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Hostages Rescued in Colombia; McCain Campaign Shake-Up; Jerusalem Terrifying Attack on Tape; Obama Home Purchase Questioned

Aired July 2, 2008 - 16:00   ET

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


JOHN ROBERTS, CNN ANCHOR: And happening now, a shake-up in John McCain's team designed to clean up what some are calling the mess within his campaign. This hour, a top McCain adviser explains the shuffle within the Republican's inner circle.
Plus, why Barack Obama may be boxed in as he prepares for a summer visit to Iraq. New questions about whether he can make good on his anti-war promises.

And a terrifying attack caught on tape. A man rams a front-end loader into cars and buses. And Israeli police end the rampage with deadly force.

Wolf Blitzer is off today. I'm John Roberts in New York.

You're in THE SITUATION ROOM.

We begin the hour with breaking news, a stunning end to a hostage drama. Former presidential candidate in Colombia Ingrid Betancourt rescued, along with three Americans, Marc Gonsalves, Thomas Howes and Keith Stansell, along with 11 other captives.

Betancourt was kidnapped by Colombian rebels more than six years ago when she was running for president. This is unfolding even as Senator and Republican presidential candidate John McCain is in Colombia.

CNN's Juan Carlos Lopez spoke with McCain today about the hostage situation. He's going to be joining us shortly.

But first, CNN's Karl Penhaul is on the phone from Colombia.

Karl, you were at a press conference not too long ago. What can you tell us about the operation to rescue these hostages?

We seem to be having some problems getting with Karl Penhaul.

Karl, can you hear me?

Now, we don't seem to have Karl on the phone.

Well, let's go to Juan Carlos Lopez, who again spoke with John McCain earlier today.

And Juan Carlos, what did you ask the senator? What was his response to what was then an ongoing hostage situation? JUAN CARLOS LOPEZ, CNN CORRESPONDENT: It was. And these three contractors had been under control for five and a half years, about the same time that the senator spent in Vietnam as a POW. And I asked him what he would do as a senator, and what he would do if he reached the White House to gain the release of these hostages. And this is what he said.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: We, of course, specifically spoke of the three Americans that are still being held captive by the FARC. The government is making every effort not only to free the Americans, but also tragic stories like Ingrid Betancourt, and so many other tragic stories who -- of people who are being held hostage by this very cruel and inhumane organization.

(END VIDEO CLIP)

LOPEZ: During the interview, during that same time, the Colombian armed forces were rescuing these 14 hostages.

Now, the details aren't very clear. We know that helicopters, military helicopters that were painted white, not in the typical green or camouflage, went to the same region of Colombia where other hostages were released by the FARC, by their own volition. And so it's very interesting that this happened at the same time and that these three men, Ingrid Betancourt, the former presidential candidate, and 11 members of the Colombian armed forces are free.

ROBERTS: Juan Carlos, hearing from the Defense Minister Juan Manuel Santos at a press conference just a little while ago. And again, we're trying to get our Karl Penhaul up who was at that press conference, can tell us more.

Now, this was a military operation that took place in eastern Colombia. Apparently, commandos apparently went in, they approached rebels who were in an outer security court, sort of a ring around the camp. They captured them.

Those rebels apparently convinced their comrades to release the hostages. There were 15 in all. There was Ingrid Betancourt, there were 11 Colombians, and there were three Americans. Again, Marc Gonsalves, Thomas Howes and Keith Stansell.

They gave up apparently without a fight. But it should be pointed out, Juan Carlos, that there were still many, many hostages that are being held by the FARC.

LOPEZ: Yes. And the numbers aren't clear.

Some say that it would be between 38 and 40. Others talk of hundreds. But there's a difference between the hostages that FARC have for political reasons and people that are kidnapped for economic reasons. So the political hostages are not -- the number is not known. Now, in this case there is a possibility, and the government, the Colombian government, had been offering ransom for those rebels and safe passage for those rebels that released the hostages. So it is very possible that this was another scenario.

It happened this year. There was a Colombian raid on an Ecuadorian territory, a rebel camp in that territory. One of the main FARC leaders died. And then a couple of weeks later, another FARC leader was assassinated by his own men, who then claimed the ransom.

Now, the person we're seeing on screen right now, that is not Ingrid Betancourt. That was her -- one of her top advisers. She was released a while ago.

Ingrid Betancourt is walking right now on the right. And she, from what we were told from other hostages who were released and from her relatives, was a very determined woman, never gave in to the rebels. And that caused her a lot of problems during her captivity.

ROBERTS: Right.

Juan Carlos Lopez for us this morning from -- this afternoon from Washington.

Juan Carlos, again, spoke with Senator John McCain, who is currently down there in Colombia, will be heading to Mexico later on today.

William Cohen is the former defense secretary in the Clinton administration. He joins us now.

Secretary Cohen, what do you make of today's operation to rescue Ingrid Betancourt and these other hostages?

WILLIAM COHEN, FMR. DEFENSE SECRETARY: Well, I think it shows what took place during the Clinton years, as a matter of fact, on Plan Colombia, and that was to get as much assistance as we could to the government of Colombia to fight against FARC and terrorist groups. And FARC is a declared terrorist organization.

So I think this shows the kind of progress that's been made, that they have become much more professional and much more capable. And I think this is just another sign that what is going on in Colombia is very positive.

And I assume -- I have not talked to Senator McCain, but I assume he was there on a different mission, to talk about trade. But nonetheless, this also raises the issue of whether or not the United States should be doing all that it can to support Colombia, given the fact that their acts of terror continue to take place in Latin America, and FARC is certainly a part of that.

