updated 7/17/2006 1:37:35 PM ET 2006-07-17T17:37:35

Guests: John McCain, Ann Coulter, Daniel Ayalon, Imad Moustapha, Bob Baer, Matt Dowd, Mike Feldman

NORAH O‘DONNELL, MSNBC HOST:  Tonight the Middle East erupts in violence as Israel steps up its strikes into Lebanon, and Hezbollah fires rockets into Israel. 

And President Bush in Russia for the G-8 meeting plays peacemaker. 

Let‘s play HARDBALL.

Good evening.  I‘m Norah O‘Donnell in for Chris Matthews. 

Tonight the head of Hezbollah vows all-out war against Israel.  He talked of attacks deep inside Israel. 

Plus, for the third day, Israel continued its attack in Lebanon, bombing Hezbollah‘s headquarters and the home of its leader in Beirut in retaliation for the kidnapping of two Israeli soldiers. 

Meanwhile, Hezbollah guerrillas launched rockets into Israel, killing an Israeli woman and child. 

The diplomatic pressure is on to prevent an all-out regional war in the Middle East.  President Bush is in Russia, meeting with world leaders at the G-8 summit.  The big question:  What will President Bush do about the crisis?  Today, White House press secretary Tony Snow said that the president would not make military decisions for Israel, but if Iran and Syria step into the action, what will the United States do? 

Tonight, HARDBALL has this story covered with reporters across the region, on the diplomatic front.  We‘ll also talk to the ambassadors of Israel and Syria here in Washington. 

Plus, author and conservative provocateur, Ann Coulter, is here to play HARDBALL. 

But we begin if Beirut.  NBC‘s Beirut bureau chief Richard Engel joins us now by phone.  Richard, what is the very latest? 

RICHARD ENGEL, NBC NEWS:  Right now, there are fears that this conflict could escalate even further.  There have been new threats by the leader of Hezbollah, Hassan Nasrallah.  He says he is prepared for an open war, and is launching an open war against Israel. 

He also said that all of the, quote, “surprises” that he has promised will now start.  It was the—probably the most bold and menacing threats that we have heard from the Hezbollah leader since this conflict began. 

Also, there are new reports emerging that Hezbollah, either with a missile or the Israeli army, is now saying with an unmanned drone rigged with explosives, attacked an Israeli warship that was patrolling the harbors off of Lebanon. 

There are conflicting reports.  At first the Israeli army said that that warship was only lightly damaged.  Now there are reports that it was quite seriously damaged.  Hezbollah is claiming this to be a major victory and is promising that more attacks will come. 

O‘DONNELL:  Richard, you mentioned that Hezbollah is threatening to drive rockets deeper into Israel.  Do they have that capacity? 

ENGEL:  That is—apparently they do.  That is what, according to people, security sources in the U.S. we‘ve within talking to and certainly if you ask Hezbollah, they say that they have capacities to go to Haifa and beyond. 

Today, Hassan Nasrallah in this speech also said that his organization plans to attack Haifa and beyond and beyond, stressing that they could go deeper into Israel and potentially do other kinds of attacks.  He said the one on the Israeli warship was just the beginning, though he was leaving quite a degree of mystery and that was the idea. 

He was speaking just shortly after Israeli warplanes attacked his house and his office here in Beirut, sending a very strong message to Hassan Nasrallah himself and he came out with these words of defiance in a radio address just about an hour later. 

O‘DONNELL:  Richard, let me ask you about the state of Lebanon, where some 25,000 Americans there, the Pentagon is already preparing contingency plans to evacuate those Americans from Lebanon, if necessary.  You are in Beirut.  What is it like there tonight? 

ENGEL:  It depends on the neighborhood.  If you are in south Lebanon -

or south Beirut I should say, the Dahi (ph) neighborhood, which is the Hezbollah stronghold, the situation is very tense.  People there expect that this will be another night full of airstrikes. 

The Israeli army, or Air Force dropped thousands of leaflets, again, warning people to stay away from Hezbollah headquarters, which are located mostly in that area.  That is also not far from where the airport is located.  The situation is tremendously tense in Hezbollah neighborhoods. 

Elsewhere in the center of the town, which is where we are and in other more residential neighborhoods, the situation is tense, but the—it is more of an empty feeling on the streets.  There are no people out.  All the restaurants are closed, many people have been boarding up their shops. 

Thousands of Lebanese have been leaving the country over the last two days as people fear—especially after these latest escalations in the last few hours or so, that the situation could quickly get worse. 

O‘DONNELL:  Richard, thank you for your excellent reporting and stay safe.  Richard Engel he on the phone from Beirut. 

And we are joined now by Republican Senator John McCain of Arizona. 

Senator, thank you for joining us. 

SEN. JOHN MCCAIN ®, ARIZONA:  Thank you, Norah. 

O‘DONNELL:  Let‘s begin with Israel‘s actions.  Do you completely 100 percent support what Israel is doing? 

MCCAIN:  I support it enough from what I know about to think that when you‘re attacked and your soldiers are killed and captured, then you have to have a very, very vigorous response.  Would I have done tactically every single thing that they have done? 

