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THE SITUATION ROOM

Payback from the Taliban; U.S. Students Quarantined in China; Diabetes: Secret to Her Success; Gays to Obama: Keep Your Promise; Ex- President Bush Breaks His Silence

Aired May 28, 2009 - 17:00   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: a series of bloody bombings in Pakistani cities, a Taliban leader calling it payback. And hundreds of suicide bombers may be ready to retaliate for an all- out military campaign against Islamic militants.

American high-schoolers flew to China for a study tour, but a swine flu false alarm is keeping them in quarantine.

And Dick Cheney speaking out very, very often. Now former President George W. Bush breaking his silence with a speech and then an odd couple appearance with President Bill Clinton.

I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

We're awaiting, right now, President Obama and the Palestinian Authority president, Mahmoud Abbas. They're meeting in the Oval Office. It's part of the stepped-up effort for U.S. peace efforts. The White House meeting follows a White House visit by Israel's, prime minister, Benjamin Netanyahu, and fresh U.S. calls for a halt to West Bank settlement activity.

We're going to go to the White House and hear what the president of the United States said, the president of the Palestinian Authority. They're going to be speaking out in the Oval Office shortly.

Our own White House correspondent, Dan Lothian, will be in the Oval Office, as well.

Stand by to hear what they have to say.

But first, a Taliban commander calls it payback for an American allies' massive assault on Islamic militants. A new wave of bloody bombings across Pakistan, with hundreds of suicide bombers said to be on call.

Let's go live to our CNN Pentagon correspondent, Barbara Starr.

She's working the story for us.

It seems to be going from bad to worse over there -- Barbara.

BARBARA STARR, PENTAGON CORRESPONDENT: Absolutely, Wolf. And now, U.S. intelligence believes this latest wave of bombings may well be the work of one man.

(BEGIN VIDEOTAPE)

STARR (voice-over): Two closely timed explosions rocked the Khyber Bazaar here in Peshawar, killing at least eight, wounding dozens, leaving carnage and ruins in a busy marketplace -- just one of four deadly attacks in less than 24 hours in Northwest Pakistan, where the military has been attacking Taliban strongholds.

On the outskirts of Peshawar, four police officers are killed in another suicide bomb attack -- the wounded rushed to hospitals. A fourth bomb exploded in a nearby suburb.

U.S. officials tell CNN these Taliban suicide attacks appear coordinated and sophisticated. The fear now -- the Taliban are unleashing a new assault on Pakistan's cities in retaliation for Pakistani military operations against Taliban safe havens in the volatile region.

In a rare appearance, President Obama's national security adviser voiced his support for Pakistan's efforts to deal with the militants.

JAMES JONES, NATIONAL SECURITY ADVISER: The response by their military, so far, has the support of Pakistani people. The government's popularity has shot up a little bit in the polls.

STARR: The latest violence followed a massive bomb attack in Lahore, Pakistan's second largest city, that killed two dozen and left hundreds injured, damaging buildings belonging to the police and intelligence services. The U.S. now believes the attacks are the work of follows of Baitullah Mahsud, a key Pakistani Taliban leader who may have hundreds of suicide bombers under his control.

(END VIDEO TAPE)

STARR: Now, Baitullah Mahsud has reportedly called Pakistani newspapers and said citizens must evacuate major cities in the country, because he is planning more attacks in those cities. U.S. officials say capturing Baitullah Mahsud now must be a top priority for the Pakistanis -- Wolf.

BLITZER: Because it's obviously one thing, as you point out, in the Swat Valley, for the fighting to go on, even though a million-and- a-half refugees have already been created. But if the fight really returns -- goes to the cities, whether in Islamabad or Lahore or Karachi or elsewhere, there would be enormous ramifications for Pakistan and deep concern for the U.S.

STARR: Absolutely.

And why unions that?

Because what the U.S. knows, of course, is that the Pakistani government must be able to demonstrate it can protect its own citizens, especially in the cities. And if there is this new wave of attacks and the Pakistani government and the Pakistani security services cannot protect the people or the people don't think they can be protected, that will weaken the government. And that is a major concern for the Obama administration.

BLITZER: And let's never forget, they have a lot of nuclear weapons in Pakistan. Those arsenals have to be secure.

Thanks very much, Barbara, for that.

There has been a deadly explosion in Iran ripping through a mosque while worshipers were attending evening prayer service. It happened in a city in Southeastern Iran, near the borders with Pakistan and Afghanistan.

Iranian news agencies say at least 15 people were killed, more than 50 wounded. The semi-official Fars News Agency attributed the blast to: "a terrorist incident."

American students from a private school in Maryland are under quarantine in China right now. Health officials there fear the group may have been exposed to the H1N1 virus -- swine flu.

CNN's Brian Todd is at the school in Maryland with details -- Brian.