ROBERTS: Just so the people at home have a point of reference, FARC is the revolutionary armed forces of Colombia, a major rebel group down there.

Secretary Cohen, what is the relative strength of FARC now compared to what it was years ago?

COHEN: It's hard to say at this point. I think they're still -- they're still strong, obviously. But one of their leaders most recently was killed.

We do know from intelligence that has been at least discussed publicly that Venezuela was actively involved in supporting FARC and trying to destabilize Colombia. So, hard to say at this point how strong they are.

They continue to be a -- certainly a threat to the stability in Colombia and that part of the region. But I think less so. But that's just a guess on my part.

ROBERTS: Secretary Cohen, stay with us, if you could. We want to go to Karl Penhaul, who is in Colombia right now. We finally established communication with him.

Karl, you were at that press conference not too long ago when the rescue of these hostages was announced. What can you tell us about the operation to get them out of the custody of the FARC?

KARL PENHAUL, CNN CORRESPONDENT: That press conference ended just a short while ago. And what the defense minister, the head of the Colombian armed forces, was saying was that this was a rescue operation. This wasn't as happened on two occasions previously this year, a unilateral liberation (INAUDIBLE).

What the head of the army said was that this was weeks, if not months, of both surveillance and infiltration of the rebel ranks. What he didn't go into was whether there was an armed confrontation at the moment that the hostages were rescued. Nothing so far indicates that there was.

That could indicate, although the army is not specifying, that there may have been some collaboration from the guerrillas themselves in that. The government has of late been offering hefty rewards for guerrillas who desert and turn over some of their hostages -- John.

ROBERTS: We should mention, Karl, that the connection we have with you is not terrific. But did you learn anything today about how long this operation has been planned, when did they learn about Ingrid Betancourt and the other hostages' location?

PENHAUL: Well, from what was indicated by the head of the armed forces, this was a surveillance operation that has been going on for weeks, if not months. In fact, about two or three weeks ago, reports surfaced in the Colombian media that an army unit had spotted the three American hostages in a rebel camps along the banks of a river in eastern Colombia. Really nothing more was said about that.

The government has also periodically said that it knew exactly where Ingrid Betancourt was being held, but the conditions were not right. The balance of forces was not right to attempt a safe rescue operation. What seems to have happened today is that all those factors now seem to have fallen into place after an operation that did appear to have (INAUDIBLE) the final legs were carried out by the military force, two helicopters painted with civilian markings -- John.

ROBERTS: All right. Karl Penhaul for us on the telephone from Colombia.

Karl, thanks very much.

Let's go back to William Cohen, former secretary of defense.

Secretary Cohen, let's talk about the three Americans who were rescued as well. They were seized at a different time than Ingrid Betancourt was?

COHEN: That's my understanding. I assume that the hostages are all pretty much spread around so that there can be one location where one can perform a rescue mission. But this does point out that there's increased intelligence gathering and sharing, and the U.S., no doubt, is very much involved in trying to help the Colombian government really achieve these kind of rescues, and to fight -- and carry on the fight against the FARC.

ROBERTS: And we should point out, Secretary Cohen, that we're looking at the pictures of the American contractors right now who were seized when their plane went down in the jungle during an anti-drug mission. They were working as defense contractors. That was back in February of 2003.

Is there any way to know, Secretary Cohen, how many people are being held hostage by the FARC?

COHEN: I heard the earlier interview and, frankly, the range is quite extraordinary, form tens, to I've heard as many as 750. I have no way of verifying that.

There are hostages taken, as was indicated, for political reasons and others for economic reasons in terms of getting ransom to keep the FARC forces fully funded. But I think it's anyone's guess at this point.

ROBERTS: Secretary William Cohen with us this afternoon.

And again, the latest on this is that hostages Ingrid Betancourt, former presidential candidate in Colombia, along with three Americans, Marc Gonsalves, and Thomas Howes and Keith Stansell, all rescued in a military operation that was announced today. Also, 11 other hostages that were being held by the revolutionary armed forces of Colombia are now free.

From what we understand about this operation, commanders were sent into an area of eastern Colombia. They approached rebels who were manning a security cordon, a ring, if you will, around a rebel base. They captured those rebels. Those rebels then convinced their comrades to release the hostages, some of which they had held for six years. Ingrid Betancourt, as you'll recall, was seized back in 2002. The American contractors seized in 2003.

We'll keep following this story.

But right now, to presidential politics here in the United States. Some new changes at the top of the McCain campaign today amid growing concerns about the Republican's strategy. While the candidate presses on with a trip abroad to Colombia and Mexico, one of his top advisers is moving up, taking on some of the duties of campaign manager Rick Davis.

Let's go to CNN's Dana Bash, who's following the McCain campaign.

And Dana, this is not the first time that the McCain camp has been shaken up, and the timing is rather auspicious as well.

DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: That's right. And you know, John, here's a little bit of political trivia for you.

Today is the anniversary of what McCain aides called "Black Monday." It's the day that many in McCain's then very large campaign staff were fired because his candidacy was in free-fall. Now they are making changes again, but this time it's in response to concerns we've been hearing for months that McCain's campaign is not equipped to win the White House.

(BEGIN VIDEOTAPE)

MCCAIN: How are you?

BASH (voice over): Just the fact that John McCain traveled to Colombia, South America, not a battleground or any U.S. state, is exhibit A of growing concern his campaign is off course. And now an urgent shake-up to correct it.

