Interview With the Dallas Morning News Editorial Board

MODERATOR: You are meeting with the Editorial Board of the Dallas Morning News. Around the table (inaudible). We are pleased to have you here and very interested in your thoughts on developments around the world, both in the short term and in the long term. I think we would probably be remiss -- oh, and I should also point out we have our international editor as well from the newsroom here.

QUESTION: Hello.

MODERATOR: I think we would be remiss if we didn't start out by perhaps asking you about Pakistan and the most recent developments there. Certainly, General Musharraf has now set a date for the elections but violence continues, or the potential. So what is your read of that situation at this point and what is the U.S. doing to (inaudible)?

SECRETARY RICE: Yes. Well, first, I thank you very much for having me here. It's great to be in Dallas. And I'm on my way to Crawford for the meeting with Angela Merkel.

But turning to Pakistan, it is -- obviously, the situation is very strained and I think we are concerned that everyone will act in a way that doesn't lead to greater violence or to more widespread activities under the state of emergency. We've been focused on several things. The first is that we really would like to see Pakistan end the state of emergency as quickly as possible, because that's going to give confidence that they can get back on a democratic path, a constitutional path.

Secondly, the announcement about holding elections no later than the 15th of February was a good announcement. It needs to be accompanied by a clear indication from President Musharraf that he will take off his uniform, and when.

And third, they need to make very clear that opposition is obviously going to be permitted to have a voice, which to my mind means that the media restraints need to come off, they need to release people who have been arrested for political activity and so forth.

So there's still some considerable steps ahead. In terms of what we've been doing, we've been with our international partners, I think sending exactly the same, very strong message. The Union and others have sent the same message. Obviously, our Ambassador is in touch with Pakistani officials daily, hourly, and the President's phone call to President Musharraf underscored the points that I've just made.

And so this is a difficult time for Pakistan. When you see a country that really had moved quite far along the path toward more democratic developments, civilian rule, veer off that path, the real key is to get it back on that path as quickly as possible.

But we want to remain engaged with Pakistan. We made the mistake a number of years ago after the Afghan war, after the Soviets had left Afghanistan, of disengaging from both Pakistan and Afghanistan. And I think we paid with a failed state in Afghanistan and with a greater extremist presence in Pakistan. And so we don't want to make that mistake again because this is not about President Musharraf or the Pakistani Government, even, it's engagement with the Pakistani people so that, for instance, we have significant assistance programs to try and help them reform their educational system, get out of the business of madrasas that are essentially teaching hate. We have programs in the Federally Administered Tribal Areas, which have never been governed frankly, to try to bring economic assistance, economic development, there. We are pursuing what we call opportunity zones on that border between Pakistan and Afghanistan to try to use trade promotion to bring about a better atmosphere in which people can prosper and terrorism won't flourish.

So the program of engagement, not to mention our counterterrorism engagement with Pakistan, needs to remain. But obviously, this is a time when the Pakistani Government needs to react with restraint and it needs to quickly get back on the path of democratic development.

QUESTION: And what odds do you give that of happening (inaudible)?

SECRETARY RICE: Well, I thought that the decision to come out and talk about a date for elections was a very good one. The Pakistanis claim that they never intended to delay elections, that this was a statement about what could be done under a state of emergency. But be that as it may, it's good that they've now decided to come out and give a date for the elections.

And we'll see. I think the -- it's not really even Pakistan's Government reacting to us. It's Pakistan's Government reacting to circumstances in Pakistan, because if they're going to return to a legitimate path and actually be able to govern the country, they're going to have to respond to these legitimate concerns of the opposition.

QUESTION: And are you persuaded that there is enough of a moderate majority on the other side of Mr. Musharraf that could step forward and govern if he is no longer a leader?

SECRETARY RICE: Well, I don't want to speculate on what happens if there are changes there. I do think that we've continued to encourage a moderate center, which is people like Mrs. Bhutto, former Prime Minister Bhutto, and the Pakistani leadership, and some -- also some elements in other parts outside of Islamabad -- to encourage them because they do need to unify their position and their message because there is a strong extremist element in Pakistan, organized and embedded. And it's extremely important that that moderate center hold.

QUESTION: Madame Secretary, we've given about $10 billion to General Musharraf. Do you believe that the Administration has been taken advantage of by General Musharraf and do you think the Administration ought to have placed less emphasis on the person of the general and reached out more to other figures in the Pakistani military and political establishment?

SECRETARY RICE: Well, in fact, most of that money has not gone to Musharraf. I mean, it's gone to counterterrorism to help the Pakistanis fight the fight in counterterrorism; army training, equipment; trying to help them build forces that can actually take on the terrorist threat. I don't consider that being to Musharraf. I consider that --

QUESTION: But he's been our guy.

SECRETARY RICE: No, well, just a second. I consider that having been to build a Pakistani military. By the way, yes, we have very good relations throughout the Pakistani military. Our military does. Our civilians do. And so the key here has been -- he's the head of the country, but the key is to help them build institutions that are going to work. And so military institutions and intelligence organizations that can deal with the very real extremist threat, whether it's in the tribal areas or in and around the country, it seems to me a good expenditure of funding.

I mentioned the programs that we've had in terms of support for economic reform in Pakistan. One of the unfortunate bi-products of what has happened is that I think less confidence in a Pakistani economy that, frankly, was making a lot of progress in terms of economic reform. That's not to President Musharraf. That's to the Pakistani people for (inaudible) in their lives.

