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THE SITUATION ROOM

Interview With Alaska Governor Sarah Palin; Iran Votes

Aired June 12, 2009 - 16:00   ET

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


WOLF BLITZER, CNN ANCHOR: Happening now, though, breaking news: The world is eager for answers. Who will be the winner of Iran's presidential election? Supporters of the president, Mahmoud Ahmadinejad, are saying one thing right now, his main opponent saying exactly the opposite. Stand by.

President Obama's poised to do something some say will stop an untold number of people from dying. It's being called the strongest action Congress has ever taken to reduce tobacco use.

And Sarah Palin right here in the THE SITUATION ROOM today -- she's not happy with President Obama's policies. She's even taking on David Letterman, calling his recent joke sexist, and urging women to stand up.

I'm Wolf Blitzer in CNN's command center for breaking news, politics, and extraordinary reports from around the world. You're in THE SITUATION ROOM.

But, first, the breaking news we're following -- we could see the equivalent of a political earthquake, at least potentially, in Iran. We're following what's going on.

And what's going on right now, conflicting claims of who won Iran's presidential election. State media controlled by Ahmadinejad has declared Ahmadinejad the winner. But the reformist challenger, Mir Hossein Mousavi, says he won the election.

Early vote counts are coming in. These are paper ballots. It's going to take some time. The final outcome could have a major impact, though, on U.S. policy toward Iran and what happens in that very volatile and strategic part of the world.

We're going to go to Tehran. Christiane Amanpour is standing by. We're going to go there in a few moments.

But, first, let's see what the White House is saying about all of this.

Our White House correspondent Suzanne Malveaux is joining us live right now.

I know you had a chance earlier in the day, Suzanne, to shout a question to the president. And he made a point of coming back to reporters and answering your question.

SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Well, you're absolutely right, Wolf.

It was in a Rose Garden event. He was talking about tobacco legislation, but clearly all eyes are on what's happening with the Iranian elections. Clearly, the White House is paying very close attention to this. And I put the question to the president -- Obviously, he did want to respond in some way -- how closely they are watching this and, really, what does it matter here, how is this dramatically going to change, potentially change the U.S. relationship with Iran.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We are excited to see what appears to be a robust debate taking plays in Iran.

And, obviously, after the speech that I made in Cairo, we tried to send a clear message that we think there is the possibility of change. And, ultimately, the election is for the Iranians to decide. But, just as has been true in Lebanon, what can be true in Iran as well is that you are seeing people looking at new possibilities.

And whoever ends up winning the election in Iran, the fact that there's been a robust debate hopefully will help advance our ability to engage them in new ways.

(END VIDEO CLIP)

MALVEAUX: Now, Wolf, this is really a very delicate balancing act for this administration and for the president.

On the one hand, Mahmoud Ahmadinejad been very difficult to deal with, obviously in the Bush administration, and spilling over to the Obama administration. But they do not want to get ahead of this, the emphasis, that this is up to the Iranian people, that they want to empower them, that they don't necessarily want to show that that they're to overtly influence the outcome of this election, but, clearly, this president and this White House hoping for some change, an opening, if you will, to try to really have some meaningful dialogue with this regime -- Wolf.

BLITZER: He really has made a major point of reaching out to the Iranians, especially the Iranian people. And that was very evident, Suzanne, as you know, at his speech in Cairo, at Cairo University, when he was addressing the Muslim world.

The section on Iran was very poignant, because he said he's ready, the United States is ready for negotiations without any preconditions with the Iranians.

MALVEAUX: A clear departure from the Bush administration.

As we have seen, this is something that Obama talked about during the campaign. It was -- a lot of people had some questions whether or not that was really going to happen. We have seen this president carry that through just in the few months, in the months that he has been president, saying that he ultimately really does want to press the reset button and change -- fundamentally change the United States' relationship with Iran and other regimes that have been very difficult.

We have seen him directly reach out to the Iranian people. That is the kind of message that we heard this afternoon, that he wants to get around Ahmadinejad, go directly to the people, but, obviously, that message is very clear that he's looking for new leadership.

BLITZER: Suzanne, stand by.

Christiane Amanpour is on the phone. She's in Tehran watching this developing story for us.

Christiane, the breaking news, the state media, at least the reports we're getting -- and, clearly, Ahmadinejad has a lot of control over that state media -- saying he's winning, whereas the main challenger, Mir Hossein Mousavi, says he's winning, his aides are saying.

It's hard to sort out what's going on, but you're on the scene for us. Give our viewers in the United States and around the world an update on what we know right now.

CHRISTIANE AMANPOUR, CNN CHIEF INTERNATIONAL CORRESPONDENT: Well, what we know is that we were called to a very hasty press conference by Mir Hossein Mousavi about an hour ago.

Everybody rushed down there. It was jampacked. And we heard him say that, according to his own supporters and poll-watchers and observers around the country, he thought he had definitely won. He was claiming definite victory.

He also says that the election authorities had failed to keep their promise to keep the polls open for people who were waiting outside to vote. He said doors were shut with many people still waiting outside to vote.

Then, very shortly thereafter, in an unusual and unexpected move, the election authorities here held their own press conference, and (INAUDIBLE) what they say is 19 percent of all the vote that have been counted so far, which amounts to some five million-plus votes.

