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THE SITUATION ROOM

Devastating Attack in Baghdad; Islamic Militants in Gaza Take Hostages

Aired June 25, 2007 - 17:00   ET

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


WOLF BLITZER, HOST: To our viewers, you're in the in THE SITUATION ROOM.
Happening now, a devastating attack in the heart of Baghdad. The target -- a major hotel housing Westerners. With U.S. troops on the offensive, is this Al Qaeda's answer?

Islamic militants in Gaza show off their hostages. A desperate plea from a kidnapped Israeli soldier and an urgent warning from a kidnapped British correspondent forced to wear an explosive vest.

Also, it has to be one of the most bizarre lawsuits ever. At stake, $54 million and a pair of pants. Now the judge decides.

I'm Wolf Blitzer.

You're in the in THE SITUATION ROOM.

As beefed up U.S. forces pursue insurgents outside of Baghdad, a shattering attack in the Iraqi capital today killed at least a dozen people, including a number of tribal leaders. The attack on a popular political meeting place sends a strong signal to U.S. and Iraqi authorities.

Joining us now in Baghdad, our correspondent, Michael Ware -- Michael, another horrific bombing today at the Mansour Hotel, right in the heart of Baghdad, just outside of the international zone.

Set the scene for us. Give us some perspective of what happened.

MICHAEL WARE, CNN CORRESPONDENT: Yes.

Well, Wolf, I've just returned from the scene of that blast a few hours ago and it is shocking. I mean it doesn't matter how many of these suicide bombings you either witness or see in their aftermath, they're never an easy thing to watch or to look at.

What we have is the Mansour Hotel in the center of the capital of Baghdad itself, just a few hundred yards from the Green Zone and the U.S. Embassy. A number of organizations stay in this hotel, including the Chinese embassy, some Western organizations. We also have a number of Iraqi politicians who reside in this hotel, notably, some politicians who have recently verbalized their opposition to the Maliki government. However, it's also a place where people meet. We know that Prime Minister Nouri al-Maliki has been conducting a broad program of national reconciliation at the behest of the U.S. mission. Some of those meetings take place at this hotel. Indeed, a very small one of these meetings was happening when the bomb went off.

Right now, one would suggest that the target of this explosion in the lobby of this hotel was a number of tribal sheikhs who had met with a government representative to express their support for the Maliki government.

As it stands on its face right now, there's no claim of responsibility. But the M.O. -- the method -- is clearly that of Al Qaeda. Until we hear otherwise, the finger certainly points towards that organization.

BLITZER: And it underscores the nature of the violence and the danger in Baghdad, despite the recent increase in the number of U.S. troops patrolling the streets.

WARE: Absolutely, Wolf.

I mean this city has been flooded or surged with as many as 30,000 additional U.S. combat troops, within the city itself and fanning out to its surrounds -- the places from whence the bombs come, the farmlands where the bombs are put together, where the training takes place. So we're seeing a lot of intense U.S. activity, but the violence continues unabated.

Now, American war planners, from General David Petraeus, the American commander in charge of the war, onwards, have all said don't expect miracles. This surge is going to take time, if, indeed, it works at all.

So it's not surprising to see that the car bombs, particularly, continue. The deadly roadside bombs, EFPs, those which U.S. intelligence claims come from Iran, are on the upsurge. We're seeing America's enemies and the enemies of this government surge themselves, to use the words of an American general.

BLITZER: Michael Ware reporting for us from Baghdad.

Michael, be careful over there.

Thanks very much.

WARE: Thank you, Wolf.

BLITZER: Has the has the U.S. Supreme Court taken a swing to the right?

Some close and controversial rulings may offer an answer.

Let's go to CNN's Brian Todd. He's outside the Supreme Court here in Washington -- Brian, what's the latest? BRIAN TODD, CNN CORRESPONDENT: Well, Wolf, analysts believe the opinions handed down today could be another signal that last year's honeymoon after the arrival of two new justices is just about over.

(BEGIN VIDEO TAPE)

TODD (voice-over): Three contentious decisions and a window into an increasingly fractious bench. The Supreme Court rules a student's free speech rights were not violated when he was suspended for unfurling a "Bong Hits For Jesus" sign outside school grounds. But the justices uphold a free speech clause for sponsors of so-called issues ads that run just before elections. And they ruled taxpayers cannot challenge the legality of the Bush administration's Office of Faith- Based Initiatives.

Two of these decisions are 5-4 votes and we've seen that razor thin margin now in 20 of the court's 67 rulings so far this term.

TOM GOLDSTEIN, SUPREME COURT LEGAL ANALYST: Lines between the two sides are more sharply drawn now than ever before, with conservatives prevailing in the great majority of really important and monumental decisions.

TODD: Analysts say the replacement of moderate conservative Sandra Day O'Connor with stronger conservative Samuel Alito sharpened the ideological divide. The key swing vote now, Justice Anthony Kennedy, who sides more often with the conservative wing.

STEVEN GOLDBLATT, GEORGETOWN UNIVERSITY LAW CENTER: I think that -- that any litigator before the court is going to be thinking about well what -- what argument would resonate with Justice Kennedy, what opinions has he written earlier that -- that have relevance here.