I mentioned the education program. I've met with several Pakistanis as they've come into office -- ministers of education -- and where the real key is to try to break up the monopoly on education, particularly for young boys in these madrasas, and reform of the educational system. And as I said, trying to build trade ties. We -- one of the most effective things we probably did in Pakistan was as a result of the earthquake -- the humanitarian assistance, which really I think had a very big impact on people who lived in these remote, very ultra-conservative regions of the country that have tended to have either support for or a wink and a nod at extremists among them.

So it's been a program of trying to move Pakistani society, political institutions, military institutions, to modernity. That's what we've been focusing on. And President Musharraf, that was his program as well. This is -- this veers off of that course.

QUESTION: Do you get any indication from him that he's willing to take off the uniform and run as a civilian? And also, are you are -- do you remain concerned about the possibility of the state of emergency remaining in effect at the same time that this election campaign is going on? What will be the effect of that?

SECRETARY RICE: It's very hard to see how you could have free and fair elections with a state of emergency in place. Now, I suppose theoretically, if you had media freedom and the right to assembly and all of the things that you're going to need for free elections under a state of emergency, maybe it works. But it's hard to see how that works. And it's one reason that we've been emphasizing not just the holding of free and fair elections, but the lifting of the state of emergency as well.

The -- I don't doubt that there is a problem with violence from terrorists. I mean, we saw it in the Red Mosque. We saw it in the bombings even outside of Musharraf's home. Al-Qaida has tried to kill him twice, at least. We saw it when Benazir Bhutto came back to Pakistan. So there clearly is an extremist problem and a problem with violence. But in order to get to elections I think you cannot be in the condition that you're in now. That's why we're emphasizing lifting the state of emergency.

And in the final analysis, Pakistan is going to be better served in terms of fighting extremism by the development of democratic institutions. I think that's true throughout the Middle East and South Asia. But I think it'll certainly be true in Pakistan.

QUESTION: And the uniform?

SECRETARY RICE: He's made public promises to do that and, you know, we take him at his word. It would be good to have it happen as soon as possible.

QUESTION: Can I follow up on this? In your conversations with him or the President's conversation with him, do you get the impression that he understands this move really isn't in the best interest of fighting terrorism?

SECRETARY RICE: Well, I don't want to try to put words in his mouth. You know, obviously, he did what he thought he needed to do. And he says, you know, it has to do with, as he said publicly, with fighting terrorism.

In our discussions, I've emphasized with him that he's the one who actually took Pakistan after the coup in '99, and after -- really after 9-11-2001, who really took Pakistan on a different course. The media was, until this state of emergency, freer in Pakistan I think than anywhere in the region except India, which is a great democracy, a functioning democracy. A huge number of newspapers and private TV stations. You know, that didn't happen without the government permitting it to happen, in fact encouraging it to happen. I mentioned the education reform. I remember very well President Musharraf's speech, in December I think it was, of 2001, where he talked about the fact that modernity and extremism could not exist side by side. So in fact, this was a program that he had launched the country on.

And so when we talk to him, we talk about the fact that it's unfortunate that this path on which he had launched Pakistan, he's somehow decided that he needed to take this detour, and he needs to get back on as quickly as possible.

QUESTION: What we've seen in the last few days seems to be a rejection of Musharraf and his approach by more moderate elements. If he is losing the support of moderate elements in the country, can he continue to be an effective partner for the U.S. and for U.S. goals in the region?

SECRETARY RICE: Well, as I said, we want moderate elements to unite. I still think that Musharraf is someone who does not believe in extremism and believes that Pakistan needs to be brought back from extremism -- extremism, by the way, that clearly brewed after the end of the Soviet war in Afghanistan when, frankly, a lot of the people who had fought in Afghanistan transiting Pakistan came back to Pakistan and didn't leave. So I think we have to recognize that there actually is a real extremist problem.

And he has been very devoted to trying to root out that extremism and, as I said, doing it through the forward march of more and more civil and democratic progress. Now, I can't speculate; if he gets back on that path, is there still -- can he still help reform the moderate center? Probably. But the longer this goes on, the harder that will be. I mean, that's another reason that the state of emergency needs to be removed pretty quickly.

And it is interesting to me and important that after several days they did finally come out and unequivocally promise to have the elections; and not a year from now, a few months from now. That's an important thing.

QUESTION: Madame Secretary, what kind of person are you dealing with with General Musharraf -- his approachability, his flexibility, his degree of trust?

SECRETARY RICE: I've found him someone that -- first of all, he has a rock solid dedication to his country. We think this was a bad decision. Full stop. A bad decision. I don't have any doubt that he is somebody who tries to have the best interests of his country at heart. I just think it was not a decision that is in the interest of his country.

He is approachable. He is someone with whom you can talk and reason. He is someone who has tried to fight terrorism and has tried to unravel some of the extremist elements. I think one of the most animated times I've seen him was the first minister of education that he appointed, a woman who was very active in trying to put together a nationwide curriculum so that they could get out because these -- some of these madrasas were pretty -- foreign-funded madrasas were pretty bad. And you know, he was animated by that. He had an economic government team that I think everybody thought was a very strong team.

And so this is a modern man in that sense. But this was a bad decision and this isn't the first time that we tried to talk him out of it. And the last time worked; this time didn't. But I really do -- when we speak now, it's to appeal to what he has said he wants for Pakistan, but it is also clear that that's what Pakistanis want for themselves and it's what Pakistanis are going to demand for themselves. And the more quickly the government reacts to what Pakistanis are demanding for themselves, the better this is going -- that it's going to be.