They say that, of -- counting those five million-plus votes, the president, the incumbent, Mahmoud Ahmadinejad, has got three million- plus, which amounts to just over 69 percent of the vote. They say that Mir Hossein Mousavi, his main rival, has got one million-plus votes, which amounts to some 28 percent of the vote.

Mr. Ahmadinejad's Web site says that these votes and this win that he's claiming right now is from mostly the rural and outlying provinces, which are the heart of his base of support, with the more religious, the less affluent, the more traditional people.

That was expected to be his support. We do not know whether these votes, this 19 percent of the vote that has been counted so far, includes the major cities. And all we can tell you is that, all day, at all the polling stations that we were at and that other people were at around Tehran and the major cities around Iran, the overwhelming exit polling shows that people had been voting for Mousavi.

So, that is what we know so far. But, according to the state television, according to the election officials, they're claiming, with the vote count -- vote counted so far, that Mr. Ahmadinejad has 69 percent of that vote -- Wolf.

BLITZER: Christiane, here's the question that everyone is asking me. From the U.S. perspective, does it make any difference, when -- when all the dust settles, between these two guys?

AMANPOUR: Well, it makes a difference in terms of the tone of Iranian policy.

Clearly, the main policy, whether it be military, foreign policy, and the like, is -- is directed from the higher authority, which is the religious leader, the supreme leader, Ayatollah Khamenei. In terms of reaching out to the West, ever since President Obama's election, both President Mahmoud Ahmadinejad and now his challengers in the Iranian elections have said that they, too, would like to engage with the United States based on that formula now of change that both Obama has put forth.

And now the Iranians have said they want to see real change, and they will reciprocate with real change. So, in that regard, we're told by most of the analysts who we have been talking to that it won't make that much of a difference.

However, in tone, in domestic policies, in the face of the Iranian government, it is bound to make a difference, because, over the last four years, President Ahmadinejad has had a much more bellicose, belligerent foreign policy.

He's really, his supporters say, stood up to the rest of the world, including the United States, particularly under the presidency of -- of President Bush, and -- quote -- "not allowed the world to dictate to Iran."

And this, of course, has been all around the very highly sensitive issue of Iran's nuclear program. So, it will make a difference in tone, and it will most certainly make a difference for the people inside Iran who want reform, more freedom, and a much better economy. They accuse him of mismanaging the economy and higher prices, higher unemployment.

Even though Iran's oil wealth has tripled over the last four years, growth has remained stagnant. So, all the people who came out today say they came out for change.

BLITZER: All right, Christiane, I want you to stand by. I know you're doing reporting there. We're going to be getting back to you.

Our chief national correspondent, John King, the anchor of CNN's "STATE OF THE UNION," is here in THE SITUATION ROOM, as well.

When it comes to major issues, like the nuclear program, support for Hezbollah or Hamas, there doesn't seem to be a whole lot of difference between these two political rivals in Iran. But Christiane is absolutely right. On tone, in terms of reaching out, in terms of Mousavi really going after Ahmadinejad for denying, for example, the Holocaust and for isolating Iran, there is a difference.

JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Tone matters. Especially at the beginning of diplomacy, Wolf, tone matters a great deal.

On the nuclear program, Mr. Mousavi is quoted telling "TIME" magazine in an interview conducted just in the past 24 hours that he would steadfastly say Iran has every right to a nuclear energy program, but, when it comes to all the centrifuges that have been made and that President Ahmadinejad has bragged about being made, that he is willing to negotiate when it comes to anything that could be conceived as weaponization -- weaponization.

That would be a big break. It would be a big break, potentially, in the negotiations with the Europeans and the United States, and it would be a big break, potentially, in warming the climate in the neighborhood. As you know, Prime Minister Netanyahu of Israel views that as the biggest threat on his country right now, to the point where he would like to delay sitting back down with the Palestinians, focus more on Iran.

So, it has a potential in tone and in substance on the nuclear program to change the dynamic. It's a big if, though. Number one, he would need to win the election. And, number two, as Christiane noted, it is the supreme leader and the religious clerics that fall the shots. Would any new president, or the next president, whether it is Ahmadinejad or this challenger, has the leeway to do anything different?

BLITZER: Stand by.

KING: We don't know.

BLITZER: Stand by for a moment, John, because our foreign affairs correspondent, Jill Dougherty, is over at the State Department.

Jill, what do they say over there? Do they really believe these elections are free and fair?

JILL DOUGHERTY, CNN FOREIGN AFFAIRS CORRESPONDENT: Well, the elections this time could be -- it's -- it's hard for them to say precisely, but they're considered relatively open.

And you can see that there is a great turnout. So, at this point, I guess you would have to say that, according to Iranian law, they are carried out according to Iranian law. I don't know that they would say necessarily fair.

And that's the big question that's going to come up. But I can tell you, Wolf, that, over here at the State Department, they're watching it very carefully, and they have different ways of doing it. One is the rapid response unit. And that monitors media around the world. They're zeroing in on the Iranian media and media in that area that are trying to tell us what's going on exactly at this point. They also have what are called watch offices around the world. And those are in embassies in countries that have large expat Iranian populations. They also are monitoring.

