counter-reaction, and we have kind of lost the support of an awful lot of the world, thinking our judgment is sound enough, they want to join us in collective pressure, with the exception of what is going on in Iran now, which is sort of the last ditch effort on the part of Europe and the United States, sitting down with them now. 

O‘DONNELL:  Let me read you something that was in the “New York Times” today to help people, you know, know where Hezbollah and Hamas are getting much of their funding from.  Hezbollah and Hamas are part of a complex four way relationship with each other and Iran and Syria.  Iran helped to create, finance and train Hezbollah.  Hamas‘ political leader Khaled Mashal lives and works in Damascus.  The expectation among political and foreign affairs analysts is that Hamas and Hezbollah would never have taken such provocative actions without at least the tacit approval of their sponsors in Tehran or Damascus.  Why shouldn‘t Americans at home be concerned?  The stock market is tanking, oil prices up, Tehran and Damascus trying to drag Israel into a regional conflict? 

BIDEN:  They should be concerned.  They should be concerned, but the idea that Israel is in a position they‘re going to strike Iran and there be a regional war in that sense, I don‘t think is realistic.  The idea that Iran and Syria want to make it hell for Israel, try to split the rest of the world, Israel, by, instead of talking about them, us talk about whether or not Israel is overreacting, Israel is restraining itself, Israel is doing it exactly the way it should be done. 

I‘m not prepared to inspect Israel‘s response to what is an outright aggression and after they have in both cases, both in Gaza and in southern Lebanon, done the right thing.  So I mean, once again, the focus is on the wrong group of actors, but do I think that this is going to result in Israel concluding that they need a full scale invasion of Lebanon and or of Syria and or of Iran, I don‘t think that‘s a reasonable option for them.  And so I think you‘re going to see this low grade, but very, very serious kind of conflict for a while.  The question is what‘s the rest of the world going to do and are we likely to lead it to some kind consensus to put collective pressure on the parties. 

O‘DONNELL:  Senator, I must ask your opinion on this.  The president has made the case repeatedly that a democracy in Iraq would help make the larger Middle East safer, that it would help combat terrorism, the larger war on terrorism.  Is it the case that the war in Iraq has led in part to what has happened today in the actions by Hamas and Hezbollah? 

BIDEN:  Yes.  Yes.  Look the big debate Norah and you‘ve talked to me about it and others three years ago, is the road to peace in Israel through Beirut?  Is the road to peace through Baghdad or is it through the Middle East, through Israel and the Palestinian area.  This administration argued the road to peace in Israel was through Baghdad. 

In fact, it has made the road to peace in Israel more difficult, because of the miscalculation, because of the bringing this to the center and becoming a center for terror that didn‘t exist before and because we are so tied down in terms of our responsibilities and our concerns in Iraq, there‘s very little time for, not just militarily and economically, but in terms of the brain power of the administration.  You know, the same dozen people, in any one administration, make all of the important decisions.  And these guys now and women are so tied down on dealing with Iraq, and it being out of control, that essentially we‘ve been use the phrase AWOL in terms of an overall strategy for the rest of the region. 

O‘DONNELL:  Let me get you specifically on that point because the soldier that was captured, the Israeli soldier was captured more than two weeks ago, and just yesterday were two members of the president‘s national security council arrived in the region.  Has this administration ignored or not paid enough attention to the problems in the Middle East?

BIDEN:  I don‘t want people thinking I don‘t think the president of the administration cares about Israel, they do.  They care deeply about it. 

O‘DONNELL:  Of course they do. 

BIDEN:  I‘m not saying you‘re implying that.  I just want to make sure that this isn‘t misinterpreted what I‘m about to say, but look, the idea, you just made my point, by pointing out that only yesterday, only yesterday, what do you think would have been the case were we not tied down in Iraq.  I imagine you would have had an immediate response.  You would have been immediately on the phone as president of the United States with France and the European Union, with the Arab neighbors, you would have been immediately beginning to engage directly with Abu Mazen as well as Olmert.  You would have been engaged, but in fact, they weren‘t. 