QUESTION: You've mentioned a couple times that the moderate elements need to unite. What can the U.S. do to make that happen? It seems like actually the state of emergency is making them unite, ironically.

SECRETARY RICE: Well, it comes down really to talking to them all, to trying to get them to think through what kind of program they want to unite around. Ultimately, this is not -- I mean, this is not an immature political society. I mean, it's a place where somebody like Benazir Bhutto -- Bhutto has been prime minister before twice, and so it's not as if you're trying to help her think through politics. She understands politics.

But it's being encouraging and it's suggesting that our support is, in fact, for the Pakistani people and for Pakistani institutions, and that that's how the United States will react and will respond to how Pakistan is developing. And they're good conversations. She's also someone who is popular and has a lot of clout. But they need to come together around a program that really gets the state of emergency over and then have an electoral program that can actually appeal to the Pakistani people.

QUESTION: What's the biggest thing dividing them, preventing that?

SECRETARY RICE: History. History and prior circumstances and prior difficulties with one another. It's not unlike that kind of problem in any society.

QUESTION: (Inaudible) personal and historical than issue-driven?

SECRETARY RICE: It seems to me not so much issue-driven. I think that these moderates all really want to fight extremism. They know that this is a bad thing that happened to the country. They, I think, all want to establish an economy that can really provide for the Pakistani people, that part of the problem is they've had very good macroeconomic progress over the last several years that hasn't really filtered down to progress for some of the poorest in the society. I think they all know that the Federally Administered Tribal Regions are a particular problem. And they all know that they have critically important relations with both India and Afghanistan to try to get right.

So I'm sure that there are, as in any political system, shades of difference about how you go about that, but I think in many ways they need to overcome a lot of the past. This doesn't help. And it draws up kind of some of the worst images of what has happened to Pakistan repeatedly, which is states of emergency and military coups and the like. But I think if they get through this, there is actually a lot for moderates to unit around.

QUESTION: Madame Secretary, I think since you were last with us you've moved over to the State Department. In 2003, the planning for postwar Iraq was removed from the State Department and given to the Defense Department, with results that have not been altogether successful. What role did you play in that decision to do that, and what do you wish you had done differently?

SECRETARY RICE: Well, I -- first of all, I was National Security Advisor and so my role was to take to the President the views of his secretaries about it, and they were united that it should go to the Defense Department. And you know, that's a little fact that's gotten lost. The State Department did not feel that it had the capacity to run postwar, immediate postwar operations and reconstruction in Iraq. And so the decision that the Defense Department would oversee the Coalition Provisional Authority was to prevent having two separate chains of command in Iraq when, in fact, we were still in an environment in which war was there.

It transitioned in '04 when we, quote, "ended the occupation" and went to an Iraqi government, interim government led by Ayad Allawi. Then we put a regular embassy there and the transition began to a more civilian-based operation.

So the truth of the matter is this country, the United States, really did not have a structure that worked particularly well for the transition from war to peace, the kind of -- we tended to think of things, there's war and there's peace. The military does war and the civilians do peace. And that's not the case. Many, many, not just Iraq and Afghanistan, but Haiti and Sudan and Liberia are all places where you find that this is more of a continuum. And so we tried in Bosnia and the Balkans to do it kind of with an international presence. Well, that worked variably. Kosovo still doesn't essentially have an economy. Bosnia-Herzegovina still isn't a real state in the way that it functions. It has three presidents. Three presidents! It has three police forces and three armies. (Laughter.) But you know, but this idea that somehow the Balkans -- we stopped the war, but the transition hasn't worked all that well.

Then in Afghanistan, we tried kind of dividing up the responsibilities between different countries, so the Germans got the police, the Italians got the judiciary system and somebody got this and, well, that didn't work so well.

So in Iraq we thought, all right, so the key here is it goes to one department, because after all, you then can use the authorities of a single department to really run this operation. And I know that there's a lot of criticism of the immediate postwar period, but I in fact, I think the Coalition Provisional Authority did some good things.

Now, what I think we've come to now is a recognition that you need structures that better integrate military and civilian capability. You need structures that permit large-scale civilian deployment, and we don't really have them. The State Department does not have city planners. I don't have engineers. We don't have people who know rule of law and justice programs from the ground up. And so the new structure that the President proposed in his State of the Union is something called a Civilian Response Corps, which is a civilian capability to sort of look like the National Guard capability so that you could actually sign up Americans. Let's say there's a former prosecutor or former assistant DA here in Dallas who would like to spend a year serving in Afghanistan or Iraq or Haiti or someplace doing rule of law and justice training. To actually have people, first in the government, who could be mobilized from other agencies to do that, but more importantly from the civilian population as a whole to be able to do that so that you could actually put large numbers of civilians on the ground. We did not have that capability in '03 or in '04. So you know, it's one of those structural adjustments that I think we're making.