Senior adviser Steve Schmidt, a Bush '04 veteran, will take over the campaign's day-to-day operations in order to, as one adviser told CNN, stop the unforced errors of this campaign. McCain campaign manager Rick Davis will stay in his post, but will now work on long- term planning.

Schmidt had been a regular on the road with McCain until recently, when he quietly returned to headquarters to help fix what insiders admit are severe structural problems that caused a series of missteps. Some examples, hiring, then firing lobbyists who worked for the military junta in Myanmar.

MCCAIN: And we will vet everyone very seriously and make sure that it's not a repetition.

BASH: Then creating a new strict anti-lobbyist policy became a purge that kept the story going. And more poor vetting that led to endorsements by controversial figures like pastors John Hagee and Rod Parsley, which McCain didn't reject until months of bad press. Or paying for a TV ad to distance McCain from the president.

NARRATOR: John McCain stood up to the president and sounded the alarm on global warming five years ago.

BASH: Then reversing his position and standing with the president on the controversial idea of oil drilling offshore. That, combined with an erratic schedule of speeches too late to make newscasts, and inconsistent themes against Barack Obama, have all made for what senior McCain advisers admit has been a muddled message.

But even more alarming to many Republican strategists is McCain's unorthodox political operation. Instead of controlling crucial decisions about money and strategy from headquarters, campaign manager Rick Davis decentralized to 11 regional directors.

(END VIDEOTAPE)

BASH: Now, that was aimed at holding on to the lean, mean operation that led McCain back to win the GOP nomination. But CNN is told that Rick Davis realized, was -- he actually came to realize, is probably a better way to say it, that a more traditional campaign structure with Bush veterans in place is essential for a general election campaign, especially one that, despite a sour economy, an unpopular president and an unpopular war, still has McCain within reach of Barack Obama -- John.

ROBERTS: The last retooling certainly did the senator a world of good, Dana. We'll see how this one goes along.

Thanks.

BASH: Thank you.

ROBERTS: In Israel today, a deadly rampage by a construction worker driving a heavy front-end loader. Israeli authorities are calling it a terrorist attack. The horror, confusion and fatal end all caught on tape.

Correspondent Lisa Adlam reports for us.

(BEGIN VIDEOTAPE)

LISA ADLAM, REPORTER, ITV NEWS (voice over): Taking aim, an Israeli police officer has the bulldozer driver in his sights as he tries to flee the chasing crowd. Another officer clings to the side of the cab, and then the rampage is over, ended with a bullet at pointblank range.

This astonishing amateur footage shows the driver, a Palestinian, plowing into his target as he wreaks a path of destruction through the busy Jafa Road, leaving at least three people dead and dozens injured. In his wake, a packed commuter bus turned on its side, cars and vans crushed, drivers and passengers trapped in the wreckage, and acts of terror, according to police.

MICKEY ROSENFELD, ISRAELI POLICE SPOKESMAN: He crossed anything and everything that was in sight. He struck a bus and a number of vehicles that were completely, in fact, squashed.

As a result, a number of people have been seriously injured. The rescue operation is continuing. There are a number of different areas along the main road.

UNIDENTIFIED MALE: It was a big tractor. He came (INAUDIBLE) and drove over this car, there on the bus. There was a motorcycle (INAUDIBLE) came and shot the guy.

UNIDENTIFIED MALE: Citizens, civilians of the state of Israel are being targeted by the extremists while the state of Israel is trying to do everything to reach an accommodation with the Palestinians. Among the Palestinians, there were those who are deliberately murdering civilians.

ADLAM: The driver, who lived in the Arab area of East Jerusalem, was a construction worker here helping to build a new rail system on a road which has seen numerous suicide bombings in the past, memories of which were all too clearly brought back to those caught up in the fear and chaos he left behind today.

Lisa Adlam, ITV News.

(END VIDEOTAPE)

ROBERTS: Time now for "The Cafferty File." And Jack Cafferty joins us.

Odd incident there in Israel today.

JACK CAFFERTY, CNN ANCHOR: Very strange. You and I were just talking -- remember the guy who stole the tank?

ROBERTS: I think it was San Diego.

CAFFERTY: Yes. Reminiscent of the same kind of thing. Somebody just went off their rocker and grabbed a big piece of equipment and went on a joy ride.

Whatever.

Many Americans worried, John, that a John McCain presidency will wind up looking just like just another term of President George W. Bush. Two-thirds of Americans are concerned that McCain would pursue policies too similar to President Bush. That's according to a new "USA Today"/Gallup poll. And 49 percent say they are very concerned.

This creates a real dilemma for McCain. The conservative Republican base is less than thrilled with McCain as the GOP nominee. And that's where the few remaining people who think President Bush is doing a good job reside.

McCain can't separate himself too much from Mr. Bush, or conservative Republicans will simply tell him to take a hike. But if he doesn't separate from Bush, he's going to have trouble attracting those voters who think President Bush is the worst thing to happen to this country in a good long while, and there are a whole lot of those around.

A new "Wall Street Journal"/NBC News poll focuses on President Bush's disapproval rating and the unprecedented role it might play in this fall's campaign. None of this is good news for McCain.

The survey puts the president's disapproval rating at 67 percent among older voters, 71 percent among women, and a whopping 75 percent among Independents. These are all groups that McCain desperately needs in order to have any chance to win in November.

One Republican pollster points out that in order for John McCain to be elected president, at least one-third of McCain's votes will have to come from people who disapprove of the job President Bush is doing. Most of them Independents. So he's in a quandary, for want of a better word.

The question is this: How should John McCain handle the problem that's caused by President Bush's huge negative numbers?