O‘DONNELL:  All right.  Well thank you to Senator Joe Biden.  We appreciate it.  And when we return, “Washington Post” columnist David Ignatius, who is just back from Lebanon.  You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

O‘DONNELL:  Welcome back to HARDBALL.

“Washington Post” columnist David Ignatius just returned from Lebanon and joins us now, live. 

David, let me ask you, has the administration, the Bush administration, paid enough attention to what‘s going on in Israel? 

DAVID IGNATIUS, “WASHINGTON POST” COLUMNIST:  Well, it‘s been watching Israel closely.  The dilemma the United States faces today is that the Lebanese government, which is trying to absorb these blows—the Beirut Airport being attacked, Lebanese airbases being attacked today—is a key ally to the United States. 

The Cedar Revolution, as we call it, last year that put the government of Prime Minister Sinora in place is one of the major achievements of U.S.  policy in the Middle East.  With a lot of things going badly, that was a success. 

So the reason Condoleezza Rice said today that she would like to see restraint is she‘s afraid that Lebanese government, a key U.S. ally, may get swept right over the edge in the aftermath of this.  That would be unfortunate for the U.S.

O‘DONNELL:  And it‘s interesting just now that Saudi Arabia is blaming elements inside Lebanon for the violence with Israel, usually what would be described probably as unusual very frank language against Hezbollah.  That is helpful to the United States and Israel, is it not? 

IGNATIUS:  It is.  I think the Saudis are worried, as is everyone in the reason, as should everyone be, that Iranian proxies, Hezbollah in Lebanon, to some extent Hamas in Gaza, are acting in a very reckless way. 

What Hezbollah did in seizing these Israeli soldiers was effectively to take away the decisions from the Lebanese government about its own sovereignty.  The country is now being bombed, bridges all over the country are being taken out.  That decision was made by a militia.  It‘s an intolerable situation. 

I think the Saudis worry, as do many other governments, that the Iranians really are picking fights everywhere and that at some point, this really is going to explode, a regional war maybe to overstate it, but there‘s a feeling that the Iranian threat now is being felt throughout the region, and I think we have a lot of company in worrying about it. 

O‘DONNELL:  Do you think that Hezbollah acted with a tacit approval of President Ahmadinejad? 

IGNATIUS:  I think that Hezbollah is so close to Iran that it‘s impossible for me to imagine them undertaking a step like this without careful consultation, whether it was Ahmadinejad or other liaison with Iran I think is not the point.  Clearly, Hezbollah would not take a step like this without an effective Iranian blessing and that‘s why this is so dangerous. 

O‘DONNELL:  It‘s not surprising that the president of Iran—I mean, he said it in the past—and he denies that the Holocaust happened.  He has said that the Israeli states should be destroyed.  And just within the last days, he was predicting, he said that “the Zionist state would end fairly soon,” he was quoted as saying and then this. 

IGNATIUS:  Well, you know, this is—a lot of this is incendiary rhetoric that is designed to appeal to very radical people throughout the Muslim world.  I think the point is that Iran clearly perceives the United States as pinned down in Iraq and vulnerable, and it perceives Israel as pinned down in Gaza and vulnerable.  And it has chosen at that moment a great delicacy to open another front in the war. 

And I think that, you know, this is the kind of provocative behavior that, if it isn‘t checked, if people aren‘t very, very careful and sensible, could lead to a wider war.  I think somehow the Iranians have to understand that these actions, encouraging their proxies to take these actions is not risk free. 

O‘DONNELL:  So given that, exactly what you point out, that Iran is trying to take advantage of the United States‘ involvement if Iraq, Israel‘s engagement with Hamas in Gaza, what then is the challenge for the Bush administration? 

IGNATIUS:  Well, I think that responding to this is, obviously, a very complicated, multilevel problem.  But I would say first of all, it‘s crucial to act with as much international support as you can get.  We had the G-8 Summit coming up in St. Petersburg.  It‘s crucial that all of friends and allies say with us these actions are intolerable. 

O‘DONNELL:  But didn‘t Russia accuse Israeli today of acting with excess force?

IGNATIUS:  Russia has not been solid on this issue, but I know that the Bush administration is going to try its best to keep some coalition of support around its demand that Iran cease its nuclear program and cease other provocative actions. 

