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THE SITUATION ROOM

Extra Income: Senators Disclose Dollars; A Giuliani Presidency; Pentagon's Progress Report on Iraq

Aired June 14, 2007 - 17:00   ET

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


WOLF BLITZER, HOST: Thank you, Jack.
And to our viewers, you're in THE SITUATION ROOM.

Happening now, bloody chaos in Gaza. Hamas declares Islamic rule, but the Palestinian president declares a state of emergency and fires the Hamas-led government.

Does this set the stage for an even greater explosion of violence?

From making speeches on the rubber chicken circuit to renting out a cottage overseas, senators come clean about how they supplement their government paychecks.

And hurricane forecasters losing an early warning tool. An aging satellite could give out at any moment.

Could that leave Americans at greater risk from killer storms?

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

A bloody battle of wills as the Palestinian Territories fall into a state of chaos. President Mahmoud Abbas takes steps to try to reclaim the reigns of government after Islamic militants from Hamas take control in Gaza and claim it for their own.

CNN's Ben Wedeman is in the West Bank city of Nablus with details -- Ben.

BEN WEDEMAN, CNN CORRESPONDENT: Wolf, Palestinian President Mahmoud Abbas has declared a state of emergency. He's dissolved the government. He's dismissed his prime minister, Ismail Haniya, who is also a member of Hamas.

But many Palestinians say it's simply too little, too late.

Gaza is now in the hands of Hamas and Mahmoud Abbas only rules at this point, the West Bank.

(BEGIN VIDEO TAPE)

WEDEMAN (voice-over): These are the new masters of Gaza. Hamas is victorious. In less than a week of intense fighting, the group's gunmen utterly crushed their opponents in the Fatah movement -- outgunning and outmaneuvering them in almost every confrontation.

"We control the preventative security headquarters," says this Hamas gunman. "And now we're on our way to other offices."

Fatah security men led away shirtless, their subsequent fate unknown.

It was a humiliating defeat for Fatah and represents a massive setback for the United States, which backs Fatah leader and Palestinian Authority president, Mahmoud Abbas.

In Gaza, Hamas gunmen went on a rampage, ransacking bases that had, until recently, been the strongholds of Fatah-affiliated security services. Officials of what is left of the Palestinian Authority now say international help is urgently need to end the anarchy.

SAEB ERAKAT, CHIEF PALESTINIAN NEGOTIATOR: What we need to say to the world now, we need to stop this fire. We need to extinguish this fire. We need the help to have a cease-fire. And if we don't do this, if we don't help ourselves as Palestinians, I don't think anybody can -- can.

WEDEMAN: In the West Bank city of Nablus, there was a similar rampage, but this time by Fatah gunmen against Hamas, venting their anger on the offices of Hamas members of the Palestinian parliament. Their contents thrown out the window and then the office set alight. Anyone suspected of ties to Hamas hauled away, also to an uncertain fate.

(on camera): This is Fatah's revenge for the fall of Gaza. It's open season on Hamas in the West Bank.

(voice-over): Among those who watched, there was understanding, if not approval.

"This is a natural reaction to the massacres in Gaza," says student Raji Sami (ph). "It's a natural reaction."

Natural or not, both Gaza and the West Bank may be about to witness a bloody settling of accounts, as each faction strives to eliminate without mercy their old foes.

(END VIDEO TAPE)

WEDEMAN: And we're hearing from sources in Ramallah that Palestinian security forces there are getting ready to round up members of Hamas-- Wolf.

BLITZER: All right, Ben.

Thanks very much.

Be careful over there on the West Bank.

Let's take a closer look at this bitter battle between rivals in this very bloody conflict. Yasser Arafat's Fatah Party was the main faction within the PLO. It became the Palestinians' ruling party after an agreement with Israel brought Arafat back to Gaza in 1994.

After Arafat's death, Mahmoud Abbas became party leader and Palestinian Authority president. The militant Islamic Hamas Party won control of the Palestinian government in the elections of January 2006. Ismail Haniya, of Hamas, became prime minister.

Viewing Hamas as a terrorist organization, though, Israel, the U.S. and the European Union boycotted the new Palestinian government.

In March of this year, Abbas and Haniya announced the formation of a unity government. But power sharing proved impossible and factional fighting raged on.

This month alone, a total security collapse with Hamas now overrunning most Fatah positions in Gaza and threatening Islamic rule.

Much more on this with Dennis Ross later this hour.