Go to cnn.com/caffertyfile. You can post a comment on my blog.

Now he's hiring some Bush advisers to work for his campaign. That's going to reinforce that perception that he is tied to the president.

ROBERTS: And that's a significant number. Seventy-five percent of Independents disapprove of the president.

CAFFERTY: Huge.

ROBERTS: And that's the big battleground this year, too.

CAFFERTY: And those are the people that, you know, everybody is going to be trying to court. And the winner of the White House will be the one who gets the most of those.

ROBERTS: Well, we'll look forward to the responses.

CAFFERTY: Yes.

ROBERTS: Jack, thanks so much.

One-on-one with Michelle Obama. She sits down for an exclusive interview with CNN.

Meanwhile, we're also going to have more of John McCain's interview with CNN during his trip to Colombia.

And a company hopes to drum up business, but winds up drumming up controversy. The company airs an ad suggestive of Barack Obama's popularity, but instead of Barack Obama, it shows a monkey.

(COMMERCIAL BREAK)

ROBERTS: One John McCain adviser privately tells CNN the new shake-up in the Republican's campaign is designed to stop "unforced errors."

Let's get another member of the McCain camp on the record about all of this.

Carly Fiorina is a top adviser to the senator. She's the former CEO of Hewlett-Packard as well.

Carly, let's talk about the retooling of the campaign in just a second. But coincidence, at the very least, that Senator John McCain was down there in Colombia on the very same day that Ingrid Betancourt, the three Americans, and the other 11 hostages were released.

Do you know if John McCain was made aware of any of this? I mean, what's the perspective from the campaign?

CARLY FIORINA, TOP MCCAIN ADVISER: Well, I don't know that. However, I do know that the senator and President Uribe spent a great deal of time together privately. And I know that Senator McCain has been very public in his praise of President Uribe's tough stance against FARC. So I think this is truly a tribute to the Colombian government, and a great day for America, as well as Colombia.

ROBERTS: Right.

The retooling of the campaign, Steve Schmidt now put in charge of day-to-day operations. Why the change? Where were the problems in the campaign?

FIORINA: Yes. You know, I really think this is more gearing up than shaking up. I mean, just as an example, the campaign has hired over 200 people and opened up over 100 field offices just in the last month or so. So we're gearing up.

And I think part of gearing up is recognizing that you need some people focused on very tactical, operational day-to-day issues, and you need other people focused on more long-range strategic planning. And this division of roles between Rick, who remains head of the campaign, and Steve Schmidt, gives us more bandwidth, frankly, and more energy.

ROBERTS: But there's no question that many Republicans were a little bit dismayed about the pace of this campaign and the way that it was being run. Ed Rollins, who of course was at the helm of Ronald Reagan's 49-state win back in 1984 said that this campaign was kind of reminiscent of Bob Dole's in 1996, or even Phil Gramm's campaign.

FIORINA: Well, look, I am not here to defend the campaign. I don't think it needs defending. And certainly those people are -- have their opinion.

I'm not a professional politician, as you know. I come from the business world. So what I see, frankly, are pretty understandable growing pains of an organization that skinnied way down to fight a primary and now is building itself back up to fight a general. And so to me, from the business point of view, it's very predictable to have at this stage -- it's almost like a startup company becoming a multimillion-dollar corporation. And at some point in that process you go forward and you put a chief operating officer in place, you build out your regional offices. So this doesn't seem all that unlikely to me.

ROBERTS: Well, let's get into an area where you are very, very familiar, and that's the economy. A new CNN/Opinion Research Corporation poll finds that the economy continues to be issue #1, even more so than in the past.

FIORINA: Yes.

ROBERTS: Fifty-eight percent of respondents now saying it's the number one issue. That compares with 45 percent back in January.

And I'm wondering, as a business person, a former CEO, do you consider John McCain to be an expert on the economy?

FIORINA: Oh, I think John McCain is very well qualified on the economy. He wouldn't call himself an expert. I wouldn't call myself an expert on the economy. But if you're talking about, do I think he's a leader who understands how the economy works, who understands the importance of job creation, who understands the importance of government and the role it can play to either accelerate job creation or to destroy jobs, yes, I think he is extremely well qualified.

He'll be talking about the economy all next week. And he will focus very heavily on what it takes to create jobs and what role government can play to accelerate the creation of jobs.

The American dream starts with a job. And so a good economic plan, which John McCain has, and will be talking to the American people about next week, a good economic plan creates jobs.

ROBERTS: Carly Fiorina from the McCain campaign.

It's good to talk to you. Thanks very much.

FIORINA: Nice to talk to you.

ROBERTS: We look forward to further news on the economy from the McCain campaign next week.

Appreciate your time.

FIORINA: Thanks.

ROBERTS: A core Democratic constituency angry at Barack Obama. Some liberals are upset over an Obama position regarding terrorist surveillance. So they parked themselves on his campaign Web site.

And Prince William, the crime fighter? The man who could be king helps bust up a cocaine smuggling operation.

(COMMERCIAL BREAK)

ROBERTS: You're in THE SITUATION ROOM.

And happening now: Michelle Obama wants you to know who she really is. She talks about her family and upbringing in an exclusive CNN interview.

A fugitive of justice turns himself in. Convicted hedge fund manager Sam Israel already faced 20 years in prison. Now what he might be up against?

And extremely harsh police training tactics caught on tape -- it involves police in Mexico and more than a bit of outrage.

Wolf Blitzer is off today. I'm John Roberts. You're in THE SITUATION ROOM.