Maybe I wouldn‘t have bombed the Beirut airport, but look, those are tactical decisions made on the ground by people on the ground.  But do I believe they should have had a vigorous response?  Absolutely. 

O‘DONNELL:  Well, what about the European Union, and many European leaders, who believe that this has been a disproportionate means of force by the Israelis? 

MCCAIN:  Well, my question is, how would they react if someone invaded their country and killed their soldiers and innocent civilians who—with rocket attacks from outside of their country.  I can tell you how I know Americans would react.  They would react exactly the way that the Israelis are. 

O‘DONNELL:  Today, Hezbollah‘s chief pledged open war with Israel, saying “you wanted open war, we are going to open war,” after Israel tried to bomb the Hezbollah leaders‘ home in Beirut.  Are you concerned now that this may lead to a wider conflagration? 

MCCAIN:  I‘m very worried about a wider conflagration, but that‘s up to Hezbollah and especially Iran.  Iran, they‘re the godparents of—Iran is the godparent of Hezbollah, they‘ve provided them with the rockets that they‘ve been raining on Israel for a long period of time now. 

They‘re the ones who provide them with training and equipment, and so I would say that if they want all-out war, the Iranians may, at some point, put themselves at risk, because they are the ones who are fostering this and in southern Iran and continuing to try to acquire nuclear weapons.

So if you call raining rockets on a neighboring country not all-out war, then perhaps it will be escalated, but I think it‘s reprehensible. 

O‘DONNELL:  Do you believe that Hezbollah and Hamas would not have acted without the tacit agreement of the Syrians and Iranians? 

MCCAIN:  I do not believe they would have acted without the tacit not only agreement, but perhaps encouragement, from the Syrians and Iranians.  Remember the Syrians are the ones who are responsible for the assassination of the prime minister of Syria for which they have gone unpunished. 

O‘DONNELL:  Well, then how can ...

MCCAIN:  The Iranians—go ahead. 

O‘DONNELL:  Let me ask you then, Senator, because many people will look at that and the president himself has said Syria and Iran must stand up, they must take further action to account for their actions.  How then can the U.S., if Iran and Syria are openly aiding Hamas and Hezbollah, how can the U.S. stand by at this point, or what should the United States do?  

MCCAIN:  The United States should first of all demand a statement from the G-8 condemning these activities by Hezbollah and Hamas and vowing to take multilateral action to stop it. 

The second thing is, call to return to the road map, which President Bush has demanded. 

Third, move forward with sanctions on Iran for their continued work on nuclear weapons and provide aid and assistance to Israelis where it‘s needed, and if necessary—and I emphasize if necessary—examine all the options. 

O‘DONNELL:  As you know, the president is in Russia with the G-8 leaders at this time.  On the way there, on Air Force One, he spoke on the phone with several Arab leaders, in particular, the Lebanese prime minister, who asked that the president try and rein in the Israelis. 

Now, Tony Snow was asked about that and he said “no, the president is not going to take military decisions for Israel.”  But let me ask you, should Israel exercise some restraint? 

MCCAIN:  Shouldn‘t the question be, shouldn‘t Hezbollah and Hamas exercise restraint?  They‘re the ones who initiated this.  Shouldn‘t they be the ones who say OK, we‘ll stop launching rockets?  We‘ll stop killing and capturing Israelis, and then we can sit down and have a road map for peace?  Why is it that the Israelis are somehow the ones to be reigned in?  Shouldn‘t we rein in those who initiated these attacks? 

O‘DONNELL:  It‘s a good question.  It‘s a good question.  Let me ask you about the involvement of the Bush administration.  Secretary of State Condoleezza Rice has not been to Israel or the Palestinian territories since November.  President Bush today spoke with Arab leaders, but he did not speak with Ehud Olmert.  Let me ask you—should the Bush administration appoint someone like former secretary of state Colin Powell, James Baker.  Do we need a high level envoy to the region?

MCCAIN:  Well I think that would probably be helpful, but I remind you, we‘ve had high-level envoys to the region for a long period of time and we had Yasir Arafat to Camp David, and made him the best possible offer the Palestinians would ever get, and that was rejected.

And we now have armed attacks on the state of Israel from areas that the—that the Israelis willingly evacuated.  The Israelis evacuated that strip of land on the—in Lebanon.  They evacuated Gaza.  They offered to evacuate 90 percent of the West Bank, and yet what have they received in return?

O‘DONNELL:  Senator, let me ask you specifically about what President Bush has promised the American people, and he has said that the war on terror, the war in Iraq, would help make the larger Middle East safer.  Here‘s what he said in 2003 and then I‘m going to get your reaction on the other side.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, PRESIDENT OF UNITED STATES:  This is a massive and difficult undertaking.  It is worth our effort.  It is worth our sacrifice because we know the stakes.  The failure of Iraqi democracy would embolden terrorists around the world.  It would increased dangers to the American people and extinguish the hopes of millions in the region.

(END VIDEO CLIP)

O‘DONNELL:  Senator, the terrorists do in some ways feel emboldened now.