But let's go to Iraq right now, where there are growing fears of even greater sectarian violence following the bombing of an important Shiite shrine in Samarra. Curfews are now in efficient in many regions of the country and appeals for calm are coming in from around the world.

Karl Penhaul is with U.S. troops near that devastated holy site -- Karl.

KARL PENHAUL, CNN CORRESPONDENT: Wolf, we're at a U.S. army combat outpost on the edge of Samarra. About a half a mile that way are the ruins of The Golden Mosque.

We joined a U.S. army patrol today to go and survey the damage.

The whole site seems to be a wreck of smashed concrete and twisted steel. You can still make out some of the glints of gold which used to coat the twin minarets that were bombed on Wednesday, but, also, The Golden Dome, that was bombed backed in February, 2006, that threatened to fan the flames of a simmering civil war.

So far, the streets in Samarra have remained calm. But there has been a sectarian backlash across Iraq. There have been bombings of Sunni mosques in Baghdad and in the south of Iraq. There have also sectarian gun fights reported-- Wolf.

BLITZER: Karl Penhaul near Samarra for us.

Thank you, Karl.

Let's go to Beirut right now, where tensions are extremely high at this hour. Only a few hours ago, angry mourners blasted Syria during a funeral march for a lawmaker who was killed in a bomb attack yesterday.

CNN's Brent Sadler is in the Lebanese capital -- Brent.

BRENT SADLER, CNN CORRESPONDENT: Wolf, a politically charged emotional funeral passed through 10 streets in the Lebanese capital, as veteran opponents of Syria M.P. Walid Eido was laid to rest. A Sunni Muslim, the Lebanese lawmaker was the fifth anti-Syrian politician to die by bomb or bullet in a series of attacks spanning two years, targeting the anti-Syrian ruling coalition here, decimating its ranks.

Accusations fly that not only Damascus was allegedly involved in the crimes, but also the leader of Lebanon's militant group, Hezbollah, Israel's arch foe, which is backed by Syria and Iran.

Those who support the anti-Syrian majority in parliament say Syria is conspiring with its Lebanese allies to provoke internal conflict as a means to ultimately topple the Western-backed government, a consistent allegation that Syria has again officially denied.

Meanwhile, the latest bomb attack fuels anger in Lebanon, where many are already gripped by rising tension and fear-- Wolf.

BLITZER: Brent Sadler on the scene for us in Beirut.

Brent, thanks.

Let's check back with Jack.

He's in New York with The Cafferty File.

We say this almost every day lately. This whole region seems to be exploding -- Jack.

JACK CAFFERTY, CNN CORRESPONDENT: Yes, it's like being in a room full of gasoline. You hope nobody drops a lighted match.

The following couple of paragraphs is a classic example of our government at work.

It's stalled again. That would be the effort to create an independent ethics office that would work alongside the House Ethics Committee. Politico.com reports that Democrats on a task force for ethics enforcement had scheduled a vote on a proposal for this for Monday. And they planned to bring it to the floor this week.

But when it came right down to actually doing it, well, they decided not to. There are some sticking points, they say.

Now they're saying they're going to try to bring it to the floor next week. Don't hold your breath.

First off, Republicans have not indicated that they will support an independent ethics panel.

Does that really surprise anyone? And even if it passes, it's not clear how much power an outside ethics office would have. Here's is the loophole. And it's big enough to drive a semi through. This six person panel would have 45 days to review complaints about ethics violations and then recommend action to the House Ethics Committee. But the House Ethics Committee won't have to follow the recommendations of the commission.

Also, it's not clear if that panel would even have the power to issue subpoenas.

Classic stuff.

Here's the question -- what are the chances that Congress ever gets an independent ethics office?

E-mail caffertyfile@cnn.com or go to cnn.com/caffertyfile.

The Republicans haven't said if they even want the thing, and if it's created, this commission, then it can make recommendations, but the House Ethics Committee won't have to pay any attention to them.

That's great stuff.

BLITZER: (LAUGHTER).

Thank you, Jack.

Jack Cafferty will be back shortly.

Up ahead, first, a virtual civil war for the Palestinians, now a dissolved government.

Will the violence and upheaval spill out across the region?

We'll speak with former U.S. special envoy, Dennis Ross. He's standing by live.

Also ahead, wealth and power -- are you curious what members of Congress do to earn a living beyond a Capitol Hill paycheck?

We'll take a close look at the presidential candidates who are in the Senate and their earning power beyond Capitol Hill.