So, although there's a real hands-off approach over here at the State Department, they also are absolutely riveted by what is -- what is going on. And the implications could be very big for U.S. foreign policy with Iran. We have been talking about the tone.

But, even on the nuclear issue, some experts that we have been talking to over here are saying maybe they would be more open, let's say, if Mousavi wins. They might be more open to international inspections. But no one thinks they're going to give up nukes, certainly -- a nuclear program, I should say.

BLITZER: Yes, at least that's what they all say. We will see what happens on that front.

Jill, stand by.

John King is still here in THE SITUATION ROOM.

John, in the short term, we're going to have to wait and see what happens over there, because there are these ballots, and we saw them voting. In the sort of old-school balloting, it's hard to believe they have already counted so many millions of these ballots.

But I -- I always assumed it was going to take some time for the dust to settle, if it was a free, non-corrupt election.

KING: And, then, how close is it? If it is a very close election, what are the processes? Are there recount processes? How do -- what is the verification process? So, we will have to wait.

And, as we wait, that's why it's so hard to figure out the potential ramifications down the line. You know, Jill, Christiane and I, we have all been talking about the nuclear program. Let's look at it from the perspective of President Obama at the White House.

You know, this is one of his most controversial campaign promises, that he would sit down in his first year with leaders like Ahmadinejad, leaders like North Korea. He has retreated a bit, saying, first, you have to make substantive progress in preliminary talks.

But this -- Ahmadinejad has denied the Holocaust, threatened to obliterate -- say Israel should be wiped off the map. He has proceeded briskly with the nuclear program, in defiance of the world community.

President Obama has much less room to maneuver in negotiations with an Iranian government headed by Mr. Ahmadinejad. If the challenger wins, it is much harder for conservative critics, anyone else in the U.S. foreign policy scenario, to criticize a President Obama who said, let's give this a chance; let's try to see if we can have a breakthrough.

So, that is why the stakes are so hard for -- so high for President Obama. A new president in Iran would greatly increase the flexibility he had, the space he had to begin a new dialogue, absent some of the loud volume you would hear -- hear from people with Ahmadinejad, as we have for years: Why give him the international standing? Why gave him the prestige of meetings with the United States, when he has said so many horrific things?

BLITZER: And I know you're going to have a lot more Sunday morning on "STATE OF THE UNION" on this, a lot of other subjects. We will be watching.

KING: Thank you.

BLITZER: John, thanks very much.

We're going to stay on top of this story and bring you the results as they come in -- a lot at stake, what's going on in Iran right now.

Supporters say many deaths will be prevented. President Obama is ready to sign what is what's being called the strongest action Congress has ever taken to reduce tobacco use.

And an American student caught up in a murder trial in Italy, she's speaking. How does she explain where she was the night her roommate was murdered?

And Sarah Palin is here in THE SITUATION ROOM showing off her foreign policy credentials. And she's also, at the same time, blasting President Obama's policies, including what he's done toward Israel.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R), ALASKA: I would have liked to have seen more passion in the talk that he gave regarding our friends in Israel, our strongest ally, making sure that they know that we are here for them.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

BLITZER: My interview with the Alaska governor, Sarah Palin, that is coming up shortly. You will see it right here in THE SITUATION ROOM.

In the meantime, let's check some important news happening right now, including big tobacco. It may never be the same in the United States again. President Obama is praising Congress for putting the marketing and sale of cigarettes and other tobacco products under FDA oversight.

The legislation is now on his desk. He says he will sign it into law.

Let's go to CNN's Brian Todd. He's here in THE SITUATION ROOM.

What does this mean for the tobacco industry and for folks out there who are -- who are directly affected by this? And there are million of people -- millions of people who still smoke.

BRIAN TODD, CNN CORRESPONDENT: One in five Americans still smokes, Wolf.

And, at least one watchdog group, the Center for Responsive Politics, says this is a big reversal of fortune for the tobacco companies. For decades, the powerful tobacco industry -- industry has successfully opposed the heavy hand of government regulation.

But now it will have to submit to new rules on what's in cigarettes and how they're advertised, especially toward children.

(BEGIN VIDEOTAPE)

TODD (voice-over): No ads within 1,000 feet of schools or playgrounds, black and white ads only, bigger warning labels, no more candy or fruit-flavored cigarettes -- just some of the tough new regulations in a bill that will give the government unprecedented power to regulate the tobacco industry.

Supporters say a top goal is to prevent the marketing of cigarettes to children.

REP. GENE GREEN (D), TEXAS: How many loved ones and constituents do you know have died from lung cancer caused by smoking? This bill can help those 13-, 14- and 15-year-olds who are growing up now not to become addicted to tobacco.

TODD: The government projects the bill would reduce underage smoking by 11 percent over the next decade and cut down smoking by adults 2 percent. Opponents say it also cuts free speech rights and represents bureaucratic meddling.

REP. RON PAUL (R), TEXAS: Freedom and self-reliance and individualism can solve these problems a lot better than a bunch of politicians and bureaucrats and tobacco police here from Washington, D.C.

TODD: President Obama, who struggled to kick his own habit, will sign the bill, which finally pushed through after decades of resistance by the tobacco industry.