TODD: More often recently, close votes have provoked a rarity on this bench, the losing side reading their dissents out loud. Analysts say that's a sign of frustration.

In this atmosphere, the next retirement, likely of liberal 87- year-old John Paul Stephens, weighs heavily, analysts say, with 2007 looming.

GOLDSTEIN: The stakes in the next presidential election are actually huge because the only likely retirees at the Supreme Court are on the left. So a Republican president could really swing the Supreme Court in a very significantly conservative direction or a Democratic president could hold the line against further movement to the right.

(END VIDEO TAPE)

TODD: In the meantime, expect more close rulings, like later this week when the court is expected to decide whether public school admissions can be weighed -- and race can be weighed in public school admissions. One analyst told me he would be shocked if that's not another 5-4 decision -- Wolf.

BLITZER: Brian, a lot of people are watching this court on the issue of abortion rights, "Roe v. Wade."

What are experts telling you about this court and this issue?

TODD: Well, the "Roe v. Wade" is really supposed to be the political end game for this court. But what analysts say is that the conservative base of the court really favors limiting "Roe" little by little until it has no choice but to overrule it completely.

Now, of course, that's going to depend on the next presidential cycle. They may not get to an abortion related case for two more years. So the presidential cycle is critical now and Justice John Paul Stephens, as we pointed out, 87 years old, he is a left-leaning judge. He may retire soon or he may not. No word there.

But the next presidential cycle clearly important for this court. And by that time, by the time "Roe v. Wade" is ruled upon, the makeup may have swung one way or the other.

BLITZER: Brian Todd over at the Supreme Court.

Thanks, Brian, for that.

Here's an important note for all of you who are interested in presidential campaign calendars. CNN will bring you the final Republican presidential debate before one of the biggest days of the primary season. It's called Super Tuesday, the Ronald Reagan Presidential Library Foundation announced today it will host that debate on Wednesday, January 30th in California. CNN, "The Los Angeles Times," Politico.com, we're all partners in this forum. The former first lady, Nancy Reagan, is now extending invitations to the leading candidates in the GOP race. That's coming up in January.

Coming up right now, Jack Cafferty and The Cafferty File -- Jack.

JACK CAFFERTY, THE CAFFERTY FILE: Wolf, while the U.S. Congress wastes time debating immigration reform that is unlikely to go anywhere and the federal government doesn't bother to enforce the laws against illegal immigration that are already on our books, the states have been getting very busy.

"The Washington Post" reports state lawmakers had submitted at least 1,100 immigration bills across the country by the time most legislatures adjourned last month -- 1,100. That's more than double last year, and last year was a record. And the number is expected to keep growing.

The laws range from making it tougher for illegal aliens to get jobs, housing, driver's licenses or other government services, to giving state law enforcement agencies the power to question and detain for deportation immigrants who are in this country illegally.

So far, at least 18 states have enacted laws that deal with illegal aliens. That means more than one third of the states have grown tired of the federal government doing nothing.

One North Carolina state legislator put it this way: "The view here in the hinterland is that Washington has abrogated its responsibility to deal with this issue."

So here's our question -- what does it mean if state lawmakers submitted more than a thousand immigration bills in this past year?

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

BLITZER: Jack, thanks very much.

Make or break week this week on immigration reform in the U.S. Senate.

Coming up, a family torn apart in Ohio.

(BEGIN VIDEO CLIP)

PATTY PORTER, JESSIE DAVIS' MOTHER: We prayed that it was not him. That's my grandson's father.

(END VIDEO CLIP)

BLITZER: Bond is set for a policeman charged with the death of his pregnant girlfriend. We're on the scene in Canton, Ohio.

Just who does Vice President Dick Cheney actually work for?

There are new legal questions about his job spawned by Dick Cheney himself.

And was the air at Ground Zero safe to breathe?

A former official takes heat over lingering health concerns.

Could a presidential candidate now also face the fallout?

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: A storm of controversy is building over Vice President Dick Cheney's role in the federal government.

Our White house correspondent, Ed Henry, is watching this story for us.

Let's go to Ed right now -- Ed, the vice president says he's not necessarily bound by the executive branch of the government because he's also president of the U.S. Senate.

Give our viewers a sense how this is playing out.

ED HENRY, CNN CONGRESSIONAL CORRESPONDENT: Well, it's interesting, Wolf. I remember as a kid watching "Schoolhouse Rock" and learning that the vice president was a member of the executive branch. Clearly, Mr. Cheney disagrees. And while Dana Perino today insisted repeatedly she does not want to opine on this subject, under a barrage of questions from reporters, she ended up weighing in on behalf of the vice president.

(BEGIN VIDEO TAPE)

HENRY (voice-over): Vice President Cheney got a new vote of confidence from the White House over his claim he's not a member of the executive branch. White House Spokeswoman Dana Perino seemed to embrace Cheney's unique legal argument by noting the vice president's paycheck comes from his service as president of the Senate.

DANA PERINO, DEPUTY WHITE HOUSE PRESS SECRETARY: I think for the past -- for the past two centuries the Senate has provided payment to the vice president for his duties as a member of the government. I understand that they -- he has roles in both branches.