MCCAIN:  Yes, they do.  I believe they had great difficulties in Iraq, I think we all recognize that.

O‘DONNELL:  And so do you think those failures in Iraq are leading to the actions by Hezbollah and Hamas?

MCCAIN:  I think that some of our difficulties have had that effect, but I would also quickly add, I believe if Saddam Hussein were still in power, he would be attempting to acquire and use weapons of mass destruction which was his history.

O‘DONNELL:  Senator finally let me ask you, I know you‘ve become quite popular on what we call the rubber chicken circuit, out fund raising for other Republicans up for re-election in 2006.  Where are you going this weekend?

MCCAIN:  Iowa, Pennsylvania.

O‘DONNELL:  Iowa.  Now that wasn‘t a state that you visited very frequently in 2000, was it?

MCCAIN:  I think I was there a couple of times in 2000.  I‘ve been there a couple of times, but I do seriously, Norah, spend a lot of time, about this time an even number of years campaigning for candidates all over the country.  I have been all over the country, early primary states as well as late ones, but of course, it‘s important to go to Iowa, South Carolina, visit my friends in New Hampshire again.

O‘DONNELL:  All right.  Well, senator, as always, we will be watching and thank you very much for your time.

MCCAIN:  Thanks, Norah.

O‘DONNELL:  Senator John McCain.

And we‘ll have more on the latest developments in the Middle East later on HARDBALL with both the Israeli and Syrian ambassadors to the United States. 

Coming up next, best-selling author Ann Coulter will talk about why she thinks Israel is doing the right thing, what she thinks about Joe and Valerie Wilson‘s civil suit against the vice president of the United States.  You‘re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

O‘DONNELL:  Welcome back to HARDBALL.  I‘m Norah O‘Donnell in for Chris Matthews. 

The Middle East violence is sparking an international debate over whether Israel is taking appropriate action.  President Bush is standing firm in his support for Israel‘s right to defend herself.  Ann Coulter is a best-selling author and conservative commentator.  Her newest book is called “Godless: the Church of Liberalism.”  Welcome, Ann.

ANN COULTER, AUTHOR:  Great to be here, Norah.

O‘DONNELL:  And let me begin by asking you about what‘s going on in Israel and Lebanon tonight.  Major U.S. allies are saying that Israel may have gone too far.  The last time Condi Rice was in the region was in November.  President Bush today spoke on the phone with Arab leaders, but not the Israeli prime minister.  Is this administration doing enough?

COULTER:  I think so, though I do want to say before you ask me any technical, in-depth questions, when I‘m on book tour, I‘m a little behind on catching up on the news beyond the headlines.  But yes, I mean, this is very Reaganesque, what Israel is doing.  I completely support it.  They took two Israeli soldiers and you have peace through strength, generally the liberal idea is to be nice to your enemies, punish your friends.  No, I think you should punish your enemies and be nice to your friends.

O‘DONNELL:  Peace through strength, but as you know the Europeans are saying that Israel perhaps has gone too far.  Senator John Warner, the Republican chairman of the Armed Services Committee is concerned, talking to—sending a letter to the president of the United States, asking, urging restraint.  And even Dennis Ross, who I know you know, says that disengagement by this administration is in part the reason that‘s brought us to this.  Has the U.S. ignored, and this president ignored the problems festering for a while there?

COULTER:  It‘s been festering long before Bush came in, and in fact, there was something said in the last segment about whether the war in Iraq has emboldened Hamas and Hezbollah and I think it would be difficult to make that case. 

It‘s not like they were gentle little lambs before Bush went into Iraq.  It‘s not like we needed to—everything was peaceful, and don‘t upset that apple cart.  This has been a problem for a long time, and we do support Israel.

O‘DONNELL:  But you acknowledge that Iran and Syria are clearly taking advantage of what‘s going on in Iraq, and decided to act with Hezbollah and Hamas in order to kidnap soldiers and provoke Israel if you will.

COULTER:  I don‘t know.  Like I say, there was a lot going on long before the war in Iraq.  This has not been a day at the beach.  I don‘t see this as some shocking new development that Syria and Lebanon and Hezbollah and Hamas oppose Israel.  That‘s been true pretty much since Israel has been there and the way Israel has survived until now is by fighting back.

O‘DONNELL:  You talk about the war in Iraq.  Polls show that it‘s going to be the No. 1 issue for voters in the November midterm elections.  The Democrats have a new Web video in which Republicans say they are outraged by, this new Democratic ad on the Internet, which they were using for a fund raiser.  They have since taken that fund raising out.

It shows flag-draped coffins of the U.S.  The Democrats say this is legitimate, to show that men and women are coming home in this way.  What‘s wrong with that?

COULTER:  I think it‘s about one step above what the terrorists do, showing the bodies hanging when they‘re dead.  I mean, there‘s no reason to be exploiting the deaths like this.  If they want to run the numbers, that‘s fine, but I think there‘s a lot more to say about this ad.  I mean, that I think is somewhat serious on the more comical areas.  You know, they keep talking about a new direction and then all we see is pictures of Bill Clinton. 