OBAMA: Now, this bill has obviously been a long time coming. We have known for years, even decades, about the harmful, addictive, and often deadly effects of tobacco products.

TODD: Altria Group, owner of the largest American cigarette-maker, Philip Morris, is the only major manufacturer to support the bill.

A libertarian critic of the legislation says the ad restrictions will actually benefit the biggest cigarette-makers, whose brands are already well-known.

MIKE CANNON, DIRECTOR OF HEALTH POLICY STUDIES, CATO INSTITUTE: Big tobacco is a perennial villain. Congress loves to tax them, loves to run against them, loves to say that they're going to regulate big tobacco out of existence or -- or keep cigarettes out of hands of kids. But, usually, it's big tobacco that has their way with Congress, rather than the other way around.

(END VIDEOTAPE)

TODD: As for one of the most critical issues here, the use of the addictive substance nicotine, the bill empowers the FDA to require manufacturers to reduce the levels of nicotine in cigarettes, but it does not ban nicotine outright, and it doesn't ban smoking, Wolf.

Some people were looking for that -- nicotine not banned outright now.

BLITZER: They -- they used to say the tobacco lobby here in Washington was one of the most powerful, one of the richest, giving a lot of money away in campaign contributions. What does this say about that legendary power?

TODD: Well, we talked to the head of the Center for Responsive Politics. She said that the -- the tobacco industry has increased the amount of money it's given to Congress in recent years. They're on pace to do that now.

They can always count on support from legislators from tobacco- producing states. That probably won't change. But she says the growing momentum over health care reform, growing sentiment overall in the United States against the use of tobacco and against the use of cigarettes, it was not enough to stop their money and influence in Washington. This tide could very well be turning now.

BLITZER: Fascinating material and very significant, in terms of the life and death of a lot of folks out there as well.

(CROSSTALK)

BLITZER: Thanks very much.

Divided Democrats and Republicans just may find something to agree on when it comes to health care reform.

Let's go to CNN's Brianna Keilar. She is up on Capitol Hill working this story for us.

They're called health co-ops, and they seem to be designed to bridge the gap between the left and the right. What do we know about this, Brianna?

BRIANNA KEILAR, CNN CONGRESSIONAL CORRESPONDENT: Well, at this point, Wolf, of all of the potential solutions being talked about here on Capitol Hill, this is certainly the one getting the most buzz.

(BEGIN VIDEOTAPE)

KEILAR (voice-over): What do many of the nation's electric utilities, farms and credit unions have in common? They're cooperatives, nonprofit companies owned by the people who use them, where members pool their resources to accomplish something they can't do on their own, like getting quality health care. That's why the co-op could hold the key to bipartisan agreement on health care reform, a bridge between Democrats who want a government- run insurance option to compete against private insurers, and Republicans who say the government needs to stay out of it.

SEN. KENT CONRAD (D), NORTH DAKOTA: The thing that's attractive about it is an alternative delivery model that could compete with for-profit insurance companies, because these are not-for-profit entities. On the other hand, it's not government-controlled or government-run.

KEILAR: That's why this man, Scott Armstrong, is hitting the hallways of Capitol Hill. As president and CEO of Group Health Cooperative in Washington State, he's explaining to lawmakers why a health co-op makes care more affordable.

SCOTT ARMSTRONG, CEO, GROUP HEALTH COOPERATIVE: The way that you can avoid those expensive, unnecessary visits is to engage patients early on in primary care. And that's what Group Health Cooperative is able to do through our model.

KEILAR: Group Health provides care for more than 600,000 patients. Those co-op members have access to 35 medical centers staffed with 950 doctors, doctors who coordinate to avoid expensive mistakes and unnecessary tests.

(on camera): Your doctors are talking to each other, or...

ARMSTRONG: So, our doctors are highly connected. A patient with multiple chronic illnesses and some other reason for being cared for, when that patient is seen by our doctors, our nurses, our pharmacists, they all have information about all of the patient's conditions.

(END VIDEOTAPE)

KEILAR: Also, the doctors at this cooperative are paid a salary, instead of by the number of patients they see or the number of procedures they perform. And they have to answer to, they're accountable to, not a board of directors, Wolf, but a board of patients, the very patients they see.

BLITZER: We will see if that flies with all of the promotion that's going on.

Thanks very much, Brianna, for that. Good report.

By the way, tomorrow here in THE SITUATION ROOM, we're going to have a -- a special report on the state of this debate in -- unfolding in Washington. We're going to hear from all sides on health care reform. We will get the White House budget director, Peter Orszag, Republican Senator Judd Gregg of New Hampshire, and independent Senator Bernie Sanders of Vermont.

They also disagree on what to do. We will hear from all three of them, 6:00 p.m. Eastern tomorrow, THE SITUATION ROOM, on Saturday.

What birthday gift do you give an 85-year-old man who's seemingly done it all? Here's the answer: a wild ride. The former President George H.W. Bush takes an amazing leap of faith. And CNN was along for the ride.

And will Iran keep its president, or will it be rocked by a political earthquake? We're following the breaking news on conflicting claims of who won today's presidential election.

Also, my interview with Sarah Palin today, that's coming up -- right here in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: You're in THE SITUATION ROOM.