BRIAN TODD, CNN CORRESPONDENT: Wolf, nearly two dozen students from this school have been preparing for this trip for months. Right about now, they thought they'd be seeing things in the Chinese countryside that they've never seen before. And instead, they're all seeing something all of them have seen before -- the inside of a hotel room.

(BEGIN VIDEOTAPE)

TODD (voice-over): Right now, Erica Peterson expected to be visiting farms and temples in the Chinese countryside. Instead, the 15-year-old is confined, with 20 of her schoolmates and three teachers, inside their hotel in Guizhou Province. Chinese officials quarantined them after suspecting a case of swine flu in an older passenger on their flight late last week. Erica's mother Alecia says her daughter has e-mailed her that she's OK.

ALECIA PETERSON, DAUGHTER QUARANTINED IN CHINA: They can have the door open so they can communicate through the doorways. They have the in-house telephone, so they can communicate with one another by telephone. They have TVs. They have computers. The boys are on the floor below the girls, so I guess they're some opening of windows and yelling.

TODD: The students from the Barrie School in Silver Spring, Maryland had gotten in about two days of touring in the Chinese countryside. Alecia Peterson says the plan was to follow in the footsteps of Mao Zedong's historic march.

They were abruptly told on Monday they had to stay put. A couple of days later, U.S. consular officials told headmaster Mike Kennedy the passenger in question did not have swine flu and neither did any of the Barrie School students.

(on camera): And there's no way to extend the trip?

MIKE KENNEDY, HEADMASTER, THE BARRIE SCHOOL: Not really. No, they -- this is toward the end of the school year. We have kids who are graduating a week from Sunday. And they've got other things that they need today in the course of the next week.

TODD (voice-over): Kennedy has been told the quarantine will end on Friday. That gives the students less than two days to salvage what's left of the trip. They're due to arrive back in the U.S. late Sunday.

Officials from the Chinese embassy did not return our calls and e-mail, but the headmaster told us he was finally contacted by an official at the embassy, who said that the government regrets what's happened here and that they've had no choice but to follow their own health regulations -- Wolf.

BLITZER: All right, Brian.

Thank you very much.

Brian Todd is in Silver Springs, Maryland, right outside Washington, D.C..

Let's go to Jack Cafferty right now.

He has The Cafferty File -- Jack.

CAFFERTY: Wolf, the national dialogue just doesn't seem to get any gentler. Right-wing conservatives like Newt Gingrich and Rush Limbaugh are now calling Judge Sonia Sotomayor a racist. They're pointing to comments that the Supreme Court nominee made in 2001: "A wise Latina woman, with the richness of her experience, would more often than not reach a better conclusion than a white male who hasn't lived that live."

Gingrich goes so far to say that a white racist male nominee be forced to withdraw and, so, too, should a racist Latina.

The White House is pushing back, saying it's important for anyone in this debate to be: "exceedingly careful in how they describe different aspects of the confirmation process."

And Hispanic leaders warn that critics risk alienating Latino voters if they appear to be judging Sotomayor before she can even defend herself.

Nominees for the high court traditionally don't say anything publicly ahead of their confirmation hearings.

As my friend Ed Rollins writes in a terrific piece on CNN.com today: "The battle for the heart and soul of the Republican Party has now spilled over into this Supreme Court confirmation debate." Rollins says critics who have been unable to attack President Obama think they can smear him with his court pick. But Rollins says there can be no debate over Sotomayor's qualifications and he warns Republicans that this confirmation: "is not the battle to be waged and it won't be won."

Here's the question -- does it hurt the Republicans when Newt Gingrich and Rush Limbaugh call Sonia Sotomayor a racist?

Go to CNN.com/caffertyfile and post a comment on my blog.

It's a great piece that Mr. Rollins wrote -- Wolf.

BLITZER: I read it. It was a terrific piece. He's a very smart guy.

CAFFERTY: The Republicans ought to be asking him his opinion instead of listening to these other clowns.

BLITZER: I'm glad we have his opinion here in THE SITUATION ROOM.

CAFFERTY: Yes, there you go.

BLITZER: He's coming up.

All right, thanks very much.

We're standing by to hear from President Obama. He's meeting right now in the Oval Office with the Palestinian Authority president, Mahmoud Abbas. They're discussing some critical issues -- elements for the search for Middle East peace. And we're going to be hearing from both men live. That's coming up right here in THE SITUATION ROOM.

Also, kicked out of the military for being gay -- this soldier is taking on a new mission. He's pressuring the president to end the ban that cost him his career.

And what we found for sale over at a Baghdad marketplace. It includes some items that could top a terrorist's shopping list. We're going to take you on a tour so you can see for yourself.

(COMMERCIAL BREAK)

BLITZER: Sonia Sotomayor's early life may have been limited by her diabetes, but ultimately, she had no problem going all the way up to the top.