And a judge orders the former Cheney chief of staff, Lewis "Scooter" Libby, to go to jail while he waits out his appeal. We're going to tell you how his former boss reacted to the news.

Stick around.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: More on our top story this hour -- bloody chaos in Gaza as the militant Hamas group takes control and declares Islamic rule. But the Palestinian Authority president, Mahmoud Abbas, declares a state of emergency and fires the Hamas-led government.

The former U.S. special envoy, Dennis Ross, was America's Middle East point man for more than a decade, helped broker key agreements between the Israelis and the Palestinians.

His book is entitled "Statecraft and How To Restore America's Standing In the World."

Dennis, thanks very much for coming in.

Let's talk about Gaza.

You know this area oh so well. You've dealt a lot with Palestinians, the leadership there.

What -- what's going on?

Can this situation be calm?

DENNIS ROSS, FORMER U.S. SPECIAL ENVOY: It's not going to be easy to calm it because Hamas has clearly made a basic decision. They made a decision and it's not a recent one, because if you look at some of the steps they've taken, these took a long time to plan and carry out, including a tunnel underneath the headquarters of the preventive security organization in Gaza, which they then blew up.

So this plan was a plan designed to subdue Fatah in Gaza, either to create an enclave there or to create a kind of pressure on Abu Mazen, Mahmoud Abbas, to give Hamas more of a role in all the institutions of Palestinian political life.

Just because Abu Mazen has declared an emergency and fired Haniya doesn't mean it's the end of the story and that we won't -- we will see, at some point, I suspect...

BLITZER: Well, I guess -- I...

ROSS: ... still some talks.

BLITZER: I guess the question is this.

Can what has happened in Gaza, where Hamas is effectively taking charge and throwing out Fatah, the Palestinian Authority, the opponents within the Palestinian community, can that also happen in the West Bank?

ROSS: I think it's unlikely for a couple of reasons. The first is that Fatah is much stronger in the West Bank than Hamas is. And, secondly, Israel actually contains what Hamas can do in the West bank.

When I was out there recently, one of the things I heard from a large number of Palestinians I met, many of whom were Fatah, but not all, was that they understood already from what they were seeing in Gaza that Fatah had to reorganize itself, had to remake itself, had to rebrand itself to ensure that Hamas couldn't gain the kind of strength in the West Bank that it had in Gaza. I think Gaza has been a wakeup call for Fatah and I think in some ways it may backfire on Hamas, because even though they create the impression that they win whenever they confront, they also are, in a sense, violating what has been part of the Palestinian ethos, which is that Palestinians shouldn't kill Palestinians. And they seem to be doing a pretty good job of that.

BLITZER: What should the U.S. be doing right now?

ROSS: I think the key thing for the United States right now is to recognize, A, you have to contain what's going on in Gaza so it doesn't spill over.

B, that means you're going to have to do much more with Egypt to make sure that Egypt prevents the smuggling of arms, weaponry, people, money, into Gaza, which has been strengthening Hamas.

C, we need to focus much more on how we can help those in the West Bank, in Fatah, do more as they remake themselves to succeed as they do it.

And here I would have the United States talking to the Saudis and others who can help finance the non-Islamist groups within the Palestinian Territories who are prepared to remake themselves and compete with Hamas.

If Hamas, over time, is able to gain strength in the West Bank, which is certainly their objective. Their objective is to take over the whole Palestinian society. If they do that, if they succeed in doing that, they will take what has been a national conflict between Palestinians and Israelis and turn it into a religious conflict. National conflicts, even if hard to resolve, can be resolved. Religious conflicts cannot.

This is a huge issue and this is where our focus needs to be.

BLITZER: The -- there has been some criticism of the U.S. stance, the E.U. Stance, because of its refusal to engage Hamas after it won those elections last year. And, by almost all accounts, those were pretty free and fair Palestinian elections.

Was that a mistake for the United States not to engage Hamas at that time, when Haniya formed that new Palestinian government?

ROSS: No, I don't think it was a mistake. I think it was right. My concern all along was not necessarily to go ahead and embrace Hamas and start dealing with them, especially if Hamas wasn't prepared to adjust any of its positions, which it was not.

But at the same time, you had to reach out to Palestinians in a much more systematic way. You had to demonstrate that even if we wouldn't deal with Hamas, we would deal with the Palestinian society. We would focus on helping the Palestinian society outside of Hamas develop. We would make sure that there wasn't the further deterioration in the character of life, political life and otherwise. Had we done that, had we focused on that, then I think we would have been in a much stronger position and Hamas would not have necessarily gained in strength.