Happening now: a possible record turnout in Iranian elections, and now competing claims of victory, in a vote that could have a major impact on U.S. diplomatic efforts with Tehran. We're monitoring the results and bringing them to you as soon as we get them.

And what's a man to do on his 85th birthday? If you're former President George H.W. Bush, go skydiving, of course. CNN was there.

I'm Wolf Blitzer. You're in THE SITUATION ROOM.

Polls show a majority of Americans think the Republican Party doesn't have a clear leader right now. And that could create an opportunity for Sarah Palin. The Alaska governor is keeping a high profile and a busy media schedule. She's covering all the issues a national leader would, economic and national security under President Obama, the Middle East peace process, even her own political future.

She's especially vocal about a deal toward more energy independence for the United States that some already are criticizing.

(BEGIN VIDEOTAPE)

BLITZER: And joining us now, the governor of Alaska, Sarah Palin.

Governor, thanks very much for coming in.

PALIN: Thank you so much, Wolf.

BLITZER: You have a big energy deal that's in the works right now. And you announced it with a lot of fanfare, a $26 billion natural gas pipeline, which would bring natural gas from Alaska through Canada down to the lower 48.

Not everyone is enthused, including "The Wall Street Journal." They say this: "Among the most serious questions it faces is whether the Alaskan gas is even needed. North America is in the midst of a natural gas glut, driving down prices. And observers believe liquefied natural gas imports are set to grow, as overseas producers seek to unload their gas in the United States."

Why do you disagree with "The Wall Street Journal"? PALIN: Well, I think very shortsighted of whomever wrote that for "The Wall Street Journal," assuming that market conditions are going to stay as they are today. Demand for natural gas has increased. And, in fact, by probably 2030, we will see about a 40 percent increase in demand for natural gas.

Domestically, we have the supply. The resources are up there in Alaska. And it's time that we build this infrastructure and flow that very valuable resource into hungry markets throughout the U.S. This is going to be the largest energy project in the world by the private sector.

It's a great venue that we have, a vehicle called AGIA, the Alaska Gasline Inducement Act. And, believe me, Exxon, the largest company in the world, and TransCanada, the best pipeline-building company in the world, I'm sure they would not have aligned and committed to building this project had they not crunched the numbers and figured out that for their bottom line, and for our nation's security, and for our environment, for our economy, this project is right.

It is time. Shortsighted to assume that there won't be growing demand for energy sources.

BLITZER: It's more energy independence as well. Instead of importing this kind of energy, it's here. It's homegrown in the United States. That's a significant development, potentially, but it's not cheap.

Who's going to pay for all of this?

PALIN: The private sector, thank goodness. I mean, this isn't a government program. It's not a government service. And heaven forbid anybody think that this infrastructure project needs to be nationalized, and we have to keep our eyes and ears open to make sure that nobody thinks that the federal government should ever come in and take control over an energy project like this.

There is a need for it. The economy is asking for such a stimulus package as this to create the jobs. Thousands and thousands of jobs will be created with the construction and the operation, then, of this pipeline.

It's time. It's ready to do it, and it's a private-sector project, as well it should be.

BLITZER: How long is it going to take to build it?

PALIN: It should be about a decade before that energy flows. These are long lead time-type projects.

I mean, we've been talking about it and planning for it in Alaska for decades, but it took this alignment that was announced yesterday to really see the path forward made much clearer. The project will come to fruition.

BLITZER: And the grumbling you're hearing from some politicians in Alaska in your home state, how do you react to those complaints that they're saying, you know what, this is not necessarily such a great idea?

PALIN: Well, a couple of the politicians who are up for re-election and they're trying to position themselves, you know, they have to kind of distance themselves from some of the positions that the administration has taken, for political reasons, I believe. But the numbers speak for themselves. Largest companies in the world aligning to get the project built for national security reasons and for our environment and for our economy, even those politicians up in Alaska.

And really, Wolf, I think they do support it. They voted for it. I think there's just some political wrangling going on right now to position themselves.

BLITZER: On the economic stimulus package, and I want to just clarify this, originally, you were supposed to get Alaska $288 million in stimulus money that you didn't want. You said the state didn't need it, didn't want it, didn't like the strings that were attached to it. In the end, you're going to get everything but about $28 million and maybe even that you'll have to take as well.

What happened here? The original reluctance on your part to accept the money from the federal government, but now you're going to accept it.

PALIN: You know, legislators across the country, including in Alaska, many resolved to take the money anyway, to go around governors and via resolution said, well, we're going to apply for the money anyway. Look at what happened in South Carolina, where the governor said, no, I'm not going to take the money. And they ended up in court. And the judiciary told the administrative branch, which is an odd mingling there of branches of government, the judiciary told that governor, you're going to take the money anyway.

There are fat strings attached to these federal dollars, not the least of which is an attachment to contributing to the dizzying debt of our nation and borrowed money to supply the funds to grow this government that the stimulus package is all about. I've had great hesitancy in embracing such a thing, and I did veto some of the money.

Our lawmakers are discussing now whether they'll override that veto. More power to them in that debate, whether they should override or not. That's the beauty of our democracy, the checks and balances that are in place. That protects the people whom we're serving.