HENRY: A shift from last week, when Perino said it didn't matter, because the president had never intended for the vice president to comply with an executive order regulating the handling of classified information.

Democrat Rahm Emanuel is now threatening to block taxpayer funding for the vice president's official residence and office until Cheney clarifies which branch of government he's in.

QUESTION: You just know that...

PERINO: I'm just -- what I...

QUESTION: ... he gets his paycheck...

PERINO: ... the reason I noted that is because I'm trying to illustrate the point that he has roles in both -- in both of -- the legislature and in the executive branch.

HENRY: The controversy comes amid a four part series on Cheney in "The Washington Post," including the revelation that the vice president had kept then Secretary of State Colin Powell and National Security Adviser Condoleezza Rice out of the loop for two years on a memo outlining the administration's definition of torture in the handling of terror detainees.

PERINO: People have strongly held views and they voice them and they voice them loudly. And I am very comfortable with the process that we have in terms of how those debates get settled.

(BEGIN VIDEO CLIP)

HENRY: But how can you say it's a vigorous debate if the secretary of state and the national security adviser were not involved in the debate for two years?

PERINO: I'm not commenting on...

HENRY: Two years.

PERINO: Ed, I'm not commenting on that either way.

(END VIDEO CLIP)

(END VIDEO TAPE)

HENRY: Now, as for the broad thrust of "The Washington Post" series alleging that the vice president has been pushing the envelope on the war on terror, Perino noted the country has not been attacked since 9/11. Critics may charge that suggest the ends justifies the means, that maybe the administration had tortured detainees, terror suspects. But Perino again insisted the administration does not torture anyone and said: "All that we have undertaken has been lawful" -- Wolf.

BLITZER: Why doesn't the president simply revise that executive order that says everyone in the executive branch of the government must be obliged to protect classified information for the National Archives to exclude the vice president and end it like that?

The president has that authority if he wants to do it.

HENRY: He does. The White House basically says, look, he never intended for the vice president to follow it anyway, so that's why he doesn't have to change it. But it certainly raises a question, when you think back to the beginning, the first two years of the administration, the vice president did follow, essentially, the thrust of that executive order, and complied in terms of the records -- Wolf.

BLITZER: I suspect this story is not going away.

HENRY: That's right.

BLITZER: Thanks very much, Ed, for that.

Carol Costello is on assignment in Canton, Ohio.

Betty Nguyen is monitoring other stories incoming into THE SITUATION ROOM right now -- hi, Betty.

BETTY NGUYEN, CNN ANCHOR: Hi there, Wolf.

The big assault from air and ground is underway in California against the devastating Angora Fire, which is south of Lake Tahoe. And so far, the wildfire has scorched nearly 2,500 acres. Just look at this. It's also destroyed at least 240 homes and other buildings. Now, the state has declared a state of emergency for El Dorado County earlier today. The firefighting force has doubled, to 800. No injuries from the fire are reported so far.

Well, no one is reported hurt, but that doesn't make a three alarm warehouse fire in Dallas, Texas any less imposing. A thick column of black smoke rose from the empty building, which caught fire during a demolition. A crane operator is quoted as saying a spark from two metal beams touched off some of the trash on the warehouse floor.

And the International Atomic Energy Agency say it has been invited to Iran. The IAEA says it will send a team to Tehran to work on a plan to clear up global suspicions about the country's nuclear intentions. And a State Department expressed skepticism that the discussions would produce positive results. Iran is under threat of U.N. sanctions for refusing to freeze its nuclear enrichment program -- Wolf.

BLITZER: All right, Betty, thanks for that.

We'll get back with you shortly.

Witnesses of that still raging wildfire in Lake Tahoe, California are sending their images from the ground into CNN.

Let's go to our Internet reporter, Jacki Schechner.

What are we seeing from Lake Tahoe -- Jacki?

JACKI SCHECHNER, CNN INTERNET REPORTER: Wolf, we're seeing very similar images from many of our I-Reporters.

We're going to start off with Trevor Edwards, who is in the South Lake Tahoe area. This came in about 3:00 p.m. Pacific time. He was about three or four miles away at the time. About 50 houses were in trouble at the time. And he says his was OK. We know now it's closer to 240 structures.

This one from Justin Berg, our I-Reporter from New York, who was actually driving from San Francisco to Tahoe and saw the fire.

Another image from Ken Gerzel, I-Reporter in Carson City, Nevada. He says fire engines responding from Carson City, Reno, Truckee and Auburn.

Also, compelling photos being posted online on the group photo blog flickr.com.

This is Virginia Etuine (ph) and her fiance, Daryn (ph), who were camping in the area. They started to evacuate with the crowds. These are images they took on Highway 89 as they left the Tahoe area. She said you could see them dropping water from the lake as they were leaving -- Wolf.

Of course, if you want to send us an I-Report, please do so -- cnn.com/ireport or send it from your cell phone, ireport@cnn.com -- Wolf.

BLITZER: Thanks, Jacki, for that.

Coming up, was the air at Ground Zero safe to breathe?

Tough questioning today of the former EPA administrator on Capitol Hill.

Could a presidential candidate also face some fallout?