O‘DONNELL:  All right.  Well, thank you to David Ignatius.  We appreciate it. 

IGNATIUS:  Thank you.

O‘DONNELL:  And still ahead, Israel‘s ambassador to the United States.  He says his nation is at war.  We‘re going to ask him about it.  You‘re watching HARDBALL only on MSNBC. 

(COMMERCIAL BREAK)

(MARKET REPORT)

O‘DONNELL:  Welcome back to HARDBALL.

The president of Iran said today that an Israeli strike on Syria would be considered an attack on the whole Islamic world.  It would bring a fierce response. 

Danny Ayalon is the Israeli ambassador to the United States. 

Ambassador, thank you very much for joining us. 

DANIEL AYALON, ISRAELI AMBASSADOR TO U.S.:  You‘re welcome. 

O‘DONNELL:  Is Israel at war? 

AYALON:  Israel is certainly at war, a war which was imposed on us by Hamas, by Hezbollah and by the ones who are behind them, which are Syria and Iran.

O‘DONNELL:  So what action will Israel take against Syria and Iran?

AYALON:  Well, first and foremost, we are concerned about the safety of our population, especially in the north, as we‘ve been hit very hard by Katyusha and other rockets from Hezbollah.  We‘ve had 8 soldiers killed, two kidnapped.  This is our main target now, to secure our northern border.  So for that reason, we are going to go and going to hit Hezbollah targets and hit them hard, in order to neutralize them, so they will not be able to escalate the situation, deteriorate the entire stability in the Middle East and continue with their terror and aggression. 

O‘DONNELL:  And do you believe at it this point that you have been able to contain Hezbollah, they fired off rockets to Haifa today. 

AYALON:  Right.  Which goes to show the big arsenal and the deep entrenchment that they had over in Lebanon.  Once we left lower Lebanon in 2000, we completely pulled out, not even an inch of Lebanon is occupied by Israel.  Unfortunately, the other side of the equation was that the Lebanese army will deploy on our border, will exercise their sovereignty of the Lebanese government, disarm the Hezbollah, which is a terrorist organization. 

This was not just an Israeli expectation, this was demanded by the international community, and further Security Council resolutions.  Nothing of this happened.  Hezbollah is a state within a state.  Hezbollah is financed, supplied by Iran and Syria and the situation is that what we see today and what we saw yesterday. 

O‘DONNELL:  The president said today clearly, Israel has the right to defend herself.  The Secretary of State Condoleezza Rice saying today however, though that Israel must exercise restraint.  Many people are looking at this story and recognize this is much bigger than usual, in part because of the involvement of Iran and Syria.  Can you assure the American people tonight that Israel will in some way exercise restraint and not draw that area into a larger broader conflict? 

AYALON:  Well, absolutely.  And I do not see right now any danger for a broader conflict, quite the opposite.  I think by going after the Hezbollah and Hamas, the real terror organizations, we will contain the situation.  And I think by dealing them a blow, which will put them out of the equation, this will really destabilize the area for the longer term.  It may take a few days, it may take a few weeks, but I don‘t see much longer than that, and we‘re going to be focused on that.  Certainly we do not want to see any widening of the conflict, and we respect very much the secretary of state. 

I believe we are exercising restraint, as we have been in the last six years, since we pulled out of Lebanon, in spite of continuous provocations by the Hezbollah, but I think what we are doing right now is an act of self defense.  And the secretary also mentioned that our right is to self defend ourselves.  But also to make sure that the area will stabilize and it will stabilize when Hamas and Hezbollah can no longer perpetrate what they have been doing. 

O‘DONNELL:  We talked about this earlier, the Iranian president saying an Israeli strike in Syria would bring a fierce response.  It would be viewed as a larger attack on the Islamic world.  Will Israel take any action in Syria? 

AYALON:  Well, we have heard this very extreme president talking on many fronts.  He talked about wiping Israel of off the map, by the way, he talked about wiping the United States off the map, by dealing a blow to all what he called, quote unquote, the moderate Arab regimes.  He certainly has an agenda.  Iran has an agenda, which is to push their model of theocratic, monolithic, extreme, radical Islamic republic in the entire Middle East.  I think it‘s a danger not just for Israel but for the entire countries in the Middle East and much beyond.  At the same time, they‘re pushing very forward and strongly with their nuclear ambitions.  I think it‘s high time that they will be stopped.  I believe that the international community can do that through the United Nations Security Council. 