Americans' opposition to the war in Iraq holding firm, while the presidential candidates spar over how and when to withdraw troops. A new CNN/Opinion Research Corporation poll shows two-thirds of Americans believe the next president should remove U.S. troops from Iraq, this as Senator Obama plans a visit to the war zone and faces new criticism from the McCain campaign.

CNN's Jessica Yellin is here now.

And, Jessica, growing questions about whether Senator Obama has boxed himself in on Iraq.

JESSICA YELLIN, CNN CONGRESSIONAL CORRESPONDENT: That's right, John. It's certainly creating some bumps for him.

Obama's promise to withdraw troops from Iraq, as you will recall, was the defining issue in his campaign when he got into the race. The question now is, how does he stand by that promise without ignoring the fact that conditions in Iraq are improving?

(BEGIN VIDEOTAPE)

YELLIN (voice-over): From the day he announced his presidential bid, Barack Obama has boasted about his early opposition to the war.

SEN. BARACK OBAMA (D-IL), PRESIDENTIAL CANDIDATE: I opposed this war from the start. I thought it was a tragic mistake.

YELLIN: And he's laid out a plan to withdraw troops fast.

OBAMA: The best way to protect our security and to pressure Iraq's leaders to resolve their civil war is to immediately begin to remove our combat troops.

YELLIN: As president, Obama says he would immediately begin withdrawing one to two combat brigades a month, with all combat troops gone within 16 months.

But conditions in Iraq have changed since the campaign began. Violence has fallen, and even former critics acknowledge the surge seems to be working. So far, Obama shows no signs of changing policies, although he has tempered his language on withdrawals, saying now the next president is:

OBAMA: Going to have to be as careful getting out as we were careless getting in.

YELLIN: The McCain campaign sees an opening. Today, a top McCain supporter charged that Obama is prepared to sacrifice the progress that has been made in Iraq and is clinging to a very ideological commitment to left-wing supporters. In recent weeks, McCain has accused Obama of being naive on national security.

MCCAIN: The best idea is to not broadcast what you're going to do. That's naive.

YELLIN: And he's questioned Obama's judgment, because he:

MCCAIN: Hasn't traveled to Iraq to meet with General Petraeus and see for himself the progress he threatens to reverse. Americans should be concerned.

YELLIN: Shortly after, the Obama campaign announced the candidate will visit Iraq before the election.

(END VIDEOTAPE)

YELLIN: And when Obama does take that trip to Iraq, John, he will have to balance his -- what he sees as the conditions on the ground and what the generals say against the reality of American public opinion. As you point out, John, our new CNN poll shows that, despite progress there, most Americans still do want the troops to come home -- John.

ROBERTS: Indeed they do. Jessica Yellin for us from Washington -- Jessica, thanks.

Meanwhile, President Bush is weighing in on the possibility that Israel could attack Iran.

CNN White House correspondent Ed Henry joins us now.

Ed, the president spoke to reporters today. What did he have to say?

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, John, what's interesting, as you know, there's been increased speculation that the U.S. or Israel could be headed towards a confrontation with Iran.

The president really did nothing to knock down that possibility.

(BEGIN VIDEOTAPE)

HENRY (voice-over): Asked about a flurry of reports suggesting the U.S. or Israel may attack Iran by the end of the year, the president did little to discourage the talk. GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I have always said that all options are on the table. But the first option for the United States is to solve this problem diplomatically.

HENRY: But, by the administration's own account, those diplomatic efforts have done little to stop Iran from continuing on a path to try and enrich uranium for nuclear weapons.

Pressed specifically on whether he would discourage Israel from attacking Iran, Mr. Bush refused to be pinned down.

BUSH: The best way to solve it diplomatically is for the United States to work with other nations to send a focused message. And that is that you will be isolated, and you will have economic hardship if you continue trying to enrich.

HENRY: Meanwhile, Iran's foreign minister sent a mixed message at the United Nations. He claimed Tehran, too, wants to solve the issue diplomatically, but added, defiantly, the U.S. can't attack Iran anyway.

MANOUCHEHR MOTTAKI, IRANIAN FOREIGN MINISTER (through translator): Following repeated in the Middle East, we do not believe that the United States is in a position to impose another war on American taxpayers.

HENRY: At the Pentagon, Joint Chiefs Chairman Mike Mullen acknowledged, with wars already in Iraq and Afghanistan, opening a third front would be stressful on the military.

ADMIRAL MICHAEL MULLEN, JOINTS CHIEFS CHAIRMAN: That doesn't mean we don't have capacity or reserve, but that -- that would really be very challenging. And also the consequences of that sometimes are very difficult to predict.

HENRY: Admiral Mullen said he's deeply troubled by the increasing violence in Afghanistan, with June the deadliest month ever for U.S. troops there.

But the president said he's confident his strategy will work.

BUSH: It has been a tough month in Afghanistan, but it's also been a tough month for the Taliban.

(END VIDEOTAPE)

HENRY: Now, Admiral Mullen said he cannot send more troops to Afghanistan right now, but he said he hopes that, if the situation in Iraq continues to improve, he could be shifting troops from Iraq to Afghanistan by the end of the year. But such a controversial move in the middle of a presidential campaign could get quite interesting -- John.

ROBERTS: It certainly could.

Ed Henry on the North Lawn of the White House today -- Ed, thanks.

Big-name politicians facing heat for getting discounted mortgages. Now it's Senator Barack Obama's turn to face scrutiny. We're investigating the loan on his home in Chicago.