Hamas now is -- is obviously stronger in Gaza. It's not stronger in the West Bank, but the point now is you clearly have to focus on how you compete with Hamas in ways that, up to now, Fatah hasn't done effectively and we on the outside haven't done particularly effectively.

BLITZER: We only have 30 seconds left, Dennis.

What do you see in the short-term, a worsening, more violent situation or some -- some easing of these tensions?

ROSS: My suspicion is that we'll see worsening immediately and then we're going to see an easing. I think Hamas and Fatah will both draw back. Just because Abu Mazen has taken this step, doesn't mean necessarily that he will continue to follow through in terms of confronting Hamas.

BLITZER: Dennis Ross is the author of "Statecraft and How To Restore America's Standing in the World," a former U.S. special envoy in the region.

Dennis, thanks for joining us.

ROSS: Thank you.

BLITZER: And coming up, the National Weather Center meteorologists say a crucial hurricane warning satellite could fail literally at any time.

Will forecasters be prepared to make the right call without it?

We're going to have a special report.

And it's tough to really know what a candidate would be like as president of the United States. But our special correspondent, Frank Sesno, has special insights. Today, he'll answer the question -- what if Rudy Giuliani wins in 2008?

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Our Carol Costello is monitoring some other stories incoming into THE SITUATION ROOM right now -- carol, what do you have?

CAROL COSTELLO, CNN CORRESPONDENT: A couple of things, Wolf.

The FBI is making a new move to prevent lapses in a controversial program that's part of The Patriot Act. The agency issuing what it says are clear guidelines for the use of national security letters. FBI agents use those letters to secretly gather private information like financial, phone and Internet records. Earlier this year, a Justice Department audit said the FBI was guilty of serious misuse of power in its use of national security letters.

Defense Secretary Roberts Gates says he has a hard time believing the Iranian government is not aware of weapons flowing from Iran to Taliban fighters in Afghanistan. But he stopped short of directly tying Tehran to the alleged shipments. His comments follow accusations from Undersecretary of State Nicholas Burns, who said weapons crossing the border into Afghanistan are definitely coming from the government of Iran.

Some big changes in store at the world's biggest cereal maker. Kellogg has agreed to raise the nutritional value of cereals and snacks that it markets to children. The move, after some parents and advocacy groups concerned about child obesity threatened to sue the company.

In news affecting small business today, a summer slide in small gas prices?

Well, don't look for that to happen. A government expert told a Senate panel that gas inventories will stay tight over the summer. He says the average price for unleaded regular will be about $3.05 a gallon. That is $0.21 higher than it was last summer.

Back to you -- Wolf.

BLITZER: Thank you, Carol, for that.

Still to come, a judge refuses to let Lewis "Scooter" Libby remain free to await his appeal in the CIA leak scandal. We're going to tell you what Vice President Dick Cheney thinks of the order sending his former chief of staff to prison.

And later, if you've ever wondered what members of Congress who are running for president might be doing to earn a living on the side, now is your chance to find out. We're going to have a report. That's coming up.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: To our viewers, you're in THE SITUATION ROOM.

Happening right now, a Kremlin spokesman says it's unlikely that the missile defense dispute with the U.S. will be resolved during upcoming talks. President Bush and Russian President Vladimir Putin plan to meet July 1st in Kennebunkport, Maine in an effort to warm chilly relations. Some describe U.S.-Russian ties as being at their worst since the end of the cold war.

Cancer researchers now say there are certain symptoms that may tip women off to ovarian cancer. They include prolonged bloating, abdominal pain, frequent need to urinate and difficulty eating. Ovarian cancer is the fifth leading killer of women.

And the family of the Virginia Tech gunman, who killed 32 people, has cleared the way for release of his mental health records. The school yesterday turned Seung-Hui Cho's records over to a governor's panel investigating the massacre. They will not be made public.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

Just hours ago, a federal judge ruled that former Cheney aide, Lewis "Scooter" Libby, must begin serving a two-and-a-half-year prison sentence, even while he appeals his perjury conviction.

Brian Todd is over at the federal courthouse here in Washington.

He's been watching this story -- so, Brian, what happens now?

BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, a short time ago, "Scooter" Libby was processed for voluntary surrender to the prison system, capping a day when his attorneys could not sway a very resolute judge.