He was grabbed by Hamas gunmen in a cross border raid a year ago today. Now, there's a desperate plea from a kidnapped Israeli soldier.

Stay with us.

You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: She was criticized after the 9/11 attacks for saying that the air around Ground Zero was safe to breathe.

Nearly six years later, tempers haven't cooled. At a hearing today on post-9/11 health problems, the former EPA administrator, Christine Todd Whitman, once again was in the hot seat.

Could former New York Mayor Rudolph Giuliani, though, also feel some of the fallout?

Let's go to CNN's Mary Snow.

She's in New York watching this story -- Mary, what happened at today's hearing?

MARY SNOW, CNN CORRESPONDENT: Wolf, it just wrapped up a short time ago. The former head of the EPA testified before a House hearing on air quality issues at Green Zone following 9/11.

And with the spotlight on her, it's also forcing attention on Rudolph Giuliani.

(BEGIN VIDEO TAPE)

SNOW (voice-over): Christine Todd Whitman on the defense.

CHRISTINE TODD WHITMAN, FORMER EPA ADMINISTRATOR: I have been called a liar...

UNIDENTIFIED MALE: I'm -- no. I'm not calling you...

WHITMAN: I have been called a liar even in this room today.

UNIDENTIFIED MALE: Governor, I'm not...

WHITMAN: And my actions might have been criminal...

UNIDENTIFIED MALE: ... I'm not calling you...

SNOW (voice-over): With a growing number of Ground Zero workers getting sick after inhaling the toxic cloud that enveloped the area following the fall of the World Trade Center, some blame her for their exposure to it, scrutinizing Whitman's statements about the air quality.

Here was Whitman, September 13th, 2001. WHITMAN: But from a real health problem, health concerns, we don't have to worry.

SNOW: On September 18th, Whitman released a statement saying: "I am glad to reassure the people of New York and Washington, D.C. That their air is safe to breath."

Asked if she was premature in making those statements...

WHITMAN: You have to understand that these were not whims. These were not decisions by a politician. Everything I said was based on what I was hearing from professionals. My son was in Building Seven on that day, Congressman...

UNIDENTIFIED MALE: And, Governor, what...

WHITMAN: ... and I almost lost him.

UNIDENTIFIED MALE: Governor...

SNOW: The testimony not only turned personal, but it also turned political, taking aim at former New York City Mayor Rudy Giuliani, who has largely built his Republican presidential campaign on his handling of the 9/11 attacks.

In an interview with WNBC TV, Whitman suggested that the EPA's hands were tied, forcing Green Zone workers to all wear respirators, suggesting that the buck stopped with city representatives on site.

The Giuliani camp fired back, saying no one from the city tried to block the EPA adding, "Administrator Whitman never voiced any of these concerns at the time. Doing so now is revisionist, at best."

Whitman said at today's hearing she is not blaming the former mayor, but added...

WHITMAN: We conveyed the information about the importance of wearing protective gear on a regular basis to those who had the most direct oversight of the responders on the pile.

(END VIDEO TAPE)

SNOW: Now, the pile refers to the area right at Ground Zero, where workers sifted through smoldering rubble for months. The issue is so emotionally charged that dozens of New Yorkers went to Capitol Hill today to demonstrate, demanding someone take responsibility for the thousands of people reporting illnesses -- Wolf.

BLITZER: Mary Snow watching this important story for us.

Thanks, Mary.

The World Trade Center Health Registry tracks information from more than 70,000 people affected by the 9/11 attacks in New York. More than half lived or worked in the area or participated in rescue and clean up efforts. The most common physical health issues related to the attacks are respiratory, with more than half of building survivors reporting new or worsening respiratory problems. And psychological problems are prevalent, as well. More than two thirds of survivors witnessed three or more traumatic events, such as people jumping from the towers.

Coming up, crushing loss and the prospect of justice -- the legal journey begins for those accused in the deaths of an Ohio mother and her unborn child.

And from the truly tragic to the truly absurd, there's a new wrinkle today in a multi-million dollar lawsuit over a pair of pants. There has been a decision. We'll tell you what's going on.

Stay with us.

You're in the in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: And to our viewers, you're in the in THE SITUATION ROOM.

Happening now, the Senate facing another critical vote on immigration reform.

Will a reform plan move forward or will it die?

There's a new CNN poll that shows less than a third of Americans support the president's immigration plan.

Will the Senate follow the numbers?

We're watching this story closely.

Secretary of State Condoleezza Rice says the world must keep up the pressure on Sudan to let peacekeepers into Darfur. More than 200,000 people have died there since 2003. Rice says the world can't waste any more time.

And the World Bank has a new president. The institution's board today approved the nomination of Robert Zoellick to the post. Zoellick has been vice chairman over at Goldman Sachs. He was a deputy Treasury secretary in the Reagan administration. His -- he will take office next Sunday.

I'm Wolf Blitzer.

You're in the in THE SITUATION ROOM.

The police officer accused of killing a pregnant Ohio woman and the woman accused of obstructing justice in the case have begun their journey through the legal system. This after the bodies of Jessie Davis and her unborn child were found over the weekend.

Let's go to CNN's Carol Costello.

She's gone back to her hometown of Canton, Ohio to watch this story unfold.