The other thing is that we probably -- I'm quite sure that it was not until '05 that we -- the end of '05 that we fully began to tap the potential of local and provincial administration rather than centrally in Baghdad. And they tend to deliver services that are actually closer to people. Some of the giant reconstruction projects that we did at the center may have been better suited if we'd done them smaller in the provinces. And one of the effects that you're seeing now of more response or more focus on the local and provincial levels is you're seeing the Anbars come along. You're seeing provincial leaders who take responsibility for security and then take responsibility for delivery of services and the like. And so a lot of what we're doing now at State is spending an enormous amount of time with Provincial Reconstruction Teams. These are now military and diplomatic teams that are unified out in the field to help with something like budget execution. You know, Iraq basically didn't have a banking system and so now with budget execution -- so they didn't spend their budget two years ago. Just didn't spend it. Now, with budget execution monies -- or system, the Anbar can get its allocation from the central government. By the way, Anbar also got a supplemental because they had performed so well. And then they can deliver the services at the level of Anbar.

Do I wish we'd been foresightful enough to see that in '04? Yes. But that's one of those experiences of learning really how to do sustained counterinsurgency operations where you have to marry force with what people call hearts and minds.

QUESTION: One of the things that the State Department -- one of the assets that the State Department did have in 2003 was a very capable Foreign Service -- Arabic-speaking, very knowledgeable about Iraq as well as the rest of the region. They were swept aside in this decision to hand over those responsibilities to DOD.

SECRETARY RICE: That's not true.

QUESTION: Well, we've reviewed quite a few interviews on this and --

SECRETARY RICE: You know, people -- it's very interesting because that was not the assessment at the time, that State Department could somehow do this. It just wasn't the case. And yes, there were people -- I would, by the way -- who knew Iraq? Well, I planned with a lot of those people and it turns out we actually didn't know Iraq very well -- the Iraq that had existed from '91, after the first Gulf War, until 2003. I don't remember anybody knowing the degree to which the Oil-for-Food program had completely made dysfunctional agriculture in Iraq. Because if you have a food basket and you're giving people food through the Oil-for-Food program, then there isn't an agricultural market for goods. So agriculture had completely collapsed. I don't remember anybody knowing that.

So I just -- I think in retrospect, what we knew about Iraq going in suffered not from not listening to people who knew Iraq, but from not knowing Iraq. And that's what happens when you are essentially not in a country for an extended period of time.

QUESTION: Are the members of the Foreign Service justified for saying you created this mess, you shouldn't be asking us to go back and fix your problem, or requiring us now to go back and fix your problem for you?

SECRETARY RICE: First of all, Foreign Service officers are volunteering in large numbers to go to Iraq. This question of directed assignments is aimed at 48 positions that we have not yet filled. I'm told that now it's only 26 that have not been filled by volunteers. So this is both an overblown story and one that frankly I think the Foreign Service resents. Because the idea that they don't want to serve in the highest priority security and national security issue for the United States, an awful lot of people who are serving in Iraq and serving in tough places really resent that line.

And if you look at people -- the people who are serving there, there's our ambassador, Ryan Crocker, of course. Do you know that his political officer gave up an ambassadorship, his economic officer gave up an ambassadorship, his deputy chief of mission gave up an ambassadorship, the person who's about to become his PA officer gave up an ambassadorship to go and serve in Iraq? We have people serving in Anbar, serving in Diyala, serving in Karbala, who have gone back two and three times to serve again in Iraq. And so that a few people don't want to serve in Iraq is fine, but they also took an oath to serve wherever the country needs them. And that is -- you know, it's very interesting that anybody would even raise the question as to whether or not the Secretary of State can direct an assignment for a Foreign Service officer. That was an oath to serve worldwide, where needed.

Now, we've done a lot to make it easier for people to take that because, unlike the military, we don't have a base structure that makes it somewhat -- somewhat, not a lot but somewhat -- easier on families. So for instance, one of the things that we changed was, let's say you're serving in Cairo and you want to go serve in Iraq. It used to be that you had to bring your whole family back to Washington. And obviously if it's January then the kids get pulled out of school. And so we've made it possible for the family to stay in Cairo so that the officer can go to Iraq.

But absolutely, if I need somebody to serve in Iraq, they have to serve there. And I just want you to understand, though, we're now talking about 26 slots out of 48 because we've filled the rest of them with volunteers.

QUESTION: You are hosting the leaders of both France and Germany this week. That probably wasn't going to happen four or five years ago.

SECRETARY RICE: Yes.

QUESTION: What is it that you all hope to get out of these meetings?

SECRETARY RICE: Well, out of the French meeting it was great. First of all, Sarkozy is great to be around. I think France and the United States have essentially the same core interests: fighting terrorism, seeing the spread of democratic values, seeing the continued construction of Europe. All of these issues were on the table -- Iran. We talked a great deal about Iran. Afghanistan, Iraq. And the fact is that there was very little on which we didn't see really eye-to-eye.

I've always thought, and I've said many times, that I think U.S.-French relations are better in practice than in theory. And I think that was true with the last French President as well, who -- with whom we had an outstanding success, we believe, in getting Syrian forces out of Lebanon, for instance. Middle East peace is another area that we talked a lot about. So -- and I think we'll do the same with Germany.

So you know, it's a -- the relationships were strained by disagreement about whether or not it was time to finally deal with Saddam Hussein, but that's way in the past and people are trying to deal with the current challenges.

QUESTION: If I can follow up, though. You know, the Germans in particular have not been rushing out to embrace economic pressure on Iran, and there has -- an analyst I was speaking with yesterday said, well, his reading was he thought that Germany was, in fact, waiting out this administration to end, that they wanted to -- they didn't like the choice between economics -- an economic policy trying to (inaudible) or perhaps military policy (inaudible). The point is, Germany -- what is it that you think you can do to get Germany to go with us on a full-blown diplomatic effort using economic tools, all that, to get Iran to do what we want Iran to do?