And also, if they‘re going to be the party of integrity, I don‘t think mocking up fake photos of mugshots of Tom DeLay is the way to persuade people of that.  And those are famously fake photos, because you‘ll remember he smiled for his mugshot, depriving the left of that, you know, grim, angry mugshot they were hoping for.  And certainly on Air America, they were bitterly disappointed the next day. 

O‘DONNELL:  But back to the issue of the Democratic ad and the flag-draped coffins, which I guess you just said compared them to what terrorists would do.

COULTER:  I said it was about one step above. 

O‘DONNELL:  One step above terrorists, but Republicans have done the same thing. 

COULTER:  Well I‘m against it then.  I don‘t know in what context or what it was. 

O‘DONNELL:  Well the president used, in fact, a flag-draped coffin and we have video of that in the 2004 campaign, which was right after the 9/11 attack, so that is equally as egregious. 

COULTER:  I haven‘t seen it, so I can‘t really comment, but I‘ve seen the Democrat ad and I don‘t like it. 

O‘DONNELL:  Are the Republicans headed for complete disaster in November?  We just had a new poll out today that shows essentially the same thing, that in the congressional mash up that Republicans are more than 10 points behind the Democrats and they may retake the House. 

COULTER:  Well they ought to be.  This should be the Democrats big year.  This should be their 1994 revolution.  This is the sixth year in to the Bush administration.  Reagan lost the Senate six years in.  Also, Bush defeated historical odds during his midterm elections.  Generally, the party in the White House loses seats in the midterm election.  We picked up Republican seats in his first midterm election. 

I don‘t think lightning strikes twice so, yes, I think this is probably going to be a good year for Democrats.  They ought to be picking up something like, you know, 50 seats in the Senate or in the House and 10 seats in the Senate.  And we‘ll see how the campaign goes to see—I think the fact that Iraq is going to be a big issue may keep their numbers down. 

O‘DONNELL:  All right, you heard it here first, Ann Coulter predicting the Democrats are going to retake Congress.  All right, Ann, we‘ll be right back in just a minute. 

Later, the Israeli and Syrian ambassadors will be here to talk about the latest developments in the Middle East.  You are watching HARDBALL only on MSNBC. 

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

VALERIE PLAME, FORMER CIA OPERATIVE:  Joe and I have filed this action with heavy hearts, but with a renewed sense of purpose.  I would much rather be continuing my career as a public servant than be a plaintiff in a lawsuit. 

(END VIDEO CLIP)

O‘DONNELL:  Welcome back to HARDBALL.

That was former CIA operative Valerie Plame Wilson today talking about the lawsuit she and husband Joe Wilson filed against Vice President Cheney, Scooter Libby, Karl Rove, and other Bush administration officials. 

And we are back with best-selling author Ann Coulter.  Ann, let me get you to respond to the new lawsuit by the Wilson. 

COULTER:  I think this is going to end up being like the Alger Hiss

lawsuit against Whittaker Chambers, that is to say not well for Valerie

Plame and Joe Wilson.  As I described in my book, by the way, in a section

that my friends who read the book before it came out thought would get a

lot more attention than certainly the Jersey Girls section, it turns out

Am I supposed to be hearing that? 

O‘DONNELL:  Oh, I don‘t know.  Ann, I can hear you.  Go ahead.

COULTER:  Sorry, I thought you were doing a clip all of a sudden of Joe Wilson talking.  And that‘s when Patrick Fitzgerald, the independent counsel, made his announcement of the one indictment.  It was not for the Intelligence Identities Protection Act.  In fact, he went out of his way—it was a perjury charge against Scooter Libby. 

O‘DONNELL:  Scooter Libby.

COULTER:  He went out of his way to avoid using the word covert and

moreover what he said about Valerie Plame‘s employment being classified

would only be relevant under a completely different law so he‘s basically

O‘DONNELL:  Well, Ann, let me challenge you.

COULTER:  ...indicated that she was not covert.  The law certainly reads that she is not covert.  Despite his announcement, his press conference, many in the media continue to describe her as covert, while this lawsuit is going to end that I think. 

O‘DONNELL:  Well to be clear, here is exactly what Patrick Fitzgerald said.  He said, quote, “In July 2003, the fact that Valerie Wilson was a CIA officer was classified, but it was not widely-known outside the intelligence community.”

COULTER:  Classified, right. 

O‘DONNELL:  “Valerie Wilson‘s friends, neighbors, college classmates had no idea that she had another life.  The fact that she was a CIA officer was not well known for her protection or for the benefit of all of us.  Valerie Wilson‘s cover was blown in July 2003.”  He says it was classified, her cover was blown. 

COULTER:  That‘s what I just said.  He said it was classified, not covert. 

O‘DONNELL:  What‘s the difference? 

COULTER:  And he also went on to say—because that would only be relevant as he also said in that press conference if he had ... 

O‘DONNELL:  But, Ann, what‘s the difference? 

COULTER:  One, it‘s against the law to disclose the identity of a covert agent and as he said in that press conference, it is not against the law to disclose merely the fact that it‘s classified.  He said we don‘t have an official secrets act.  He was comparing it to Great Britain.  We don‘t have something like that. 