(BEGIN VIDEO TAPE)

TODD (voice-over): The vice president's former aide stoically departs U.S. district Court, knowing he could find himself behind bars within weeks. Judge Reggie Walton says: "This is a significant issue. We're talking about someone's freedom." But sternly holds that the appeal strategy from "Scooter" Libby's defense team is not strong enough to allow Libby to remain free during the appeal.

RICHARD SMITH, FORMER FEDERAL PROSECUTOR: A lot of these rulings deal with evidentiary rulings, which goes to the abuse of discretion by the trial judge. Appellate courts are very reluctant to overrule evidentiary rulings that a trial judge makes.

TODD: Among the appeals arguments expected from Libby's team, the judge should have allowed a memory expert to examine Libby's claim that he didn't remember key details on who outed CIA Officer Valerie Plame Wilson.

But Libby's attorneys are hitting hardest on Prosecutor Patrick Fitzgerald, arguing Fitzgerald had way too much authority in the investigation -- more than any special counsel.

Defense Lawyer Lawrence Robbins at one point gesturing toward Fitzgerald, saying: "He thinks he's the attorney general. And given the terms of his agreement, I don't blame him."

Judge Walton doesn't buy it, says it can be argued on appeal, but shouldn't prevent Libby from beginning his two-and-a-half-year sentence within two months. Now, conservatives who believe this trial was a political witch- hunt will turn up the pressure on President Bush to pardon Libby, a move that observers say has its own political risk.

JIM VANDEHEI, POLITICO.COM: It would be very difficult for a president whose popularity is already so low to pardon someone who was convicted of lying. And not lying once or twice, but lying repeatedly in a very important federal investigation.

(END VIDEOTAPE)

TODD: Now, on that front, President Bush was quick to be noncommittal. Just a couple of minutes after this decision was handed down by Judge Walton, the president issued a statement through his deputy press secretary, Dana Perino.

"Scooter Libby has the right to appeal. Therefore, the president will continue not to intervene in the judicial process. The president feels terribly for Scooter, his wife and their young children, and all they are going through."

A source close to the defense, tells us, Wolf, that they will appeal today's ruling, as well as the broader conviction. The appeal of today's ruling's should be filed some time next week.

BLITZER: The judge also made a very surprising revelation in court today. You were there, Brian. What did he say?

TODD: It was pretty surprising, Wolf.

Just as the proceedings began, he said, look, in the interest of full disclosure, I have to tell you all something. Then he proceeded to tell us that he has received a number of threatening letters and phone calls, harassing letters and phone calls, he says, relating to his sentence of Scooter Libby, and some of which were meant to -- "wishing bad things on me and my family." And he said that he has saved some of those correspondents.

BLITZER: All right. That's scary stuff.

Thanks very much, Brian, for that.

Moving on now.

An acting job, rent from a cottage in Ireland. Those are just some of the ways members of Congress are supplementing their government paychecks. Financial disclosure forms were made public today.

Let's get some details once again from Mary Snow. She's watching this story -- Mary.

MARY SNOW, CNN CORRESPONDENT: Well, Wolf, there are some surprises when you look at how lawmakers make money outside their day jobs. We took a look at disclosures made by members of the Senate, especially those who are running for president.

(BEGIN VIDEOTAPE)

SNOW (voice over): On the wealth scale, Senator Hillary Clinton ranks high. Husband Bill Clinton earned $10 million in speeches alone last year. The former president commanded $450,000 for one of his speaking engagements.

The couple reports at least $10 million in the bank. Under Senate rules, they don't have to report the exact amount of their worth, just ranges.

Senator John McCain lists millions of assets, with forms showing that most of his wealth comes from his wife Cindy, who's the CEO of the beer distribution company her family founded.

SHEILA KRUMHOLZ, CENTER FOR RESPONSIVE POLITICS: They only have to provide net worth in ranges. So we never know -- or we usually do not know specifically what the figure is.

SNOW: Money from books is a big source of income. For Senator Clinton, royalties on her 2003 book "Living History" brought in $350,000.

Senator Barack Obama earned more in the book department, receiving a $425,000 advance for "The Audacity of Hope" and another $147,000 in royalties for "Dreams From My Father".

For his upcoming book, Senator Sam Brownback reports a $15,000 advance. Connecticut Senator Christopher Dodd earned $30,000 for his book advance. Dodd also makes extra money collecting rent on a cottage he owns in County Galway, Ireland.

KRUMHOLZ: Excluding book dales, advances in royalties, members can not make more than 15 percent of their salary in earned income.