And she was dubbed the queen of mean, but the late Leona Helmsley was certainly generous to dogs. How generous? We're talking billions of dollars.

(COMMERCIAL BREAK)

ROBERTS: Let's check in now with our Carol Costello. She's monitoring stories incoming to THE SITUATION ROOM right now.

Carol, what are you picking up?

CAROL COSTELLO, CNN CORRESPONDENT: Well, John, more turbulence in the airline industry. The world's largest airlines warns 900 junior flight attendants they could be out of a job starting at the end of August.

American Airlines says it's not a layoff notice, but a legally required notice for possible layoffs. American Airlines blames crippling jet fuel prices and a weak U.S. economy.

Stocks slumped on Wednesday, with the Dow and Nasdaq ending in bear market -- in bear market territory, rather. Meantime, there's less demand for cars, heavy machinery and steel. So, orders to U.S. factories are weak. How much, you ask? Well, in May, those orders posted the weakest performance in three months. Analysts are watching to see how much the economic slump will further impact the manufacturing sector.

Gather yourself and your family quickly and get out -- that warning to people in two California counties as wildfires race their way. Evacuation orders involve Monterey County in the Big Sur region and in Shasta. That's in the north. They're just two of many areas threatened by over 1,400 fires burning across California. That has put more than 8,000 homes at risk.

He's royal, he's wealthy and he's world-famous, but, criminals, beware. Prince William helped bust up a drug-smuggling operation in the Atlantic Ocean. It happened on Saturday. The prince, doing a stint in the Royal Navy, helped spot a suspicious boat in waters near Barbados with his crew members. They alerted other forces, who chased the boat and boarded it. Those forces found one ton of cocaine with a street value of $80 million -- back to you, John.

ROBERTS: And that is a princely sum.

(CROSSTALK)

(LAUGHTER)

COSTELLO: It is, and a princely arrest as well.

ROBERTS: Carol, thank you so much.

Liberals online are speaking out against Barack Obama's support for legislation to overhaul the Foreign Intelligence Surveillance Act, otherwise known as FISA, which they see as a violation of privacy rights. Now they're bringing their fight to Barack Obama's own Web site.

Our Internet reporter, Abbi Tatton, is here.

Abbi, where are they doing this?

ABBI TATTON, CNN INTERNET REPORTER: John, this is right on Barack Obama's own Web site, a section of the site where supporters, hundreds of thousands of them, can organize their own events, their own groups.

But now on mybarackobama.com, they're lobbying their own candidate on FISA legislation. Obama's support of a new FISA bill have drawn anger from liberal bloggers who say it will let telecom companies escape lawsuits. And now that fight is right there online: Senator Obama, please vote no on telecom immunity. It's a group set up almost a week ago, pushed on liberal blogs around the Web.

And now look at all the people signing up, thousands of them, over 11,000 at last count on this group, on mybarackobama.com, urging Obama to vote against this bill. Obama spokesman Tommy Vietor says, "We believe that an open dialogue is an important part of any campaign, and are happy that mybarackobama.com has become a vehicle for that conversation."

Consideration of the bill has been delayed until after the July 4 recess -- John.

ROBERTS: It certainly gives him instant feedback.

Abbi Tatton for us -- Abbi, thanks.

Anger against a Japanese cell phone company after an ad depicts Barack Obama as a monkey.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: They were totally inconsiderate of the cross- cultural faux pas that it represented.

(END VIDEO CLIP)

ROBERTS: Is the company playing off of a stereotype, or was it simply an honest mistake?

And while John McCain travels abroad, his campaign gets a face- lift here at home. Will the changes put him in a stronger position against Obama?

That's coming up in our "Strategy Session" with Donna Brazile and Kevin Madden. (COMMERCIAL BREAK)

ROBERTS: Republican concerns about errors force a shakeup in John McCain's campaign. There have been reassignments at the very top, but many people wonder what the problems were and how the shakeup might fix them.

In our "Strategy Session" today, CNN political contributor Donna Brazile -- she's a Democratic strategist -- and Republican strategist Kevin Madden, a former spokesman for Mitt Romney and now senior vice president at the Glover Park Group.

So, help us out here, Kevin. What's going on with the McCain campaign?

KEVIN MADDEN, FORMER ROMNEY CAMPAIGN NATIONAL PRESS SECRETARY: Well, you know, a lot of people are trying to say, is this a shakeup? I think that this is actually an elevation for Steve Schmidt.

I think the campaign, probably wisely, sees that Steve's skills as a manager and someone who brings a relentless focus to the campaign, they have to be exploited, especially with four months to go in this campaign. So, I think what you're going to see is, a lot of those people who were worried about whether or not John McCain could drive a message for more than two days, and whether or not the political organization in the key states could be built quick enough for Election Day, those questions are going to be answered, because let there be no doubt that Steve is going to be bringing a new focus, a new discipline to this campaign.

ROBERTS: Donna, you have run political campaigns before. You were Al Gore's campaign manager. Did you see anything wrong with the McCain campaign that was desperately in need of fixing?

DONNA BRAZILE, CNN POLITICAL ANALYST: Oh, look, I think this was a great move on behalf of Rick Davis, to focus on long-term operation.

Kevin is absolutely right. Steve is a great tactician. He's a great strategist, a message strategist, a communications guru. There are still some internal problems. Now, John McCain clinched the nomination four months ago, and, yet, when you look at his day-to-day operation in terms of message discipline, he's often off-key. So, there's no question that Steve will be in a very important position to help him with message.

But, still, what's underneath the message? And, of course, the message drives the politics. And unless you have a good field operation, you really cannot go out there and be competitive in all 50 states.