SECRETARY RICE: Well, I'm not sure I agree with your characterization of Germany. It has been -- for instance, German export credits have declined, declined last year 40 percent. That's a government decision. And those export credits are going to come down even again for Iran.

The Germans have supported the kind of activities that we've been undertaking that frankly are leading to decisions by private entities, whether it's private banks or private enterprises, not to deal with Iran -- not because the government tells them not to, but because of the investment and reputational risk of dealing with a country that is under a Chapter VII resolution and where there is a U.S. sanction against them. So I think if you actually look at German economic activity with Iran, it is coming down.

Now, the big question is going to be what does the EU do? France and Britain have been more out front on that issue. But I think the Germans are waiting, as we all are, to see what the word is going to be from the two diplomatic or two political tracks. One is the work with the IAEA, the other is the work with the -- Solana, the EU representative. And at least with Solana, it's not gone very well, so I think we'll be back looking for a sanctions resolution and I think Germany will be supportive of that.

QUESTION: (Inaudible) no doubt that you think Germany will support that?

SECRETARY RICE: No, I have no doubt that I think Germany will support that. I think Germany has been -- Germany knows that this is an issue where you don't want to be faced with unpalatable choices because you didn't act in time on Iran.

QUESTION: You are a Russia expert, and it looked like about ten years ago --

SECRETARY RICE: I used to be. (Laughter.)

QUESTION: Well, it looked like about ten years ago that that was an obsolete profession, but now it's come -- Russia has come roaring back with Putin and the price of oil. Can you sketch out for us what you foresee over the next few years, the challenges that Russia is going to pose to U.S. foreign policy, with particular emphasis on Russia's growing closeness to China and other oil -- and oil-producing states that aren't democracies.

SECRETARY RICE: I actually probably I see less potential for some kind of China-Russia axis than sometimes is (inaudible). China and Russia have a number of their own problems among them -- between them. And so -- but there's no doubt that Russia poses certain challenges.

And I would make three points. The first is on global issues. We actually do relatively well with Russia, whether it's global terrorism or the work we've done on global nuclear threats, or whether it is the work that we've done on North Korea, and even Iran frankly where, with Iran you've got -- we and the Russians may disagree from time to time about tactically how fast or how deep sanctions ought to be, but the Russians have signed on to the two-track, negotiate and still keep the UN track open -- and that's why we've had two unanimous resolutions. And so I think even on something like that where there may be some differences tactically, I think we and the Russians are essentially in the same place.

Now, where it becomes more difficult is when you're dealing with issues that are associated somehow with the territory that used to be part of the Soviet Union, so -- or part of the Warsaw Pact, where I think there is still Russian sensitivity that tends to see things more in a zero-sum way with NATO enlargement or with our efforts in Central Asia. There, I think we do tend to get into some conflicts that have to do with Russia in a sense re- -- or determining again what its interests are in that region. There was a period of kind of freefall in terms of Russian interests back in the '90s where it wasn't really clear how Russia thought of itself.

Then you've got questions of Russian internal politics and some of the aspects of the state control of oil and gas resources that is linked up with the concentration of power in the Kremlin in a way that I think is troubling. And there, it's not just the United States. It's Europe that has really significant concerns about how that is playing out.

And that probably is going to be the biggest challenge. I think you can work issues of where missile defense capabilities are deployed or we can work issues of how fast you get a -- you know, an Iran resolution this time or -- because I don't have any doubts about Russian concern about the Iranian behavior at this point. I have no doubts about their concerns about it and their desire to do something about it.

But when it comes to the domestic landscape and the use of oil and gas for political purposes, that's going to be very hard. And in many ways, it's harder for Europe, which is increasing -- more dependent on those sources of energy than we will ever be.

I was recently -- when I was recently in Russia, I met with a lot of young people and it was really quite interesting. I mentioned how television -- I was a graduate student in Russia in '79 and I mentioned how the television looked a little bit familiar to me from another time. And their reaction was, who watches television?

They're on the internet. And so the ability to control information and resources I think is somewhat more limited than the Russian Government may realize. The hottest thing that they have in Moscow is a 30-year mortgage. (Laughter.) And that's a group of people that are going to have certain political interests with this growing entrepreneurial and business class and so forth. Right now, I think Russians are just grateful for economic and greater political stability given that the '90s were pretty rough.

But I don't rule out significant pressures from below on a political system that I think is going in the opposite direction of where the population will ultimately end up. But yeah, it's going to be a challenge.

QUESTION: Putin made clear just a couple of weeks ago that he's more than willing to put more on the table with Iran, engage with them directly, negotiate a way and regards trade and oil and gas as a basis for negotiating with Iran. Vice President Cheney was here last week. He talked about other things still being on the table; namely, the military option. Which one of those options is more likely to bear fruit, in your opinion? And can you talk a little bit more about what else is on the table?

SECRETARY RICE: Well, the President is committed and everybody's committed to a diplomatic option. Now, there's sometimes a sense -- I mean, I -- sometimes it's even a caricature, that there are those people who want to do harsh measures with Iran and those who want to negotiate with Iran. I'll tell you right now the seal of the United States of America, that eagle, has arrows in one talon and an olive branch in the other talon, and that's the right way to think about this. You'd better have ways of making it -- holding Iran accountable and having consequences for Iran if you aren't able to get the forward movement.