So, discussion on whether they'll override my action, again, hesitant to accept some of these energy funds because they're tied to energy building codes, universal building codes that, for the most part, communities in Alaska have opted out of. We don't want the federal government mandating to a local community or a business or a family how they can build and develop opportunities for more progress in an individual's life. We don't necessarily think that it's the right way to go is to allow the federal government to mandate more universal codes on how we'll develop.

BLITZER: How do you think President Obama's doing now in these early months as president? PALIN: I think he's growing government way too quickly, and he's digging that hole of debt for our country that we're going to pass on to our children and our grandchildren, expecting them to pay off debt for us. It's a selfish thing that we're doing right now if we think that is OK.

So, I do like some of the talk that he's giving Americans right now, though, about eventually here getting to the point of reining in spending and finding efficiencies within government. I encourage him to follow through on that. We have to follow through on that, because it is unfair to our kids and grandkids to expect that we grow government...

(CROSSTALK)

BLITZER: You think they'll be able to do it?

PALIN: Yes. He's got to be able to do it. He's promised that he would do it, that he would consider some of these actions and take action to slow down the growth of government.

Now, having said that, we have to recognize what's already happened. Trillions of dollars more in spending.

Trillion-dollar stimulus package, we don't have that money. We're borrowing it from China. So, you know, we become indebted to another country that essentially can control some of the things that go in our country because of that debt, that's a very scary place for America to be, for our economy and for our national security.

BLITZER: You recently said that -- and I want you to clarify what you meant -- you said that the Obama administration is trying to bail out some of the debt-ridden states so they can "control the people."

Explain what you meant by that.

PALIN: Here's -- sure. Here's what I said.

These stimulus package dollars, they're very enticing, and some states were made to look unethical or incompetent for not accepting all this debt-ridden, largess package of federal funds. And my belief has been, look what's happened in the private sector with these bailout funds.

Government was able to get in there and control some of those businesses then that had accepted those stimulus bailout dollars. What's to say the same thing won't happen with a state?

If a state has not made wise decisions, gotten itself in a heck of a lot of debt, and then they be enticed by federal dollars to come in and bail them out, who's to say that the same principle wouldn't apply to there, then? That government would be able to get in there and control some of the decisions that a state government is making? That's not a safe place to be.

Local control is the best form of government. The most responsive, responsible level of government is local government, not big, centralized federal government.

(END VIDEOTAPE)

BLITZER: All right. That was part one of the interview with Sarah Palin. Stand by. You're about to hear part two of this interview, and she's not holding back at all when it comes to David Letterman and his jokes about the Alaska governor's family, especially her daughter.

(BEGIN VIDEO CLIP)

PALIN: It does beyond, though, though, David Letterman's crude, sexist, perverted joke about a 14-year-old girl being "knocked up."

(END VIDEO CLIP)

BLITZER: All right. Stand by for part two of the interview.

Also, former president George H.W. Bush, he's taking a very big leap to celebrate birthday number 85. And he has HLN's own Robin Meade along with him.

And taking on North Korea. The U.S. Security Council says no more to nuclear tests -- no more nuclear tests. But will the rogue nation listen?

(COMMERCIAL BREAK)

BLITZER: You just heard the Alaska governor, Sarah Palin, blast President Obama for government spending. In part two of our interview that we conducted today, she's criticizing his foreign policy, his national security agenda as well, and she's also turning her attention to a late-night comedian.

(BEGIN VIDEOTAPE)

BLITZER: Let's move on to some other issues that are out there, including the president's speech in Cairo to the Muslim world.

What did you think of it?

PALIN: Well, I would certainly like our president to stand very, very strong and bold in his statements about our protection of Israel that so many of us believe in, and our strongest ally in the Middle East being Israel, deserve our protections. I would have liked to see a little bit more passion in that arena.

BLITZER: Are you suggesting he's not pro-Israel enough? Is that what I'm hearing?

PALIN: I'm sure he is pro-Israel. I would have liked to see more passion in the talk that he gave regarding our friends in Israel, our strongest ally, making sure that they know that we are here for them. We're going to stand by their side; we're going to help them.

BLITZER: You recently criticized him for showing weakness by having some Pentagon cuts in terms of missile defense that clearly affects Alaska.

Is the country safer now that Barack Obama is president of the United States?

PALIN: I think it's a sign of weakness to cut defense spending right now, especially when particular projects and services like missile defense systems. There in Alaska, we're strategically located where we could intercept a missile coming from North Korea. You see what Kim Jong-il is up to right now, having launched the six small missiles, and now deciding by about June 16th, he saying, to launch a large missile.

Alaska has the position and the equipment, it it's funded correctly, to intercept a missile, and to see, then, that there is talk of cutting that system. I think it's nonsense. I think it's a sign of weakness.

We need to be showing signs of strength with our national defense, especially when you consider, Wolf, our young men and women abroad fight for us and our safety, our security. We need to do all that we can with our military to show that we are strong on offense, not just defense.

BLITZER: In recent days, there's been a huge brouhaha over David Letterman's jokes involving your family and your daughter. He says he made a mistake. He says, yes, it was probably in bad taste, he shouldn't have done it.

Are you willing to forgive and forget?