O‘DONNELL:  But Patrick Fitzgerald says her cover was blown.  She said today they made the decision that ...

COULTER:  Right, he was hopping mad and the fact that this is a prosecutor who would indict a ham sandwich and didn‘t indict anyone for revealing her name, really proves the point. 

O‘DONNELL:  You helped Paula Jones in her sexual harassment suit about President Clinton, which led to some very nasty discovery, if you will, and embarrassing details for President Clinton.  Could this be the same now for Vice President Cheney if, in fact, the district court judge allows this to go forward, this civil suit? 

COULTER:  No, has he been molesting someone in the Oval Office?  No, I don‘t see that at all.  I think it‘s going to be the reverse.  Now we‘re going to get an official court ruling, stating what I am now arguing to you, that Valerie Plame was not covert. 

O‘DONNELL:  Let me ask you, Ann, about another controversial section if your book called “Godless,” and that is about what you called the Jersey Girls, in which you accused the 9/11 widows of essentially enjoying their husbands‘ death.  Do you regret that now? 

COULTER:  No.  No. 

O‘DONNELL:  And why not? 

COULTER:  No, you can—we can get through this interview faster, I regret nothing I wrote in that book.  I think it‘s a fine book. 

O‘DONNELL:  But you do acknowledge, Ann—yes ...

COULTER:  In fact, to the contrary.  Oh, and by the way, if I could just mention on the prediction thing—and this is relevant to my answer here.  I did not technically make a prediction, Norah.  I don‘t make predictions about how people will vote, because you never get credit when you‘re right and they always remember when you‘re wrong. 

I‘m just saying in the grand sweep of history, this ought to be the Democrats here, but I‘m not like Michael Barone.  I haven‘t gone to each district, I don‘t know how the elections are going.

And I think this is something that‘s going to hurt the Democrats, which my Jersey Girl section and the press they got on it and I think the reason Democrats are squealing so loudly about it, is that they have been deprived of this ability to send forth victims to make their cases for them.  You know, send up somebody we can fight back with full bore.

O‘DONNELL:  Well Ann, some would argue that your soul mate, Bill O‘Reilly on FOX...

COULTER:  OK, now you‘re just insulting me, Norah.

O‘DONNELL:  Oh, you don‘t like Bill O‘Reilly?

COULTER:  I love Bill O‘Reilly, but he‘s been viciously attacking me.

O‘DONNELL:  He has.  And you know, and we got those made up into full-screens for you.  He said what you said about the 9/11 widows was brutal, to say something like that.  He says it sounds awful and in order to say that to specific people, you‘re going to have to prove it.  That‘s only Peter King, Coulter‘s comments about the widows went beyond the pale of limits about decency.

COULTER:  OK yes, yes, yes, I‘ve heard it all.  On O‘Reilly, he‘s just bitter because he kept saying, I end this issue, I did it, I did it first.  Well OK, congratulations to you.

O‘DONNELL:  But Ann, you admit that it was cruel, and you don‘t want to be cruel.

COULTER:  No, I don‘t.  No, I don‘t at all.  I don‘t think it‘s at all cruel.  I think it‘s cruel to be...

O‘DONNELL:  ... Do you ever admit you‘re wrong?

COULTER:  Yes, when I‘m wrong, I admit I‘m wrong.  I think it‘s cruel to be foisting a 9/11 commission on the nation, making terrorist attacks more likely by turning into a Clinton whitewash committee. 

I think it‘s cruel to be endorsing John Kerry for president in the middle of a war on terrorism, the guy who voted for funding for troops before voting against it.  I think it‘s cruel to be going around claiming the president of the United States is responsible for these women‘s husbands‘ death.  I think that‘s cruel because that‘s going to put a lot of other women at risk for becoming widows and there‘s a lot of 9/11 widows out there, Norah, and I‘m hearing from a lot of them who don‘t think I was harsh enough.

O‘DONNELL:  Ann and then finally, I have to ask you, because we did in fact dig up some old pictures of you, from 10 years ago.

COULTER:  Excellent.  I was on MSNBC the first day, so I just want to say MSNBC is responsible for unleashing me on America.

O‘DONNELL:  Well, MSNBC is 10 years old today.  Anything you want to say? 

COULTER:  Happy anniversary.

O‘DONNELL:  You look good there, Ann.  Your hair is a little bit shorter, a little bit blonder too.

COULTER:  I got my best—yes, I lived in Washington then.

O‘DONNELL:  All right, Ann, thanks very much, we appreciate it.

COULTER:  Thank you.

O‘DONNELL:  Take care.

And up next, can the violence in the Middle East end or is this spiraling into an all-out war?  I‘ll ask the ambassadors from Israel and Syria.  You‘re watching HARDBALL, only on MSNBC. 

(COMMERCIAL BREAK)

(MARKET REPORT)

O‘DONNELL:  Welcome back to HARDBALL.  The White House said today that President Bush would not press Israel to halt its military operations.  This after the president received a request to do so from the Lebanese prime minister.  Joining me now is Israeli ambassador to the United States, Danny Ayalon.  Ambassador, thank you for joining us.