SNOW: Senator Joe Biden supplements his Senate income by teaching at Widener University's law school.

Of non-presidential candidates, Senator Barbara Boxer earned $737.00 for an appearance in an episode of HBO's "Curb Your enthusiasm". She's also writing a suspense novel.

Also on the high end of wealth, Senator Jay Rockefeller, who lists blind trusts worth more than $80 million.

(END VIDEOTAPE)

SNOW: Now, on the modest end of the scale, Senator Robert Byrd, the longest serving senator, he lists as one of his major assets a retirement account ranging up to $250,000 -- Wolf.

BLITZER: Mary, what about the limits members of Congress can actually earn?

SNOW: Well, they can make up to 15 percent of their government salary, and that really translated, I think, last year to about $24,000. Now, the big thing though, is that all these book deals are exempt from those limits.

BLITZER: Mary Snow reporting for us.

Mary, thank you very much.

Former New York City Mayor Rudy Giuliani was hailed as a hero and a leader after the 9/11 attack on the World Trade Center towers in 2001. Today he's a rather unconventional candidate seeking the presidency. So, what if Giuliani were actually to win?

Our special correspondent Frank Sesno is joining us with more on this, our weekly "What If?" segment.

FRANK SESNO, CNN SPECIAL CORRESPONDENT: All right.

What if one of these people on the wall were to, you know, be the president? Who would it be? And who is it? Can you tell?

BLITZER: Who would be the president? You mean Nancy Pelosi?

SESNO: No, Nancy Pelosi's not running for office.

BLITZER: No.

SESNO: No.

BLITZER: All right.

Oh, the woman in the drag.

SESNO: The woman in the drag.

BLITZER: Yes.

SESNO: Rudy Giuliani.

BLITZER: That's correct, yes.

SESNO: That's right. One of a kind.

(BEGIN VIDEOTAPE)

SESNO (voice over): What if New York's last mayor becomes America's next president? He'd be the first mayor ever to go from here to here. He'd be the first Republican who favors abortion rights, domestic partnerships and gun control. The first Catholic, twice-divorced Republican to make it to the Oval Office.

That's a lot of firsts.

You can bet he'd be tough on crime, taxes and spending. He was in New York. Made the city safer, cleaned up the streets, famously filled potholes himself. "Gotham's Action Hero" "The New York Times" once called him. But he ticked off a lot of people, too, was accused of being imperious, a dictator in mayor's clothes who ruthlessly pushed out the homeless and aggravated racial tensions.

What if he were president? If past is prologue, he would be pro- business, pro-military, but he'd butt heads with Congress, interest groups and conservatives who already distrust him.

What if the man who lived 9/11 so up close and personal became president? Well, for him, it's still personal. The country is weary and warn, but he would continue the offensive against terrorism in Iraq and around the world, he says.

What if this man becomes president? Would he still dress in drag, hang out with Donald Trump? Washington would finally have a surplus of personality at least.

RUDY GIULIANI (R), PRESIDENTIAL CANDIDATE: This may be the best of all.

SESNO: There would be so much material, the gossip columnists might move to D.C. After all, Giuliani had a nasty divorce from wife number two, is estranged from his kids, and has said his third and current wife, Judith, is his closest adviser and can sit in on cabinet meetings if she wants.

What if it wins? It would be a decidedly New York state of mind.

(END VIDEOTAPE)

SESNO: A New York state of mind right here in Washington, D.C.

But before he becomes president, he has got to get through the Republican primary. So how is he doing in some key states?

Well, we were tracking this. First, in Iowa, you see that Giuliani is in second place. He's up a little bit over recent times.

In New Hampshire -- New Hampshire a critical state, obviously -- New Hampshire is tied for second. Giuliani, he's down a little bit.

And finally, South Carolina. A little taste of the South there in South Carolina. In South Carolina, Giuliani, as you can see there, about steady, also in second place.

So no breakthrough yet, but he ain't done.

BLITZER: But, I mean, his personality has always been almost front and center in his political career.

SESNO: Yes, it really has. It's fascinating.

After 9/11 -- this is I think the key to Giuliani post-9/11 -- he was able to display emotion without being emotional. And through projection of that personality, really be in charge. And see how he earned many of the accolades at that time. But, you know, people have been tracking his personality since he was mayor. I went back and I found this fascinating piece that was published in the "New York Observer," and it was the result of a work -- an academic did, a guy by the name of Aubrey Immelman. He's at the Unit for the Study of Personality in Politics.