ROBERTS: Kevin, we should -- we should mention that you and Steve Schmidt worked together in the Bush campaign, did you not?

MADDEN: Well, Steve would tell you that I worked for him. And that would be the truth.

(LAUGHTER)

ROBERTS: But, you know, I was listening to Ed Rollins this morning. And Ed Rollins said a lot of Republicans think that not enough was being done to appeal to the base. He kind of likened the direction of the McCain campaign and the way it was being run to the way that the Bob Dole campaign was run in 1996, also the way the Phil Gramm campaign was run.

MADDEN: Well, look, I think there was disarray. And I think that that's probably best explained by the simple fact that the McCain campaign started out as a one-state campaign.

Essentially, they won New Hampshire, and then, within 30 days, they had to become a national campaign. And there are always growing pains with that sort of thing, bringing on new personnel, giving that personnel the focus and the strategic imperative they need to succeed every single day.

And I think, probably for the last few months, a lot of staffers walked out of senior staff meetings in the McCain campaign wondering what they should do. Well, there won't be any wondering anymore. Every single day, those people who work for Steve Schmidt are going to know exactly what they have to do to advocate for John McCain and exactly what they have to do to undermine Barack Obama.

(CROSSTALK)

ROBERTS: Steve Schmidt walks into a room, you kind of pay attention to him, bald head, barrel-chested. He's a tough guy to miss.

(LAUGHTER)

ROBERTS: Let me switch gears a little bit here.

You probably heard Abbi Tatton talking just a little while ago about the opposition on Barack Obama's own Web site to him switching position on this Foreign Intelligence Surveillance Act.

Donna, how hard is Barack Obama running toward the middle here? We have got his switch on the FISA decision. We have got him supporting the SCOTUS decision on guns. He's now talking about letting commanders in on the decision-making process in Iraq. He really seems to be running hard toward the middle.

BRAZILE: Look, I think Senator Obama accepted the compromise that was put together by the House Democrats. Many of the Democrats did not approve of the compromise.

And, then, I think it's incumbent upon Senator Obama to examine the bill and to stick with his principles on this issue. And I don't see any inconsistency with that.

Also, you know, I think it's important to point out that, when you're in a primary, you state your positions and you put your principles out there. But I have not seen a shift in Obama's principles on the war, on the telecommunication act, or any other issue. What he's doing now is speaking to a larger audience. He's speaking to the American people, and not just Democratic primary voters.

ROBERTS: Do you buy that, Kevin?

MADDEN: I don't buy it.

Look, I think that the McCain -- I think that the Obama campaign is showing, every single day, that Barack Obama is every bit the conventional politician that us Republicans criticize him for being.

He's moving towards the middle, but he's not doing it on principle. He's doing it out of political convenience. I think the American public recognizes the difference. And the McCain campaign is going to hammer home on that. They're going to show that he's somebody without a real political -- without a real policy core, and is instead always trying to tack back towards the middle as a tactic, but it has nothing to do with where his core fundamentals are on policy.

BRAZILE: I disagree, because I think, as a Democrat, it's important to understand that what Obama is doing now is setting the stage for the fall.

We didn't hear Obama talk about faith-based programs in the primary. But, if you go back and listen to his speeches in 2005, he talked about this. There's a lot of consistency. The problem is, is that the Republican playbook is so old, they haven't caught up on all of Senator Obama's positions or his speeches. They're still learning.

ROBERTS: Hey, I want to get to one -- I want to get to one more idea here on strategy. And it falls out of a new CNN/Opinion Research Corporation poll that we did.

And, Kevin, let me throw this to you.

We asked people if they are worried about a terrorist attack in the near future. This time around, 35 percent people think that there would be. That compares in 2007 to 41 percent, 2006, 54 percent -- people far, far less worried these days about a terror attack in the United States than they were a couple of years ago, even a year ago. That's really the central theme that John McCain is driving home when he says the greatest threat to America is radical Islamic fundamentalism. Does he need to find another topic to run on?

MADDEN: I think, John, what he can do is point out that the policies that Republicans have put in place, the policies that John McCain has embraced, the policy that John McCain advocates are the reasons why Americans feel a lot safer. That's the key for this debate.

And the other thing is, look, national security is still baking the cake as an issue. And John McCain can make this a campaign of attributes. When you look at John McCain, you look at Barack Obama, and you ask the question, which one do you see as commander in chief, which one do you want answering that phone at 3:00 a.m., John McCain wins that debate. It's a perfect debate for him to have with Barack Obama.

BRAZILE: John, it's still a deep concern. Every American is concerned about terrorism. We're concerned about the war in Iraq.

That's why Senator Obama is saying that we need a responsible withdrawal. But, right now, people are worried about fuel prices and they're worried about food prices, and they're concerned about their jobs being shipped offshore. That's why the economy's number one right now, not terrorism. But people are still deeply concerned. We will not let our guard down. We should not.

ROBERTS: Yes, definitely found that the economy is issue number one -- 58 percent of Americans now think that. And that's up from 45 percent just about six months ago.

Donna Brazile, Kevin Madden, good to see you. Thanks for coming in.

BRAZILE: Thank you.

MADDEN: Thanks, John.

ROBERTS: Some stories that we're working on here in THE SITUATION ROOM:

(BEGIN VIDEO CLIP)

ADMIRAL MICHAEL MULLEN, U.S. MILITARY CMDR.: Opening up a third front right now would be extremely stressful on us.