PALIN: I will always forgive whomever is asking for forgiveness. It goes beyond, though, David Letterman's crude, sexist, perverted joke about a 14-year-old girl being "knocked up" by Alex Rodriguez. I think he's like 30-some years old. I think that that's, you know, pretty perverted.

But it goes beyond that. Not just that joke, but this insinuation that it's OK, it's acceptable to talk like that, and then that it's acceptable for the media to not provide the American public, the listeners, the readers, the full context of that joke.

Letterman says, now, hey, I wasn't talking about her 14-year old.

David, my 14-year-old was there with me at the game. She was the only one there with me. It wasn't my older daughter, who's in college and taking care of her young family. It was my 14-year-old.

So, for the American public to not be given the full context of what that joke was all about, I think that's quite unfortunate. And also, it is that sad commentary on what Americans are fed in terms of full news.

BLITZER: Because he says -- he now says he was talking about your 18- year-old daughter, not the 14-year old daughter.

PALIN: Yes, it's a weak, convenient excuse. No. And you know what? Regardless of which daughter it was, inappropriate.

I think it contributes to some low-self esteem of many of the young girls in the country. Very unfortunate.

I'm so glad to see women standing up and saying, enough is enough. Talk about a 14-year-old being -- statutory rape is what this is, because a 14-year-old would not consent to being "knocked up," by (AUDIO GAP) gentleman, in this (AUDIO GAP) A-Rod.

I think it's degrading. I think it contributes to so many problems. It's not unacceptable. And I'm very, very glad to hear you say that even David Letterman has recognized that it was inappropriate.

BLITZER: Yes. All right. Let's move on and talk a little bit about politics, a subject close to your heart.

2012, before there's 2012 there 2010. Are you definitely going to seek re-election?

PALIN: I'm not definitely going to do anything yet. What I'm trying to get done for Alaska right now is to get that Alaska gas line built.

We need those energy sources flowing through North America. That's what my focus is. That and raising my family, doing those good things that we need done up there in Alaska. That's my focus.

BLITZER: So, no decision yet on either 2010 or, let alone, 2012. Is that right?

PALIN: No decision that I'd want to announce today.

BLITZER: All right. Well, you'll let us know when you're ready to make that announcement. Is that right?

PALIN: I'll let you know, Wolf.

BLITZER: Hey, Governor, thanks very much for joining us. Good luck out there.

PALIN: Thank you so much. I appreciate you.

(END VIDEOTAPE)

BLITZER: I want to apologize for that satellite breakup that you saw at the end of that interview over there.

Also this note. We tried to reach out to David Letterman and his studio over at CBS to get their reaction to what Sarah Palin just said. So far, we have not received any reaction from David Letterman or CBS. We're continuing to get that. Of course, we welcome David Letterman if he'd like to join us here in THE SITUATION ROOM.

In Iran, meanwhile, will the president find that there's a new man in charge in Iran? What is going on over there? Will the same President Ahmadinejad remain in office, or will there be a challenger?

You're seeing that main challenger right now. Some are actually comparing him to President Obama.

What's going on? We're following the breaking news on the election. Christiane Amanpour is in Tehran. There are conflicting claims of victory right now.

And an American student caught up in a murder trial in Italy, she's speaking out. How does she explain where she was the night her roommate was murdered?

(COMMERCIAL BREAK)

BLITZER: Let's get to our "Strategy Session" right now and assess what we just heard from Sarah Palin, the Alaska governor.

Joining us, our CNN political contributors Democratic strategist Paul Begala and Republican strategist Mary Matalin.

What do you think of the way she's trying to handle her public image right now, Paul?

PAUL BEGALA, DEMOCRATIC STRATEGIST: Just terrible. Just awful.

The last three times we've heard from Sarah Palin, here's what we've heard. She's picking a fight with this poor guy Levi Johnston, who was involved with her daughter for a while. She was picking a fight with John McCain's campaign staffers, who she said we're not good enough Christians for her to pray with, sort of appalling to those of us who are Christians. And now she's picking a fight with David Letterman.

What she needs so do, if I could give her some free advice, is follow the example of Ronald Reagan. Ronald Reagan ran for president when his party was in the shambles, and he led. He took on Gerald Ford, he took on Henry Kissinger, he even picked a fight with Barry Goldwater on the Panama Canal. He took on big fights on big issues against the established order of his own party. That's how he became the leader of his party.

And if Governor Palin wants to lead her party, she needs to stand up and talk about big ideas that her party is getting wrong and how she can do a better job.

BLITZER: Mary, what do you think about the way she's handling her public image right now?

MARY MATALIN, REPUBLICAN STRATEGIST: Well, if she was going out of her way to pick fights, Paul would be right. But she's minding her own business and David Letterman does that creepy, creepy. I can't imagine what Paul or James or any of us with kids wouldn't do in that same situation. So, she's not out there looking to pick those kinds of fights.

And as we just heard in the interview with you, she is speaking to where the heart of the party is today and where it needs to go to the future -- in the future if it's to be successful again, which is fiscal responsibility, return power to the states, the closest and best and most responsible form of government. And I thought she was very articulate and did shine quite brightly on the energy issue, which is going to be with us for a long time to come.