Here's what he wrote. He wrote that, "Giuliani is a primarily dominant personality, with secondary features of conscientiousness and suspiciousness," what he called a "hostile enforcer." "Rudy Giuliani, the hostile enforcer, tends to act as though they believe they have a monopoly on defining right and wrong, good and bad."

So what if that personality comes to Washington?

BLITZER: Well, I know there are a lot of New Yorkers who thought he did a great job when he was mayor of New York.

SESNO: He cleaned up streets, he did those things. But he really was, you know, top of the heap, and he acted it.

BLITZER: All right.

Frank, thanks very much.

SESNO: Wolf, it's a pleasure.

BLITZER: Frank Sesno, Brian Todd, Mary Snow, they are all part of the best political team on television.

Up ahead, is the Iraq troop increase actually helping? The Pentagon has a new progress report. Our Pentagon correspondent, Jamie McIntyre, is about to read between the lines.

Also, what do you do when you are traveling in space and the computers that control your life support systems fail? You reboot, of course. We're going to tell you what's going on in the International Space Station right now.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The Pentagon is putting the best face on its latest progress report on Iraq. But you don't have to dig very deeply to try to find some big problems with the overall situation in Iraq.

Let's bring in our senior Pentagon correspondent, Jamie McIntyre. He's joining us now.

Jamie, tell us what this latest report suggests.

JAMIE MCINTYRE, CNN SR. PENTAGON CORRESPONDENT: Well, Wolf, if you thumb through this 46-page report from the Pentagon, you can find some positive signs. But it's also full of significant setbacks.

(BEGIN VIDEOTAPE) MCINTYRE (voice over): Anyone looking for evidence the so-called surge is working, won't find it in the latest Pentagon report on security and stability in Iraq. The congressionally-mandated status report tries to accentuate the positive, but notes the aggregate level of violence in Iraq is unchanged.

Insurgents and al Qaeda militants have simply shifted locations. So while violence is down in central Baghdad and Anbar province, it's up almost everywhere else, especially in Diyala, Ninewa and outlying areas of Baghdad.

The report recovers from February to mid May, and its conclusion echoes what U.S. commanders say -- it's too soon to tell if the new strategy is working, considering the last brigade of additional U.S. troops has just arrived.

MAJ. GEN. JOSEPH FIL, U.S. ARMY: The fifth and final of this surge, and it's been very, very helpful for us here in Baghdad to have the increased troop strength, because it allows us to get into every part of the city.

MCINTYRE: But so far, most trends are not good. The report details the ability of insurgents to block crucial economic progress with attacks on infrastructure. Oil production is stuck at last year's level of two million barrels a day, while electricity generation remains at pre-war levels, roughly 4,000 megawatts, enough to give Baghdad residents only eight hours of power a day.

And now insurgents are targeting bridges, attacking three in the past week.

FIL: Any time a bridge is attacked and damaged over here, it is a very serious concern for us. They attack the infrastructure of the nation and they create a huge inconvenience for the population of Iraq.

(END VIDEOTAPE)

MCINTYRE: And Wolf, the report also notes that Iraqi politicians are making little progress toward reconciliation, which, after all, is the goal of this military offensive in Baghdad. And what it all points to is that when General David Petraeus issues his report card in September, there's an increasing likelihood that he's going to be forced to ask for more time for this strategy to work -- Wolf.

BLITZER: It's fascinating, because that report basically acknowledges that very few, if any of the so-called benchmarks that the Iraqi government of Nuri al-Maliki, the prime minister, were supposed to implement, very few of them are actually being implemented.

MCINTYRE: Now, the Pentagon points out that this was a period that, you know, has taken -- it's a couple of months ago. But if you look at the indicators since this report, they're not positive either. In fact, May turned out to be one of the deadliest months of the war. The third deadliest. BLITZER: Jamie McIntyre watching all of this for us at the Pentagon.

Still ahead, what would happen if we suddenly lost the warning satellite that showed us where hurricanes are likely to hit? Experts say we may find out sooner than we think.

And a computer glitch in space that could affect oxygen supplies. Astronauts at the International Space Station are rebooting right now and getting ready to bail, just in case.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: There's some sad news coming into CNN right now. I want to go to Carol Costello. She's watching it for us -- Carol.

CAROL COSTELLO, CNN CORRESPONDENT: Yes, sad news to tell you about, Wolf.