(END VIDEO CLIP)

ROBERTS: When it comes to Iran, President Bush says all options are on the table. But how much flexibility does the Pentagon really have?

Our Jamie McIntyre reports on that.

And we're standing by for Michelle Obama. Our Suzanne Malveaux has the interview.

(COMMERCIAL BREAK)

ROBERTS: On our Political Ticker: the mortgage crisis hitting home right now for Barack Obama -- at issue, the loan on his Chicago home and questions about the deal that he got.

Let's bring in CNN's Brian Todd. He's been watching this.

Brian, what have you found?

BRIAN TODD, CNN CORRESPONDENT: Well, John, after checking into Senator Obama's mortgage, we found he got a good rate, all right. The question is, did he get a sweetheart deal? (BEGIN VIDEOTAPE)

TODD (voice-over): When Senator Obama got a mortgage to buy this house in Chicago, he got a pretty good deal. It cost $1.65 million. And he took out a $1.32 million loan in June of 2005. Did he get favorable treatment? His interest rate was 5.625 percent. The base rate at the bank was 5.81 percent. The average rate in Chicago at the time, 5.93 percent. That average was for a $650,000 mortgage. The rate for a $1.3 million mortgage could be more or less.

A spokesman for Obama says the rate was based on his assets and income, he had a new $1 million book deal and the fact that he had a competing offer from another bank. He said -- quote -- "Obama received the same rate as would have been available to anyone with his financial profile and with an offer from another institution."

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR: It's very attractive, but I don't know if it's a sweetheart deal. Look, anybody bringing $3 million in assets to a bank is going to get a very, very good rate. This is pretty much within the norms.

TODD: Why the scrutiny? A top Obama aide, Jim Johnson, resigned from the vice presidential search team after disclosures that he may have received favorable treatment from Countrywide Financial under the lender's VIP program. Two senators also benefited from that program.

But the Obama campaign says there was no VIP program at his bank, and the bank, Northern Trust, says the loan transaction was consistent with its mortgage policies.

MELANIE SLOAN, EXECUTIVE DIRECTOR, CITIZENS FOR RESPONSIBILITY AND ETHICS IN WASHINGTON: Both Conrad and Dodd were getting special treatment under a program designed to give them different treatment because they were senators. Senator Obama, he just got better treatment because he was a wealthy guy.

(END VIDEOTAPE)

TODD: Well, this is not the first time that Obama's house purchase has come under scrutiny. The couple got the home for $300,000 lower than the asking price. On the day of closing, the wife of Obama friend and fund-raiser Tony Rezko closed on an adjoining lot from the same seller for the full asking price.

She later sold a portion of that lot to the Obamas. Tony Rezko convicted last month of influence peddling. Obama was in no way linked to that case, but has acknowledged he made a -- quote -- "boneheaded mistake" purchasing the lot from the Rezkos in a deal that could be seen as an improper favor from a contributor -- John.

ROBERTS: Brian Todd looking into that for us today -- Brian, thanks.

Jack joins us again with "The Cafferty File."

So, what did you hear, Jack? CAFFERTY: Well, we heard a lot, actually, John. And I will share some of it with you right now.

The question this hour is: How should John McCain handle the problem that is caused by President Bush's huge negative numbers?

Ally in Toronto writes: "McCain should throw Bush under the bus while winking at the conservative base. The conservative base has to understand that McCain must exhaust all options in order to secure a win, just as Bush did in the 2000 primaries."

Luke writes: "He ought to just stop fighting it. He will never convince anyone that he is not totally in line with George Bush. He ought to just go ahead, get it over with. Pick Cheney as his vice president. Nobody is buying the straight talk act any longer."

Paul in Muncie, Indiana, says: "His only hope is to wait for the Democrats to screw up the election. They always do."

Anthony says: "McCain ought to embrace Bush's negative numbers as his own. He ought to continue to support the president's policies because this will help seal his own pathetic fate in November. He should think about his health and his age, call it a day, and retire with some dignity, instead of with none, as the loser with Bush in November."

Bruce writes, "Call for Bush's impeachment, simple."

Lene writes: "My guess is he is going to flip-flop on the issues according to whom he is addressing at any given time. If he is trying to appeal to Democrats, he will say bad things about Bush. If they are Republicans, he will put Bush in a good light."

Kenny says: "By running a campaign abroad, he may find some small country that will let him practice being president for a couple of years, and then, maybe, down the road, he will be ready to try here again. Maybe, by then, people will have forgotten about George Bush."

And J.W. in Georgia says: "In the world of poker, Bush is a pair of deuces in a game where McCain must have a full house to even call the current bet. My guess is, McCain will have to bluff."

If you didn't see your e-mail here, you can go to my blog, CNN.com/caffertyfile. Look for your e-mail there among hundreds of others.

ROBERTS: Your first e-mail from a fellow in Canada. Feeling feisty after a...

CAFFERTY: We get a lot of mail from people in Canada.

ROBERTS: Feeling feisty after a day off yesterday.

CAFFERTY: Me?

ROBERTS: No, the Canadian viewers. CAFFERTY: Oh, the Canadians.

ROBERTS: It was Canada Day yesterday.

CAFFERTY: But we have huge numbers in Canada. Those are your people, are they not?

(CROSSTALK)

ROBERTS: Originally, yes, 141st birthday yesterday.

CAFFERTY: Are you a legal immigrant?

ROBERTS: I'm an American citizen.

(LAUGHTER)

ROBERTS: I will show you my passport.

(LAUGHTER)

ROBERTS: Jack, thanks so much.

CAFFERTY: OK.