O‘DONNELL:  You didn‘t answer my question. 

AYALON:  Well, Israel will self defend

O‘DONNELL:  Yes, but I mean, whether there are needed any actions within Syria.  The leader of Hamas lives in Damascus, does he not? 

AYALON:  He is, and certainly we should not make any distinction between the terrorists and those who give them shelter and harbor and financial support and political support and the treatment and what have you.  But I think Syria, and Iran, should be called to task by the international community and this will be done. 

O‘DONNELL:  Are you getting everything you need from the Bush administration?  Has this president done enough? 

AYALON:  Well, we admire the leadership of this president, of this administration, in leading the global campaign against worldwide terror.  I think it is important, and today we see everything is interconnected.  What happens in India or in Bali or unfortunately, 9-11 here, and in Jerusalem or Tel Aviv or Lebanon, is all interconnected.  We are in a total and a global war on terror.  It‘s a war which was not started by us.  It was imposed on us and we have to deal with it very severely, underground, but also politically and it‘s very important to know that the international community can contain it by calling Iran and Syria to the task and I think they will heed to the Security Council.

O‘DONNELL:  It‘s an excellent point, ambassador and I think that‘s why we‘ve covered this story with such detail, is because this is not a local problem, this is a regional problem and shows the struggle that we‘re fighting against, a radical Islamic groups.  Exactly. 

AYALON:  Absolutely.  And more than regional, it‘s global unfortunately today. 

O‘DONNELL:  All right thank you ambassador Daniel Ayalon. 

And when we come back, reaction from Syria‘s ambassador to the U.S. 

This is HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES:  Syria needs to be held to account.  Syria is housing the militant wing of Hamas.  Hezbollah has an active presence in Syria.  The truth of the matter is if we really want there to be the situation to settle down, the soldiers need to be returned and President Assad needs to show some leadership towards peace. 

(END VIDEO CLIP)

O‘DONNELL:  Welcome back to HARDBALL.  The Associated Press is reporting that Israeli jets have now bombed the highway linking Beirut to the Syrian capital of Damascus, but the main artery does remain open.  And joining me now is the Syrian ambassador to the United States, Imad Moustapha.  Ambassador Moustapha, thanks you very much for joining us.  Let me ask you to respond, the president of the United States said Syria must be held to account. 

IMAD MOUSTAPHA, SYRIAN AMBASSADOR TO U.S.:  This has become a stereotypical cliche of this administration.  Whenever there‘s a problem in the Middle East, this administration always would rush to blame Syria.  Other administrations used to do very different things.  They used to engage.  They would send envoys to the Middle East, they would mediate.  This administration will only assign blame, while it flagrantly supported Israeli forces. 

O‘DONNELL:  So is that why Syria is supporting Hamas and Hezbollah?

MOUSTAPHA:  Let us be clear about it.  Syria has nothing to do whatsoever in the current situation between Israel and Hamas on one hand and Israel and Hezbollah on the other hand.  Actually, the situation is caused by the continuous Israeli occupation of the Palestinian territories over the Lebanese and over other Arab territories.  This is the core issue.  This is the big elephant in the room.  Trying to say that Damascus is to blame for this situation is preposterous. 

O‘DONNELL:  The leader of Hamas lives in Damascus, does he not?  Why is Syria, even the Secretary of State Condoleezza Rice today said that Syria has to stop harboring these terrorists.  Will Syria do that? 

MOUSTAPHA:  First, let us agree on one thing.  The leader of Hamas does not live in Syria.  One of the spokesperson of Hamas was expelled by Israelis from his homeland, from Palestine to Syria.  He was expelled, he didn‘t choose to go to Syria.  Second, he‘s a spokesperson.  Trying to say that the situation in the occupied territories is caused by a person who was expelled into Syria is actually trying to distract the attention.  The true issue is Israelis have committed and are continuously committing crimes on daily basis in the Palestinian territories. 