DANIEL AYALON, ISRAELI AMBASSADOR TO U.S.:  Hi, Norah.

O‘DONNELL:  Let me ask you first about Hezbollah‘s chief today has pledged open war on Israel.  Are you prepared for that?

AYALON:  Well, what else is new, Norah?  They have pledged war for many years.  What the provocation of last week was quite evident.  They are using everything in their availability to try and promote their extreme agenda.  They used terrorism all over. 

By the way, it‘s not the first time.  They are responsible still from the 1982, for killing off more than 200, 250 Americans.  It was the Hezbollah doing.  So by saying they are in total war, it‘s just a statement of the obvious. 

They have been doing it all along and you have seen what the response of President Bush was to the request of the Lebanese.  It is obvious that we have to win this war, and to win this war, it means to neutralize Hezbollah so they will not be able to act—to do terrorism anymore and to free Lebanon.

O‘DONNELL:  Ambassador, how do you react to the fact that the president is in some ways standing alone at the G-8 summit that other European allies have harshly criticized Israel‘s response.

AYALON:  I‘m not sure he‘s standing alone Norah, because we hear different things privately.

Tomorrow of course there will be the G-8 summit and a statement will come out.  I think it is important of a unified position by the international community, singling out Syria and Iran, which are behind the scenes.  And the Syrian irresponsibility is quite obvious.

People are talking about the danger of escalation.  I do not see an escalation, because the Syrians and the Iranians will fight, but until the last Lebanese drop.  They fight on Lebanese expense, and about the Syrians, Norah, I would like to ask, they have ostracized themselves from the international community.

They are not behaving in the norms of any normal party.  The reason that I have to sit here and not with you is because the Syrian ambassador will not sit with me and I would like you to ask him, why would he not sit with me in the same studio as I‘m willing to sit with him?

O‘DONNELL:  Well in fact we‘re going to talk to him in just a minute, and so we‘ll get him to respond to that.

But first let me ask you specifically.  We have now the Republican chairman of the Senate Armed Services Committee warning the administration to think very carefully about how Israel‘s, quote un quote, “extraordinary reaction” could affect our operations in Iraq, and our joint diplomatic efforts.  There is concern, do you acknowledge, about the reaction of Israel, that it may have been too much?

AYALON:  No, I think what I hear from all across the board, in Congress and beyond, in the American public opinion, they do understand what we have to do to defend ourselves.  But also they see it as part and parcel with the U.S.-led effort to win the war on global terror.  What‘s happening in Iraq, what‘s happening In Lebanon is a war, a terror war, and we do have now obvious, obvious adversaries, which instigated.  It‘s in Damascus, it‘s in Tehran, and they use their proxies: Hamas, Hezbollah, al Qaeda or what have you.  We have to win this war, otherwise the entire globe will be at the mercy of such murderers that sit in Damascus and in Tehran, and I think all of us understand that the chips are down, we have to win and we will win.

O‘DONNELL:  All right.  Thank you, Ambassador Daniel Ayalon.  And we‘re joined now by the Syrian ambassador, that we just heard Mr. Ayalon talking about, his name is Imad Moustapha.  Let me begin by asking that, why won‘t you sit down in this room with me, you‘re just steps away, with the Israeli ambassador?

IMAD MOUSTAPHA, SYRIAN AMBASSADOR TO U.S.  Well, let‘s not trivialize the issues.  Israel is right now involved in killing tens of civilians in Lebanon, children, women, destroying Lebanon for the second time in the past two decades, criminal atrocities are happening today in Lebanon and the discussion is whether I would sit or not sit in a room with an ambassador?  For God‘s sake, people are being killed today in Lebanon.

O‘DONNELL:  Well, that‘s exactly the point, ambassador.  Ambassador, may I? 

MOUSTAPHA:  Of course.

O‘DONNELL:  That‘s exactly the point, that people are being killed and that two men, who are charged by their countries to be ambassadors to the United States, to be diplomats, cannot sit in the room together, here with a journalist.  What‘s wrong?

MOUSTAPHA:  Look, look.  I‘ll tell you exactly what‘s wrong.  In the past five years—Syria—you should know this, if you don‘t know this, and the American people should hear this. 

Syria has invited Israel time and again to reengage in a peace process, leading towards ending the occupation.  The occupation is the mother of all evils in the Middle East.  Israel has to understand this.  At one point in its history, Israel must end its occupation enough for suffering, suffering, suffering.

O‘DONNELL:  And how are the actions by Hamas and Hezbollah going to further that goal?

MOUSTAPHA:  Look, the issue is the following.  For the past 50 years, every possible means we entered into: peace talks, we‘ve done everything possible to try to convince Israelis to end their occupation, allow us to live like decent human beings, like every nation on the earth. 

What has been happening is the Israelis, who actually implement a state terror policy, terrorizing us, they have been continuously terrorizing us for the past half century.

They are doing right now—this to the Lebanese civilians and they will continue to do this, unless the United States will take a historic stand and will tell Israel, enough is enough, enough with the blood shed, enough with your using your military superiority to terrorize the Arab states and let us have a comprehensive peace.