And so I see the -- yeah, the President never takes his options off the table. But if you look at what we're doing on the economic front, it would fall into the category of coercive. It would not fall into the category of just kind of talking and negotiating. When you start sanctioning the IRGC and the Qods Force and making it impossible for them to use their banks, that's coercive.

And I'm really glad -- as a matter of fact, I think it was in part my idea. Because if I ever have to walk into a room with the Iranians, I'd sure like to have some way to demonstrate to them that there will be consequences for not agreeing. And when you're going to negotiate with an adversary -- and not with the Chinese or the Russians (inaudible) -- when you're going to negotiate with an adversary, you need to have some means by which to show that there is a penalty for not negotiating. And that's why the financial measures that we have been pursuing, that's why the kind of thing we were talking about with private entities leaving, is important because you're trying to impress upon the Iranian regime that if they continue down the path that they're on, they're going to end up more isolated, they're going to end up in a situation where they can't use the international financial system, and that's going to be very tough.

Now, you also need to show the other path, which is what I think Putin is trying to do. And by the way, it's very much in line with the package that the six parties -- the United States, Russia, China and the three European countries -- put before the Iranians back in July of '06. Yeah, '06. And that was a package of economic, trade, energy. For instance, much has been made of the Russians saying that Iran should have a civil nuclear program. We agree with that. And we agree with how the Russians would like to provide it, which is provide the civil nuclear plant, enrich the fuel but take the fuel back, or enrich outside -- really, actually, enrich outside the country, deliver the fuel, and then take the fuel rods back. Because then you don't have a proliferation risk.

So this is very much in line with what we've been saying. In May of '06, I said that the United States of America would drop 28 years of policy and I would meet my counterpart anyplace, anywhere, anytime, if they would just suspend their program -- even temporarily. Because from my point of view, there may be a negotiated solution. But I don't want to sit at the table with the Iranians talking and talking and talking and talking while they continue to learn the technology that can lead to a nuclear weapon. So suspend, and then we can talk.

So in the final analysis, the question isn't why won't we talk to them. The question is why won't they talk to us. Given that nobody denies that they could have a civil nuclear program, nobody denies that there could be trade and economic benefits, nobody denies that if they suspend we could come to the table and talk about whatever they like. So I think that what we've succeeded in doing is the onus is on the Iranians, and that's been always the purpose of this policy.

QUESTION: But aren't they going to continue getting this technology developed while you're in this period where we won't talk to them until they suspend?

SECRETARY RICE: Well, the problem is, unless they suspend, you'll be talking to them while they do it anyway. So at least this way, you hold out the prospect that continued building of pressure will lead them to take another course.

Now, nobody is looking to embarrass the Iranian regime. If the Iranian regime says, all right, we'll suspend, nobody's going to jump up and down and say, all right, that's because of pressure. The purpose is to see whether or not they actually want to negotiate or whether or not they want to continue down this path and gain certain technologies. But it will be at a high cost.

QUESTION: But are you concerned that as the sanctions deepen, Iran's isolation deepens, its ability to sell its oil on international markets becomes more difficult, and oil prices continue to rise, pressure on Europe continues to rise, they get more and more thirsty for some source of oil that the European kind of solidarity with the United States is going to start to erode?

SECRETARY RICE: No, I think it's going the other way. I think that nobody believes that a Middle East with an Iranian nuclear weapon is going to be a stable environment for oil prices or anything else. And what I see is a -- starting in '05. I'll tell you a story. In February of '05 I went to Europe for the first time as Secretary, and my first press conference was in England with -- in London with Jack Straw. And I was expecting questions about Iraq. I was stunned because they were almost all about Iran. And somehow it seemed that the United States had gotten itself into a position where people thought we were the problem with Iran and that somehow Europe needed to mediate between the United States and Iran.

And I came back and talked with the President and said, "How did we get into this position?" And so that's when we, in effect, did make a shift to say that under certain circumstances we would join the negotiations. We did some small things like removing our objection to an application to the WTO, allowing some spare parts to (inaudible). Because it was ludicrous to my mind that somehow people thought we were the problem. I no longer think anybody thinks the United States is the problem. The Russians don't think we're the problem. Nobody thinks we're the problem.

The question is how do you get the Iranians to actually respond to what is a very, frankly, generous offer to them if they will stop enrichment and reprocessing. I would encourage you to look sometimes at the actual program that has been proposed to them from the six. It's very generous. And it has fueled suspicions then that they must want these technologies for nefarious purposes.

I do think some of the pressure has worked in the following way. Every time it gets close to a Security Council resolution, the Iranians run to the IAEA and say, all right, now we're ready to cooperate. So you're starting to see that. Or they make the incredible tour of the world, try to go and convince everybody that they want to cooperate. But nobody believes they want to cooperate, and that's a problem. That's a problem.

QUESTION: So what happens economic sanctions go into place and they don't work?

SECRETARY RICE: Well, we've got quite a ways to go yet before we've fully leveraged the -- and we have sanctions in the Security Council resolutions, but I'd draw a distinction for you. What is happening outside of the Security Council is a little different. What happens is the United States designates Iranian banks for holding accounts or dealing with accounts of the IRGC and the Qods Force for associations with proliferation and with terrorism. So that's the process, the Treasury process.

That then means that any bank worldwide that deals with those assets has a problem with American law. In effect, that makes people have to kind of choose between their American business and their Iranian business, and that usually isn't very much of a choice.