Such a sad story. I'm sure the people in Canton, people all over the country, are very, very upset by what has happened.

CAROL COSTELLO, CNN CORRESPONDENT: Oh, but especially here, Wolf.

You know, I did grow up in this town. At the top of the hour, the church bells rang out in downtown Canton, just as they always have, but against an unusual backdrop.

Bobby Cutts, the man accused in this case, has now been suspended from his job as Canton City police officer. Disciplinary action may follow. But that is the least of his problems.

(BEGIN VIDEOTAPE)

COSTELLO: Canton police officer Bobby Cutts and his high school friend Myisha Ferrell walked in shackles into the Canton Municipal Court. Police say Cutts murdered Jessie Davis and her unborn child. Ferrell is charged with obstruction of justice.

UNIDENTIFIED MALE: Mr. Cutts is charged with two counts of murder.

COSTELLO: Inside the courtroom, Cutts stood quietly as bond was set at $5 million. Davis's mother stood through the proceedings and looked Cutts right in the eye.

QUESTION: Did you want Bobby to see you?

PATRICIA PORTER, JESSIE DAVIS' MOTHER: Absolutely I wanted him to see me.

QUESTION: And did he look at you?

PORTER: Yes, he did. I believe my whole life has prepared me for this moment and I'm not sitting down when I see Bobby Cutts. You know, we've heard things about our daughter that are just so not her. People who know her know what a wonderful person that she was.

QUESTION: Did your client murder Jessie Davis?

BRADLEY IAMS, BOBBY CUTTS' ATTORNEY: I'm not going to talk about the evidence.

COSTELLO: For the thousands who volunteered to search for Davis' body, it's time for swift justice. One of Cutts' old girlfriends appeared on "The Today Show" alleging Cutts had mistreated her.

UNIDENTIFIED FEMALE: He have continuously harassed and stalked me, threatened me, physically abused me and verbally abused me.

COSTELLO: Nikki Giovasis (ph) she says she dated Cutts before he became involved with Davis. They parted bitterly after Giovasis gave birth to his child and she filed charges to gain sole custody. Cutts fought back, accusing Giovasis of dragging the child from state to state, also allowed their child to witness her being abused by her boyfriends. None of that matters now.

The judge ordered an end to the custody battle after Cutts was charged with murder. For some who live near Cutts, allegations about his personal life are damning. But his father urged neighbors to pray for my family, pray for Jessie's family, pray for everyone involved. Jean Marie Campbell took that to heart, offering to mow Cutts' lawn.

JEAN MARIE CAMPBELL, BOBBY CUTTS NEIGHBOR: This is only about extending a drop of grace to some people who others would shun.

COSTELLO: It's something Cutts' father says his son sorely needs.

(END VIDEOTAPE)

COSTELLO: Wolf, both of these suspects will be back in court within 28 days. Both remain behind bars right now.

BLITZER: Well, you mentioned at the top, Carol, this is your hometown, Canton, Ohio. Give us a little sense of how this tragedy has impacted on the community.

COSTELLO: You know, I think literally everybody is talking about it, Wolf. When they asked for volunteers to search for Jessie Davis' body, 1,800 people showed up in one day. People are very involved in this case, and they care very deeply about the Davis family. In fact, one of those volunteers who showed up to search for Jessie's body gave one of the Davis family members his wedding rings, just in case they needed some money. He said, sell them. We're older, we don't need them. I mean, that's how much the community has put its arms around the Davis family.

BLITZER: Goes without saying, our deepest condolences to the Davis family. Carol, thanks for doing some good reporting for us from Canton, Ohio.

He was grabbed by gunmen who crossed into Israel and brought him back to Gaza. Now we hear a desperate plea from a kidnapped Israeli soldier and demands from Hamas. CNN's Paula Hancocks is in Jerusalem.

(BEGIN VIDEOTAPE)

PAULA HANCOCKS, CNN CORRESPONDENT (voice-over): This is the first tangible evidence that Gilad Shalit is still alive. One year to the day after he was kidnapped in a cross-border raid, Hamas releases this audio statement.

GILAD SHALIT, CAPTURED ISRAELI SOLDIER (through translator): I send my regards to all of you from jail and I miss you. An entire year has passed for me in jail and still my health is deteriorating and I need extensive hospitalization.

HANCOCKS: Shalit's father says it certainly sounds like his son. In the taping, Shalit echoes the words of Hamas officials, calling for a mass prisoner swap to secure his release.

SHALIT (through translator): Just as I have parents, a mother and a father, the thousands of Palestinian detainees also have mothers and fathers who must have their sons returned.

HANCOCKS: Those negotiations have folded recently. Hamas now controls Gaza and clearly holds Shalit, but Israel has publicly refused to talk to Hamas.

MIRI EISEN, ISRAELI GOVT. SPOKESWOMAN: We've always stated clearly that we don't negotiate directly with terrorists but we do it through mediators. That will continue. The unconditional release of Gilad Shalit is for us one of the basic moral issues within our society.

OSAMA AL-MUZANI, SENIOR HAMAS OFFICIAL (through translator): We've been flexible in every possible way when it comes to a swap deal, but the Israeli side was too weak to make a decision. The ball is now in the Israeli courts.