These are the issues.  The issue is not who sits with whom in which room.  The issue is now, why we are talking and why we are discussing should we or shouldn‘t we sit in a room.  Hezbollah yesterday said we want to negotiate with our prisoners, the Lebanese prisoners and the Palestinian prisoners with the Israelis.  They have done this before.  It is well known to everybody under the sun that there has been a negotiation before, 9,000 prisoners.

O‘DONNELL:  Ambassador, Syria was denounced today at the United Nations, once again by Ambassador Bolton following up on the comments of President Bush yesterday, saying that Syria provides safe haven to the militant wing of Hamas, and provides material support to Hezbollah, which also maintains an active presence in Syria. 

We talked about it yesterday.  Do you deny that Khaled Meshal lives in Damascus and that Syria is harboring the head of Hamas?

MOUSTAPHA:  You know what, anybody who dares to oppose the Israeli occupation policies in the Middle East is immediately labeled as a terrorist, end of the discussion.

O‘DONNELL:  Is Hamas a terrorist organization?

MOUSTAPHA:  What I am trying to say is the following.  Today the Palestinians have been living through miserable conditions, despair, unfairness.  This is so much for humanity to accept them.  And the—Mr.  Bolton happily would sit in the United Nations and say Syria is to blame, Iran is to blame, while Israel is doing the killing, while the hands of Israel are immersed in blood, Mr. Bolton is naming Damascus.

In the past two days, Damascus and here, I will repeat this on the air live, that we are asking the world community to interfere towards stopping this bath of blood that is happening today in Lebanon.  Syria in the past three days has asked the world community to interfere with Israel, so that Israelis will listen to the sound of the—to the voice of wisdom and the hostilities will cease.

O‘DONNELL:  All right, Ambassador Moustapha, thank you very much. 

MOUSTAPHA:  You are welcome.

O‘DONNELL:  That was an interesting segment and I hope our viewers get a sense of what‘s going on, that two ambassadors will not sit in the same room together, will not respond to one another at the same time and that‘s why that interview was set up in that particular way. 

And up next, former CIA officer Bob Baer will give his take on the situation.  He has been all over the Middle East and knows what it‘s like on the ground.  This is HARDBALL only on MSNBC. 

(COMMERCIAL BREAK)

O‘DONNELL:  Welcome back to HARDBALL.  Bob Baer knows firsthand how much power Hezbollah has in Lebanon and who controls their purse strings.  He served as a CIA officer in Lebanon for many, many years, and more recently, he‘s been working on a documentary on Hezbollah in southern Lebanon over the last year.

He‘s also the author of a new book called “Blow the House Down.”  I asked him whether it‘s possible for Israel to wipe out Hezbollah with its latest actions.

(BEGIN VIDEOTAPE)

BOB BAER, FORMER CIA OFFICER:  They could with an enormous amount of force, but keep in mind that Hezbollah is centered in a part of Beirut which is in essence a slum, and you would have to knock that slum down, there would be an enormous amount of casualties.

O‘DONNELL:  Well, in fact, of course, as you know, Israeli warplanes were dropping leaflets late yesterday in Beirut, warning civilians to get out of the way and then today, they went directly after the house of the Hezbollah leader, Sheikh Hassan Nasrallah.  They did not get him, but Nasrallah has since responded saying, “You want war.  You got it.”  And now Hezbollah says open war with Israel.  What does this now mean? 

BAER:  I think what we‘re seeing here is—first of all, we have to keep in mind that Hassan Nasrallah is an Iranian agent.  He‘s not an independent actor in this.  So the taking of these two soldiers in the south was an Iranian provocation. 

The question is, what are the Iranians going to go after next?  It could be taking hostages in Lebanon.  It could be targets in the Gulf.  It could be more advanced missiles hitting Israel.  It‘s hard to tell at this point.  But I think that you should take this guy seriously.  He‘s been involved in terrorism for 25 years, and he can conduct operations all over the world. 

O‘DONNELL:  In fact, what you‘re saying that not only is Hezbollah acting with the tacit approval of Iran, but you think that they are acting with orders from Iran, from Tehran? 

BAER:  Oh, I think absolutely.  Intelligence has shown us that Hassan Nasrallah is an Iranian—he‘s an asset, if you like.  He—he gets money from Iran, he takes orders.  He was involved in the hostage taking in Lebanon in the ‘80s, attacks on the U.S. embassy, and it was all at the behest of Iran. 

O‘DONNELL:  You have lived in Lebanon for many years, and part of the concern is that the Lebanese government has not done enough to rout out Hezbollah over the years.  That‘s certainly the case that the Israelis are making.  Should Lebanon have done more so that it would not have led to this point? 

BAER:  The Israelis are wrong.  The Lebanese army cannot control Hezbollah.  Hezbollah is much more powerful.  If the Lebanese army went after Hezbollah, I think the army would break up, as it did during the civil war.  Remember, it‘s divided between Shia and Sunni and Christians, and even unified, they couldn‘t beat Hezbollah.  Hezbollah is a potent force. 