People are also concerned -- and Hank Paulson and his people have been terrific in going out and explaining to people that the Iranians use multiple front companies and ways to disguise assets that, in fact, are proliferation and terrorist tainted. And that then leads private concerns to make decisions about whether or not they want to take the risk that they may not be dealing with clean assets. And so it's not preventing them from selling their product; it's preventing them from monetizing their product.

And we have some experience with this with North Korea. You may remember the saga when we tried to give the North Koreans their $25 million dollars back. We couldn't find anybody to take it because even though, you know, the United States was saying, no, really, it's all right, you can take it, it's not a problem, people just weren't going to take that risk.

And so there are other entities that we look at -- and by the way, we do it not as a political matter. We do it as a regulatory matter, because they shouldn't be able to use the international financial system to move around ill-gotten gains. So I think there is more to do.

QUESTION: Madame Secretary, this newspaper has supported the President' s freedom agenda for democracy in the Middle East; but we've had two elections, Iraq and in Palestine, which have resulted in sectarianism -- forces of sectarianism being released, chaos, political instability, and in Palestine even civil war. Why is it in the interest of the United States Government or any Middle Eastern government from now on to embrace the freedom agenda, seeing what's happened in Iraq and Palestine?

SECRETARY RICE: Well, the first point that I would make is that there's a sense that what happens then if you don't embrace the freedom agenda. Because if there's never -- these things are never a matter of not making a choice. If you don't embrace the freedom agenda, then you're making a choice and you have to ask about the consequences of that choice.

And we know that the consequences of that choice has been that authoritarian governments and regimes have not given space for the development of healthy political forces. And without the development of healthy political forces, you get decidedly unhealthy political forces. And one of the problems is that with the long period in which you didn't get the development of healthy forces, the best organized forces may indeed have been the more extreme forces, because they organized inside the radical mosque. So the political forum, if you will, the kind of literally -- if you think of it as the agora for, the market for, political ideas -- wasn't open to anybody who had a kind of more liberal political position. Instead, it went to people who could organize out of sight and under religious cover. And the most extreme version of that is al-Qaida. But the less extreme version is very well organized, more radical Islamist forces.

So you say, all right, so is my answer then that I don't remove those restraints or constraints? And then you ask, well, how do the healthy political forces ever come into being? And what you've at least got now in Palestine and what you've at least got in Iraq now is contestation between healthy political forces and more radical forces. Hamas loved it when it could run the streets, faces covered, toting a few guns, and no responsibility for what happened to the Palestinian people. They were the great resistance force, and their only purpose in life was to threaten Israel.

It turns out, when they had to worry about how to deliver salaries, when they had to talk about how to actually make things happen, they weren't very good at it. And I can tell you what they're doing right now. They're running all around the world trying to find somebody who will talk to them, and nobody will.

So I don't have this view that the election of Hamas was a disaster for the freedom agenda. In fact, I would say finally, finally they have to come into the open, finally they have to show that in fact they don't know how to govern. They go into the Gaza and they launch a coup, and people see what Hamas is all about. They throw people off of buildings and then get down in the street and pray. And it turns out that this isn't very popular with most Palestinians.

So what you try to do, you try to give moderate forces, which admittedly don't have a head start because of the authoritarianism in the region -- you try to give them capacity, you try to give them a better environment. It's one reason that the launching of peace negotiations is important because it puts Abu Mazen in a different place.

In Iraq, okay, so you keep Saddam Hussein in power and let these unhealthy forces just kind of bubble on their own? I don't think so.

So yes, it's a very rough transition once you take off the kind of authoritarian yoke, and when moderate forces are not very strong because they've not been allowed to organize. But if the alternative is to keep them bottled up and to let this all instead seep out from the bottom so that you get more and more al-Qaidas, I'll take promoting the freedom agenda any day. And I do think that both in Iraq and in Palestine, and frankly in Lebanon with the removal of Syrian forces, you're getting actual contestation in politics. And it's going to be rough and it's going to be uneven and it will take kind of more of a step function. But it's way preferable to what was going on in the Middle East, because the notion that this was somehow a stable Middle East I think is just ahistorical.

QUESTION: We're at 57 minutes now. We had a very interesting interview a few weeks ago with the Syrian Ambassador, and he expressed shock and amazement that Syria had not yet been invited to the Annapolis peace conference and had no idea what its status there was going to be. He's under the impression that Syria is going to be -- have observer status along with Yemen and Oman, I guess.

What exactly is going to be Syria's status and what would be the reason for Syria to participate in any kind of a peace conference at this point?

SECRETARY RICE: Well, nobody has received an invitation so -- because we haven't made any yet. So I don't think they should be concerned.

This is a meeting about the Palestinians and the Israelis because it is the track that actually has some potential for forward movement. And so this is -- that's the purpose of this meeting. But nobody denies that in order to have a comprehensive peace you will also have to have resolution of the Syrian-Israeli and the Lebanese-Israeli tracks as well as fulfillment of what's in the Arab initiative, which is the normalization of relations between Israel and the Arab states. So this is a track among several.

I don't know if the Syrians wish to come or not. It's really up to them. But nobody is going to let this meeting deny or try to hide the need for a resolution of the Syrian-Israeli track. So to my mind, that would argue for accepting the invitation when it comes, because they are a member of the Arab Committee and members of the Arab Committee are going to be invited. And you know, I hope that participation will be as wide as possible. But somehow the fact that this is a meeting about the Israeli-Palestinian track has made people think that we're going to try to deny or rule out of order or refuse to speak about the other tracks or refuse to let others speak about the other tracks. And that's not by any means the intention.