HANCOCKS: But with this audio release, Hamas is trying to show to its own people that it has leverage over Israel.

UNIDENTIFIED FEMALE: They would like to show that they can deliver to the street and to make the moral higher there if Israel release the security prisoners.

(END VIDEOTAPE)

HANCOCKS: The audio release comes as Hamas' main rival, Palestinian President Mahmoud Abbas, arrived in Egypt for talks with Israel, talks which Hamas was not invited to. But even as Israel insists it will isolate Hamas, Hamas today proves that it cannot be ignored -- Wolf.

BLITZER: Paula, thanks very much. Paula watching the story in Jerusalem. The tape of Gilad Shalit was released just hours after the kidnappers of BBC correspondent Alan Johnston issued a new video of their hostage.

Watch this.

(BEGIN VIDEO CLIP)

ALAN JOHNSTON, KIDNAPPED BBC CORRESPONDENT: Captors tell me that very promising negotiations were ruined when the Hamas movement and the British government decided to press for a military solution to this kidnapping. And the situation is now very serious.

(END VIDEO CLIP)

BLITZER: Johnston wears what appears to be an explosive vest around him and warns that his captors will turn their hideout into, "a death zone" if a rescue attempt were made. The veteran journalist was kidnapped back on March 12th by a group calling itself the Army of Islam. Still ahead, U.S. troops are on the march in Iraq. Can their Iraqi counterparts capitalize on the battles won against insurgents? Our Jamie McIntyre is standing by to take a closer look. That's coming up next.

Also, the case of the $54 million pair of pants, it's over now. Was justice done? You be the judge. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Tonight 7:00 p.m. Eastern, the issue that divides. Immigration reform headed to the Senate floor. Could it rip apart the GOP? Tonight in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: In Iraq, U.S. troops are on the offensive and scoring some successes against al Qaeda and other insurgents. But will Iraqi forces be able to hold onto those hard-won gains? Let's go live to our senior Pentagon correspondent Jamie McIntyre.

Jamie, your bottom line question is, are these Iraqi troops ready to take charge?

JAMIE MCINTYRE, CNN SENIOR PENTAGON CORRESPONDENT: Well, Wolf, you know the entire U.S. strategy hinges on what is increasingly looking like a somewhat questionable premise, that Iraqi troops are going to be able to keep al Qaeda from coming back to places like Diyala province.

(voice-over): It was just a year ago Diyala was turned over to some of Iraq's best army brigades, only to have the province become an al Qaeda stronghold.

BRIG. GEN. DANA PITTARD, CMDR., IRAQ ASSISTANCE GROUP: Clearly the 5th Iraqi Army Division wasn't ready for many reasons.

MCINTYRE: Brigadier General Dana Pittard is leaving Iraq after a stint in charge of training Iraqi forces. His pointed warning, while improving, they are not ready yet, especially in Diyala province.

PITTARD: Do not draw down too quickly when we think there is a glimmer of success.

MCINTYRE: That theme was echoed over the weekend by front line commanders who, while heaping praise on Iraqi forces that are fighting, say they are still too green and far too few in number.

MAJ. GEN. RICK LYNCH, U.S. ARMY: But there's not enough of them. There's not enough of them.

MCINTYRE: Major General Rick Lynch commands troops south of Baghdad, and his counterpart to the north, Brigadier General Mick Bednarek, over the weekend told the Associated Press Iraqi troops are not quite up to the job yet. But in his latest briefing with reporters, Bednarek insisted he thinks Iraqis will come through in the end.

BRIG. GEN. MICK BEDNAREK, U.S. ARMY: The Iraqi Army soldiers are good. They are holding firm. They're in the fight. They're doing what they're told. They're following their leaders.

MCINTYRE: General Pittard says Diyala's capital of Baquba, where he once commanded a brigade, offers a sober lesson on what happens if the U.S. is too anxious to leave.

PITTARD: I nearly shed a tear when I saw Baquba today, that the markets aren't up. The projects that we had spent so much time on together with the Iraqi government are now in many places in shambles.

(END VIDEOTAPE)

MCINTYRE: This is the time when U.S. troops may be able to turn over significant portions to the Iraqi forces and start coming home. But what these commanders seem to be telling us is that even that may be too optimistic -- Wolf.

BLITZER: Jamie, thanks very much.

U.S. troops may be pushing the insurgents hard right now outside of Baghdad, but as we told you at the top of this hour, there was a very bloody and bold attack in the heart of the Iraqi capital today. Was today's bombing of a major Baghdad hotel a message from al Qaeda? Joining us now to discuss this and more, our world affairs analyst, the former defense secretary, William Cohen. He's chairman and CEO of the Cohen Group here in Washington.

The fact that they could get into the lobby of this major hotel where there's a lot of Western organizations, where there's the Chinese embassy, if you will, go up into the reception area, blow themselves up, kill a whole bunch of people, knowing that there are tribal leaders inside meeting with government officials, says what to you?

WILLIAM COHEN, CNN WORLD AFFAIRS ANALYST: Well, it says that either that there was an inside job, so to speak, that the people who were on the desk or those who were letting them through were under some kind of instruction to let them through...