O‘DONNELL:  Let me ask you, the Israeli prime minister, Ehud Olmert, said today that Israel will stop when Hezbollah disarms, and of course we‘ve been trying to get Hamas to disarm for years.  There‘s no sign that Hezbollah will disarm, is there? 

BAER:  No, they‘re going to have to do it by force if they intend to do it.  It could be very, very bloody.

O‘DONNELL:  But how long is this going to last?  I mean, what is the end point? 

BAER:  Well, this is the problem.  You know, if the Lebanese government disintegrates, which is possible, this will affect the Syrian government.  It could cause problems in Syria.  We don‘t know.  We may just see an arc of chaos from Iraq, Syria to Lebanon.  That‘s the worst case scenario. 

O‘DONNELL:  Is there anything that President Bush should be doing to make sure that this does not spread into a wider regional conflict? 

BAER:  Well, he can try to work with the Israelis, but remember, there‘s no real return address for Hezbollah.  We don‘t talk to them.  There‘s no center for this.  They‘re spread out.  With the Syrians gone from Lebanon, we can‘t even really go to Damascus and make them do anything. 

And on the other hand, Bush can‘t tell the Israelis, saying, hey, we can‘t stop these provocations, learn to live with them.  So we‘re in a mess. 

O‘DONNELL:  Well, in fact, major U.S. allies said today that they condemn what they called Israel‘s inappropriate use of force, in some of their words.  The president of the United States spoke on the phone today with several Arab leaders, but did not speak with Ehud Olmert, the prime minister in Israel.  Why do you think that‘s the case? 

BAER:  I think we‘re very mad at the Israelis, because I think the White House understands that Israel has overreacted to this.  Because taking down a democratic state in the Middle East is not going to help any sort of peace settlement. 

O‘DONNELL:  When Lebanon was one of the bright spots that this administration pointed to as a democracy growing in the Middle East. 

BAER:  Exactly.  Lebanon‘s democracy and the Palestinian‘s democracy, and what we‘ve got in both cases, radical Islamic governments, which are hostile to us and Israel. 

O‘DONNELL:  All right.  Well, thank you to Bob Baer, very interesting. 

And the book is called “Blow the House Down.”

And when we return, Republican strategist Matt Dowd and Democratic strategist Mike Feldman will be here.  You‘re watching HARDBALL only on MSNBC.

(COMMERCIAL BREAK)

O‘DONNELL:  Welcome back to HARDBALL.  We are joined now by two of Washington‘s top strategist, Republican strategist Matt Dowd, who‘s actually in Austin, and Democratic strategist Mike Feldman.  They‘re both co-founders of hotsoup.com.

Let me first begin with a new AP poll out today, which shows 68 percent of Americans disapprove of Congress‘ handling of its job, just 27 approve.  Matt, let me ask you, does that mean a very strong anti-incumbent mood and that Democrats may win back the House and the Senate?

MATTHEW DOWD, REPUBLICAN STRATEGIST:  Well, there is a change element out there, big-time change element out there.  People are frustrated with a lot of things.  I think they are frustrated with both parties to a large degree, and I think Republican candidates for the Senate and the House especially are going to have to run very active, very concerted campaigns.  It doesn‘t mean they are going to lose, but it‘s an environment that obviously isn‘t as friendly as it was in 2002. 

O‘DONNELL:  Mike, the argument has been made that the Democrats, the environment exists for them, but they still don‘t have a message and they‘re making this more of a trying—a choice, rather than a referendum on the president.  They have not been successful at making the argument.

MIKE FELDMAN, DEMOCRATIC STRATEGIST:  I am—people will be falling out of their chairs all over the country, but I am going to agree with Matt and Ann Coulter. 

O‘DONNELL:  This is new—the new hot seat. 

FELDMAN:  Yes, it‘s a crazy new environment.  No, but I do think Matt is right.  The environment is ripe for change.  Now, it‘s true that the issues are made case by case, district by district, but at this point it looks like Americans feel like the country is heading in the wrong direction and they may take that out on the party in power.

O‘DONNELL:  And quickly, what is hotsoup.com? 

FELDMAN:  Hotsoup.com is an online community for issues, politics, sports, entertainment, everything you care about.  It‘s a place where people like Matt and I and others out there can get together and actually have an informed debate about issues. 

O‘DONNELL:  And Matt, when does it launch? 

DOWD:  It launches in October, but people can go on hotsoup.com today, preregister, which I think would be great for them to do.  And I think people are really going to be engaged.  It‘s people in Austin or Des Moines that can talk to people in Washington about things they care about.  So I think it‘s a great forum, and they can go ahead and preregister now, but it‘s live in October. 

O‘DONNELL:  Well, it‘s amazing because there‘s so much partisanship, it‘s sometimes chic in Washington, and these are two guys used to fight tooth and nail against one each other, and have now joined forces to try and bring people together.  So thank you to Matt Dowd and Mike Feldman. 

And play HARDBALL with us again Monday night—Monday night.  Right now, it is time for “TUCKER.”

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

END   

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