Ruth Graham, 87 years old, the wife of Billy Graham, has died. It just happened a short time ago. She slipped into a coma on Wednesday. She had been very ill. She never really came out of that coma.

Her family was surrounding her at her time of death. That includes Billy Graham and all five of the couple's grown children.

Again, Ruth Graham, 87 years old, has died. And, you know, they have been married for almost 64 years.

A tough time for Billy Graham.

BLITZER: Very tough. And our deepest condolences to the Graham family.

Carol, thanks very much.

(NEWSBREAK)

(WEATHER REPORT)

BLITZER: Astronauts and cosmonauts are still trying to get computers back up and running on the International Space Station. Russian computers that control a number of functions, including oxygen and water supplies, failed yesterday. They came back on briefly when rebooted today, but they're off line again. This as the shuttle Atlantis remains docked to the space station, where there's about 56 days worth of oxygen left.

Worst case? The space station's three crew members may have to return to Earth if the computers aren't fixed. There is an escape ship for that. It's a Russian Soyuz capsule.

If he they use it as a lifeboat, the Soyuz would carry them back into our atmosphere and parachute to Earth. As a precaution though, the capsule was placed on battery power for several hours yesterday.

We're watching this story as well.

Still to come, it only takes one slip of the tongue, one unguarded moment to abruptly end a political career. But now the Republican Party has a strategy to help candidates avoid putting their foot in their mouth.

We're going to tell you what it is.

Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: The Republican Senatorial Campaign Committee is hoping to avoid a repeat of George Allen's now infamous "Macaca" moment.

Let's go to Abbi Tatton. She's watching this story for us.

Tell our viewers what they are trying to teach these candidates out there.

ABBI TATTON, CNN INTERNET REPORTER: Wolf, they're trying to teach them to harness the power of the Internet, rather than get run over it. This document distributed to Senate Republican campaigns last week contains advice on how to deal with bloggers, how to fundraise on line, and how to use social networking sites to attract friends to your campaign.

And of course there's a section on online video. The document advises campaigns to videotape the candidate's every move and (INAUDIBLE) assume there is a camera on them at all times.

If anyone reading this missing the reference, former senator George Allen's "Macaca" moment and the handling of the fallout is spelled out explicitly as an example of what not to do.

Responding to the document today, the Democratic Senatorial Campaign Committee said through a spokesman, "We're glad to hear that the Republicans have finally discovered the Internet" -- Wolf.

BLITZER: All right, Abbi. Thanks very much.

Let's check back with Jack for "The Cafferty File" -- Jack.

JACK CAFFERTY, CNN ANCHOR: What are the chances Congress ever gets an independent ethics office?

Barbara in Michigan writes, "The odds of Congress every learning the definition of ethics are about the same as Ben & Jerry opening an ice cream stand in hell. Congress doesn't even grasp the concept of independent. You're setting the bar much too high."

Will in Illinois, "About as likely as the president admitting he's wrong about something." Fran, "Zero. I love your questions. When I feel so disgusted and paranoid about the government, I wonder if they've gone nuts. You read many replies from people who feel just like me... like the view who wrote in about Giuliani's creepy attitude -- another royalty wannabe. It's not just me; this is a disgusting and scary government."

Trish in Maryland, "An independent ethics committee, one that will make any difference, is about as likely as me scratching that winning lottery ticket while sitting on my chest of sunken treasure with my new husband, Johnny Depp."

Henry in Maryland, I think there's a 50-50 chance Congress will create what is called an independent ethics office. They may want to appear to be doing something, so some proposal may pass. It will good great in the campaign ads. But you asked the question. If you asked what are the chances the Congress will create an effective independent ethics office that has real power, the chances are almost zero."

And Pippie in Prundale, California -- I don't believe that's either your name or where you live. However, the letter was cute. "Dear Mr. Cafferty, My teacher says if you read my e-mail today I'll get 10 gold stars. I can remove my dunce cap and I will no longer have to sit in the corner."

"If you don't read my e-mail, then I have to stay after class and write on the blackboard 500 times: 'Jack Cafferty, part of the best political team on television.' I'm getting writer's cramp just thinking about it."

If you didn't see your e-mail here, go to CNN.com/caffertyfile. We post more of them, along with video clips of "The Cafferty File".

BLITZER: Very clever. But you are part of the best political team on television.

CAFFERTY: Oh stop. Just stop.

BLITZER: Thanks very much.

Let's go to New York. Lou Dobbs standing by.

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