BLITZER: Because we're told there were layers and layers of security.

COHEN: Exactly. Or they're simply not doing a competent job in imposing the layers and layers of security. But I think at this point it's very clear that this movement, whether it's al Qaeda or some other part of the insurgency itself, has access to the most guarded of our facilities.

BLITZER: you heard Jamie, and it's pretty depressing to think the U.S. uses an enormous amount of manpower to go into the Diyala province or the al Anbar province and clean out an area and then they hand it over to the Iraqis but the Iraqis can't continue to sustain that and the place falls apart, and in the process, U.S. troops are dying.

COHEN: This is another issue that's coming up for consideration by the Congress. Congress has now created an independent commission, so to speak, headed up by CSIS, the Center for Strategic International Studies, and they're going to ask for an independent assessment as to the quality and capabilities of the Iraqi forces.

When you look at that, if a report comes back that they are getting more capable, then the pressure will be on to say, time to move the Americans out. If it looks as if they're not capable, there will be pressure on to move the Americans out. So this is something that we're going to have to come to grips with.

The clock is ticking on this but the administration would like to extend that time frame as much as possible. We're looking at it day by day. In fact, the administration and military commanders on the ground want to look at the much longer scope of things.

BLITZER: Let's go a little elsewhere in the Middle East, to Sharm el-Sheikh in Egypt right now where today there was a summit, the leaders of Jordan, and Egypt, and Israel, and the Palestinian Authority, President Mahmoud Abbas, they met. Hamas is being boycotted, if you will. Is that a smart strategy given the fact that Hamas now controls all of Gaza and 1.5 million Palestinians?

COHEN: It depends what happens with Fatah at this particular point. As everyone has recognized, Fatah doesn't have a record of being honest and open and candid and clean.

BLITZER: And that's the major political party of Mahmoud Abbas, the Palestinian Authority president.

COHEN: It has a reputation of being corrupt. And as a result of that, they have lost the hearts and minds of many of the Palestinian people, which is one reason why Hamas was so successful in the elections that stunned everybody.

So if it's going to be successful and this -- now this recognition of Fatah as the need to help Mahmoud Abbas, to empower him, to start showing the Palestinian people a new way of opportunity for them, and isolate Hamas, if that's going to be successful, it's going to call into question support from the Egyptians, the Jordanians and many other countries.

It also points to the fact that now what we have to see is the Egyptians and the Jordanians putting pressure on the Israelis to start energizing the peace process. And the Israelis are going to say, peace process with whom? Who can make a deal, and it's a real deal, that will bring the kind of peace that is necessary?

So we are a long way away from moving on this. But it's an important meeting. It's important that the Egyptians have spoken out in condemning the -- really the coup against legitimacy taking place in Gaza.

BLITZER: Secretary Cohen, thanks for coming in. Lou Dobbs getting ready for his program that begins right at the top of the hour. Lou, what are you working on?

LOU DOBBS, HOST, "LOU DOBBS TONIGHT": Wolf, thank you. Coming up at 6:00 p.m. Eastern here, we're reporting on what will be high noon tomorrow in the Senate. The illegal alien movement's desperate last stand to save amnesty. President Bush, the Democratic Party leadership, corporate interests, socio-ethnocentric special interests all working hard to rescue the legislation. We'll have complete coverage and hazard a guess as to what will happen.

Also tonight, troubling new evidence that employers are abusing the visa program, importing cheap foreign labor to compete against American workers. We'll have that report.

And some senators effectively trying to muzzle free speech because they don't like talk show radio hosts? We'll tell you who is really distorting the truth and who really needs to worry about fairness.

And we'll examine a Supreme Court ruling that could affect one of our most important constitutional principles, separation of church of state. All of that coming up at the top of the hour. Please join us.

Wolf, back to you.

BLITZER: Lou, we'll be watching. Thank you.

Still ahead, we're going to have more on what Lou was just talking about, more on the immigration stalemate. State lawmakers have submitted more than 1,000 immigration bills this year. Jack Cafferty wants to know what that means.

And in our 7:00 p.m. Eastern hour right here in THE SITUATION ROOM, Senator Ted Kennedy sings in Spanish. And Jeanne Moos is listening. We'll be right back.

(COMMERCIAL BREAK)

BLITZER: There's resolution today in a multi-million dollar lawsuit right here in Washington that gained national attention -- actually international attention largely for its absurdity. It involved a jurist, a dry cleaner and a pair of pants. CNN's Tom Foreman is here with the outcome.

Tell our viewers what happened.

TOM FOREMAN, CNN CORRESPONDENT: Yes, this was just stupid, wasn't it? This pair of pants, this pantsuit touched off a controversy all over the legal system about frivolous lawsuits. But today the defendants are breathing a little bit easier.

(BEGIN VIDEOTAPE)

FOREMAN (voice-over): Relief today for the immigrant family that owns a dry cleaning business in D.C. sued for $54 million. Owner Soo Chung's daughter-in-law translates.

SOO CHOI, DAUGHTER-IN-LAW OF DRY CLEANERS OWNER: It has been such a hard past two years. It has been such a difficult time, all of that emotionally came back to her today. But she's very, very pleased with the results today.