I think she's -- when she gets to go to substance, she's fine. If she gets pushed into these other places, she's got to pick and choose her battles.

BLITZER: And she's doing more and more television right now. She was with Sean Hannity on Fox earlier in the week, with Matt Lauer on "The Today Show" this morning, here in THE SITUATION ROOM with me today, as well. She was laying low, I think, over these past several months, but now she's beginning to come out and try to establish herself as a national figure once again.

BEGALA: But Wolf, again, more as a tabloid figure. Mary, I just disagree.

She has been looking for these fights like with this poor guy Mr. Johnston and with these McCain staffers, now with David Letterman. And she is feeding the tabloid fodder instead of presenting herself as a serious person.

She had plainly not read President Obama's speech in Cairo when you asked her about it. It was like her eyes looked like bar, apple, lemon on a slot machine. She had no idea what you were talking about.

And again, I'm not saying this as a partisan. When Bill Clinton wanted to take over the Democratic Party, he stood up and said his party was wrong on crime, on welfare, on trade, on Sister Souljah. He picked big fights with the power structure of his own party.

That's what Barack Obama did. He knocked the Clintons out, the power structure of his party at the time. Ronald Reagan did that.

This is the path to leadership in her party.

BLITZER: Well, Mary, as you know, there were a lot of critics out there who thought, like Sarah Palin, that the president wasn't supportive of Israel enough in that speech in Cairo. She wasn't saying anything all that extraordinary.

MATALIN: No. And he hasn't been, and in his speech where he said we shouldn't dictate policy or values to any other countries bullying Israel -- and at the end of the day he's going to have to come back and clean all of that up -- she said the right thing there.

But Paul cannot -- we cannot compare this current situation with the glory days of Clinton or any of those older campaigns where the media was not what it is today. There is a 24/7 media culture today.

When Paul and I worked against each other in that race where Clinton gave three major speeches not way late in the cycle, there were three networks and you, Wolf. That was all that there was. You didn't get parsed the way she's being parsed. She is not seeking to pick these fights.

Furthermore, relative to the 2012 race, having early national press is neither a strategic nor a tactical imperative right now. You have to do that groundwork, go to the right states. We're nowhere near there. And, you know, being a front-runner at this point in time is often not the best place to be.

BLITZER: Paul, as you know, the Israeli prime minister, Benjamin Netanyahu, on Sunday is going to deliver his major speech on the peace process. In effect, responding to President Obama.

And here's the question to you as someone who's watched this story very loosely for a long time. President Obama and Prime Minister Netanyahu, are they on a collision course?

BEGALA: Well, there's going to be friction. You know, rubbing is racing, as they say in NASCAR.

But from all accounts, when the prime minister was here he and the president had a good meeting. I was working in the White House the last time Prime Minister Netanyahu was the prime minister, and there was a good bit of friction in the relationship then. But at the end of the day, President Obama had it right in Cairo, and he could not have been more strong and powerful in his defense and support of Israel in an Arab capital when he said our bond with Israel is unbreakable. And then he excoriated those liars who say that the Holocaust did not happen the way Ahmadinejad in Iran does.

So, I think that it's going to come out fine in end. The question is, how does Netanyahu take care of his own domestic politics? Can he do what President Obama wants on settlement without losing Lieberman, his now foreign minister, the very conservative wing of his coalition, which won't broker -- I don't think they will broker any restrictions on even so-called natural growth settlements.

BLITZER: He's talking about...

BEGALA: That's the hardest thing, is the Netanyahu/Lieberman relationship, not the Netanyahu/Obama relationship.

BLITZER: ... Avigdor Lieberman.

Mary, he's talking about the foreign minister of Israel.

BEGALA: Right. Not Joe.

BLITZER: Not Joe Lieberman, the senator, Independent senator from Connecticut.

But go ahead and respond there.

MATALIN: Right. Paul's right in that those were the right and good things, and Obama did say them well relative to the other things he said about Israel. But the push here on the settlements with no exchange for an absolute ironclad, which nothing in the region is, and since 15 years since Oslo -- and as someone said, the Palestinians never missed an opportunity to miss an opportunity. But without some clear demilitarized Palestine, without air control, without guaranteed IDF positioning on the southern and eastern borders, all of those things that would absolutely ensure a kind of security for Israel, then there's really no two-state solution to talk about.

BLITZER: I suspect we're going to hear a lot of that on Sunday when Prime Minister Netanyahu speaks and gives his big speech. We'll have extensive coverage here on CNN.

Guys, thanks very much for coming in.

BEGALA: Thanks, Wolf.

See you, Mary.

BLITZER: Uncle Sam wants to take your gas off of your hands. In return, you get help toward a new car. What exactly is going on? Is there a catch?

Stand by. We're watching that story.

Plus, cracking down right now on one of the more reclusive nations in the world. That would be North Korea. The United Nations slapping on more sanctions. Will Pyongyang defy the world and carry out yet another nuclear test and repeat performance?

The former president of the United States, George H.W. Bush, 85 years old -- look at him. He's landed. And CNN's Robin Meade is there with him.

Stand by. We'll have extensive coverage. We'll speak to her. She interviewed the former president today.

(COMMERCIAL BREAK)