QUESTION: Madame Secretary, what do you think President Bush's legacy will be? He has about a year, one and --

SECRETARY RICE: Yeah. You know, the President has a great statement about this, which I've come to adopt. He says, "You know, I just finished a book about George Washington. If they're still writing about number one, 43 shouldn't worry about his legacy." (Laughter.)

And I think that's right. I'm a firm believer that particularly when you're in big, historic times where things are changing and the landscape is changing and the tectonic plates are moving around, it is not certainly our -- shouldn't be our preoccupation as to how we're going to be judged down the road. And --

QUESTION: Madame Secretary, (inaudible) --

SECRETARY RICE: I was just going to that first. Was that the same question?

QUESTION: Well, it was about politics.

SECRETARY RICE: Well, let me just finish this, and then I'm promise I'll take yours, too.

So I'm convinced that's what we should be thinking about. There's a lot of change out there. There are certain things that I think we can leave in a better place than we found them and some things that may not be in that category. I do think that the Middle East, as chaotic and difficult as it is, is better now than it was. Because it was deeply unstable underneath and it was going to explode sooner or later, and it exploded on 9/11 and it was going to continue to explode until you changed the dynamics in the Middle East. And even if you've got relatively weak, young democracies in Iraq and yes, you know, a lot of sectarian issues and so forth, but still, if you look at what's happening in Anbar where these people have thrown al-Qaida out of their country, this is the first time al-Qaida's been thrown out by Arabs out of their own country. So things are changing and it's going to be difficult, but I think we will leave the Middle East in a place where people can move to a truly stable Middle East over time.

So we -- you know, we have to just work as hard as we can for as long as we can, and then we'll -- like with every administration, we'll pass it off to the next administration. But if I could, I just want to step back for a second because I do believe that today's headlines and history's judgment are rarely the same. And if you go back to the last period of major transition, which was the Cold War, I think back to people like Acheson and Marshall and Kennan and Nitze and Truman, and what they faced. And I was the White House specialist at the end of the Cold War. It doesn't get better than that. White House Soviet specialist, right? I got to help unify Germany. I got to see the Soviet Union run out of Eastern Europe, the Warsaw Pact collapse, you know, the beginnings -- I left just before the Soviet Union collapsed itself -- peacefully. A country with 30,000 nuclear weapons, 5 million men under arms, and it just went away one day.

Now, if I look back at 1946, and the Italian communists win 48 percent of the vote and the French communists 46 percent of the vote, and the question isn't is Eastern Europe going to be communist, the question is, is Western Europe going to be communist? And in '47 civil war breaks out in Greece, civil conflict in Turkey; in '48, Truman has to decide to recognize Israel which sends the Middle East into total chaos; in '48, you have the Berlin crisis which splits Germany, what appears to be permanently; in '48, Czechoslovakia falls to a communist coup; '49, the Soviet Union explodes a nuclear weapon five years ahead of schedule, the Chinese communists win; and in 1950, the Korean War breaks out.

Now, do you think in 1950 anybody would have told you that in 1991 I was going to see the end of Soviet power in Europe? Do you think anybody would have told you that in 2006 President Bush was going to attend a NATO summit in Latvia? So when there are big, historic changes out there, you make a mistake by taking the snapshot early. Because if you 're making decisions that I think -- and it goes to the freedom agenda -- that expand the room for healthy democratic forces, even if they're weak and even if they're struggling; if you are taking decisions that put American power there as a stabilizing force, as we did in Japan, as we did in Korea, as we've now done in the Middle East and in Afghanistan; over time, these things move in the right direction. So that's why I don't spend a lot of time thinking about legacy.

Last question.

QUESTION: Madame Secretary, my version of your President Bush was expecting me five minutes ago, so I need to go. (Laughter.) Thank you so much for being here.

SECRETARY RICE: Thank you very much. Thank you.

QUESTION: Madame Secretary, there's a lot of interesting scenarios out there involving you and the '08 elections. Could you just address those and let us know if any candidate has reached out to you?

SECRETARY RICE: No, and I'm sure they won't. I don't think it would be appropriate. But yeah, there's one scenario involving me and the '08 election, which is in '09 I'll be back at Stanford, having voted in the '08 election. (Laughter.) No, I've done what I can. After this year or so, I will have done what I can. And it's been to my mind the most extraordinary time to be doing foreign and security policy. It's been hard at times, it's been completely exciting and refreshing at times. But it's never been uninteresting during this period.

I don't think anybody would have dreamed -- I certainly didn't dream when I became National Security Advisor -- that these were the kinds of issues we would be talking about. If I think about those sort of periods in, you know, March and April and May and the issues that we thought were central to American security, it's just night and day. And I wouldn't want to -- I wouldn't give anything for having served in this period of time.

But I also recognize when it's time to pass the baton, and I have some things I still really, really would like to see us try to achieve. I think we've got a chance -- one should never modify, use the word "good" or whatever, but a chance -- on making progress on the Israeli-Palestinian issue. I think we've got a chance in making progress on denuclearization of the Korean Peninsula. I think we've got a good chance to leave Iraq in a more sustainable position because Iraqis are coming to the fight in the way that they are. And so forth. So I'll do that and then I'll be happily back at Stanford.

Thank you.