FOREMAN: These are the pants that started the lawsuit. Roy Pearson, a D.C. judge, said when he got them back from the cleaners, they were the wrong ones and the cleaners wouldn't admit it. Pearson was so steamed, he sued the pants off of the owners, the Chungs, saying their sign "satisfaction guaranteed" was a fraud.

The court agreed that the pants do not seem to match the jacket but said Pearson had not proven fraud under consumer protection laws. The case has become a focus for outrage about frivolous lawsuits that can take the legal system to the cleaners.

CHRIS MANNING, CUSTOM CLEANERS ATTORNEY: So Mr. Pearson cost not only the Chungs but the taxpayers a lot of money.

FOREMAN: No word yet from Pearson on whether he will appeal, but the Chung family is ready to get back to focusing on their work, even for their most controversial customer.

SOO: If he wants to continue to use our services, then, yes, we will accept him.

(END VIDEOTAPE)

FOREMAN: Wow. Well, for pressing this suit, Pearson was also ordered to reimburse the court fees but a motion to have him pay the Chungs' attorneys tens of thousands of dollars will be taken up later on. In the meantime, the American Tort Reform Association says it will hold a fund-raiser for the Chungs next month to help them out with other cost -- Wolf.

BLITZER: I mean, they almost had to go into bankruptcy and go back to Korea because of the tens of thousands of dollars in legal fees because of this case. Here's the question. This guy is a judge. Is his career in jeopardy right now?

FOREMAN: Well, I mean, common wisdom would say, sure it is. I mean, the fact is people get outraged over this, there's good reason to be outraged over all of this. But in the end what happens is what people would want. Judge Pearson was appointed two years ago to a two-year term. That expired last month. But the tenure commission has not yet decided on his application to get a full 10-year appointment to this job. They're still working on that.

In the meantime by law he's working but not presiding over any cases. Wolf, I would not be betting my car that he'll be getting the full-time appointment.

BLITZER: I think he regrets not taking the, what, $12,000 he was offered for those pants just to make the whole thing go away. He should have taken that cash and ended it. FOREMAN: I'll take it now just for talking about it.

BLITZER: Thanks very much.

Let's take a quick break. When we come back, Jack Cafferty wants to know what it means when state lawmakers submit more than 1,000 immigration bills even as action is stalled at the federal level. Stay with us. You're in THE SITUATION ROOM.

(COMMERCIAL BREAK)

BLITZER: Are state lawmakers better at reforming immigration than Washington? Jack Cafferty is back with your e-mail on this question, what does it mean if state lawmakers submitted more than 1,000 immigration bills this year? That's coming up next.

(COMMERCIAL BREAK)

BLITZER: Check back with Jack Cafferty for the "Cafferty File" -- Jack.

CAFFERTY: All right. Wolf, this hour, the question is, what does it mean if state lawmakers, state lawmakers submitted 1,000 immigration bills this past year?

Julie in North Carolina: "It means the states realized, as the rest of us did a long time ago, the federal government at any level cannot be trusted to even start anything, much less finish it. It means the federal government is completely broken down. It will be up to the states to get the country's business done. Maybe we're turning into a confederacy after all, as the founding fathers first thought we should be."

John in Texas writes: "It means the lobbyists who are paying Congress off for ignoring the will of the people are going to have to start directing some of that money to state legislatures so they can buy them off too."

Thomas in California: "It's an indictment of the Bush administration's inability to protect the American people. Lawmakers are scrambling now to enact laws that are redundant."

Sarge in Indianapolis: "Those closest to 'we the people' listen."

Linda in Arizona: "I have a problem with questions that start out with 'what does it mean if,' I don't know what the hell it means. Does it matter? You see what always happens. The corporate globalists push through another amnesty bill to guarantee they'll have cheap, cheap labor. Nothing anyone does has any effect on the outcome."

And we got this: "The federal government has lost control of the country and themselves, the populous and the state leaders are fed up with the beast in Washington, D.C. Interesting times, welcome to the revolution." Signed Patrick Henry.

And Suzie in Atlanta writes: "Jack, I see you and Lou had dinner again."

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

BLITZER: See you back here in one hour, Jack. Thank you very much. Let's end this hour with some of the "Hot Shots," pictures coming in from our friends at the Associated Press.

In China, a paramilitary officers stand guard as confiscated drugs are burned during a ceremony for tomorrow's International Drug Day.

Meanwhile, in Hong Kong, soldiers of the People's Liberation Army performed a lion dance to celebrate the upcoming 10-year anniversary of the British handover to China.

In Nebraska, closer to home, members of the Oregon State baseball team celebrate winning the College World Series championship.

And in Texas, a male cardinal, look at this, appears to be kissing a female counterpart as he feeds her atop a bird feeder.

Some of this hours "Hot Shots," pictures often worth a thousand words. Remember, we are here in THE SITUATION ROOM weekday afternoons from 4:00 to 6:00 p.m. Eastern, back for another hour in one hour at 7:00 p.m. Eastern. Until then, thanks for joining us. I'm Wolf Blitzer in Washington. "LOU DOBBS TONIGHT" starts right now.

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