O‘DONNELL:  Absolutely, ambassador.  I understand that you represent and must speak for Syria here in the United States, but let me ask you, because most reporters and foreign policy experts say that what Hamas did in Gaza and what in terms of capturing an Israeli soldier ... May I finish? 

MOUSTAPHA:  Thousands of Palestinians are captured by Israel.

O‘DONNELL:  Understood, and what has happened now with Lebanon and Hezbollah, that that would not have happened, what Hezbollah and Hamas did would not happen without the tacit approval of Iran and Syria.  Do you completely reject that? 

MOUSTAPHA:  Categorically, this is rubbish.  Hamas is a movement that represents the Palestinian people.  We don‘t even have direct means communication with the occupied territories.  Trying to say that this is happening because of Damascus, somewhere else, is actually deceiving the American people.  The American people should understand, what is happening today in the Middle East is happening because of the injustices inflicted on the Palestinians for the past 50 years.  The Palestinians are suffering and suffering and suffering on a daily basis.  Now who is the culprit?  It‘s Damascus.  Isn‘t this preposterous?  Look at the core issue. 

O‘DONNELL:  Let me ask you just very quickly.  Saudi Arabia has blamed this on factions inside Lebanon, Hezbollah.  Offering very frank condemnation of Hezbollah.  Why can‘t Syria do the same? 

MOUSTAPHA:  Why would we condemn Hezbollah when Hezbollah is only saying the following.  Israel retains Lebanese prisoners.  We have captured two Israeli soldiers and we want to exchange them.  This has happened twice between Hezbollah and Israel.  In the past, Germany mediated and twice there has been a prisoners exchange.  Would you agree with me that the Lebanese are human beings that are equal to Israeli human beings.  If Israel is currently holding Lebanese prisoners and is holding thousands of Palestinian prisoners and both Hamas and Hezbollah are calling Israel to exchange prisoners, what is wrong with that. 

Actually only last week, the Israeli occupation army abducted tens of Palestinian elected officials, representatives in the parliament, and civilian members of the cabinet.  This happens on a daily basis in the occupied territories and nobody is concerned about it.  Only when an Israeli soldier, when a military soldier is abducted, suddenly the United States is driven into leveling accusations here and there.  The United States is the world superpower.  It should play a responsible role.  It should help all parties in the Middle East. 

O‘DONNELL:  Well, unfortunately the U.N. Security Council did not agree today.  But we‘ll talk more about that in just a moment because Ambassador Moustapha is going to stay with us, the ambassador from Syria.  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

O‘DONNELL:  We are back with the Imad Moustapha, Syrian ambassador to the United States.  Ambassador, let me ask you, how close is your country, Syria, to Iran? 

MOUSTAPHA:  We have excellent relationships with all of our neighbors, with Turkey, with Iran, with Egypt, with Jordan, with Saudi Arabia, why shouldn‘t we?

O‘DONNELL:  Israel? 

MOUSTAPHA:  We have repeatedly, the American people really should know this, repeatedly invited Israel to engage in peace talks with Syria in the past three, four years.  Israel has categorically, flatly rejected our invitation. 

O‘DONNELL:  Iran and the new President Ahmadinejad has called for the destruction of Israel.  Is that the position of Syrian‘s President Assad?

MOUSTAPHA:  No we have called Israel to engage with us in peace talks that would lead to comprehensive, fair peace and normalized relations, provided Israel gives us back our occupied Golan.  I think this is a very fair proposal.  Give us back our occupied land and get peace in return. 

O‘DONNELL:  Iran‘s president also said today that any attack on Syria would be viewed as an attack on the larger Islamic world and would be met with a fierce response.

MOUSTAPHA:  I would say this would be the sentiment across the whole world, not only in Iran.  In Morocco, and Egypt and Tunisia and Saudi Arabia because everybody knows that Israel is trying to escalate the situation and create more and more tension in the Middle East.

O‘DONNELL:  All right, well thank you to Imad Moustapha, Syrian Ambassador to the United States.  And stay tuned to MSNBC for continuing coverage of the crisis in the Middle East.  Right now it‘s time for Tucker.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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