Our senior medical correspondent, Elizabeth Cohen, is taking a look at this issue for us.

What are you finding out -- Elizabeth?

ELIZABETH COHEN, CNN MEDICAL CORRESPONDENT: Wolf, what I'm finding out from doctors is that now there's no reason for diabetics to be limited at all. Medicine has changed and times have changed.

(BEGIN VIDEOTAPE)

COHEN (voice-over): In a way, Sonia Sotomayor has Nancy Drew and diabetes to thank for her legal career. The young Sotomayor was inspired by the girl detective and wanted to be one herself. But then...

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: And then when she was diagnosed with diabetes at the age of eight, she was informed that people with diabetes can't grow up to be police officers or private investigators like Nancy Drew.

COHEN: Fortunately, she also liked watching Perry Mason as a child. So instead, Sotomayor went to Yale Law School and became a prosecutor.

Back in the 1960s and '70s, children with Type I, or juvenile diabetes, were often told they had to limit their dreams.

JOHN GRIFFIN, ATTORNEY: Because of attitudes about diabetes, in the old days, people were denied jobs as truck drivers, private pilots, law enforcement.

COHEN: Attorney John Griffin, who's represented diabetics in employment cases, says better insulin and more progressive attitudes mean more opportunities for children with diabetes.

GRIFFIN: If Judge Sotomayor, if we could take her -- if she were an 8-year-old today, we would tell her you can do just about anything your heart and mind tells you, you can do.

COHEN: There are still some closed doors. Diabetics on insulin cannot be commercial pilots, for example, for fear that they'll suffer a sugar low in the air.

Jeff Kapche was turned down for a job as a special agent with the FBI because of his diabetes. He went to court and won.

Now, many juvenile diabetics are enjoying great professional success. Teen star Nick Jonas has diabetes and so does NFL quarterback Jay Cutler and swimmer Gary Hall, who took gold in the 2004 Olympics.

(END VIDEO TAPE)

COHEN: Now the invention of the insulin pump has made a big difference for insulin-dependent diabetics. Instead of having to give themselves shots, the pumps automatically deliver the insulin to the diabetic -- Wolf.

BLITZER: Yes. It's so encouraging, what's going on, especially with juvenile diabetes and research. They're doing an amazing, amazing job. And all those little kids who are diagnosed, they can look up to her and say you know what, the sky is the limit for them.

COHEN: Absolute.

BLITZER: I'm really happy that that is happening.

Thanks very much for that, Elizabeth.

By the way, Judge Sotomayor's personal physician also is attesting to her physical fitness to serve on the high court, saying she's in very good health and has optimal control over her diabetes. In a letter to the White House, Dr. Andrew J. Drexler writes -- let me quote now -- "Given her blood pressure and cholesterol levels and excellent diabetes control, she does not appear to be at risk for a heart attack or a stroke. All very, very encouraging.

A recently discharged U.S. soldier is taking on a new mission -- pressuring President Obama to help end the so-called don't ask/don't tell policy banning gays from serving openly in the military. It's a cause the president says he supports, but so far, has not acted on.

CNN's White House correspondent, Dan Lothian, asked about it at today's briefing.

(BEGIN VIDEO CLIP)

DAN LOTHIAN, CNN CORRESPONDENT: When is the -- the White House going to push Congress to repeal "don't ask, don't tell?"

ROBERT GIBBS, WHITE HOUSE PRESS SECRETARY: Well, is -- I think we've done this answer a few times. It is something the president supports. He does not think the policy is working in the national interest. And he is working with the Joint Chiefs, the Pentagon and others to bring about a change in that policy.

(END VIDEO CLIP)

BLITZER: CNN's Ted Rollins spoke to that former soldier leading the fight to repeal "don't ask, don't tell," now appealing directly to his former commander-in-chief.

(BEGIN VIDEOTAPE)

LT. DAN CHOI, ARMY NATIONAL GUARD: Full equality now! Full equality now! Full equity now!

TED ROWLANDS, CNN CORRESPONDENT (voice-over): Lieutenant Dan Choi stood across the street from the Beverly Hills Hilton Hotel with dozens of others, trying to get the attention of President Obama, who was inside.

Choi is fast becoming the new voice for gay soldiers since publicly coming out in March.

(CHOI SPEAKING IN FOREIGN LANGUAGE)

CHOI: Translation -- I am gay.

ROWLANDS: Lieutenant Choi graduated from West Point in 2003 with a degree in Arabic and Middle Eastern studies. He served as an Army interpreter in Iraq. The military recently started discharge proceedings against Choi, who now serves in the National Guard.

Over the past few weeks, Choi has been rallying to push for change.

CHOI: It is time to tell. It is time to stand. It is time to fight. It is time to march. It is time to love. I'm not asking any more, I am telling.

ROWLANDS: Choi says he's disappointed that President Obama hasn't acted on a campaign promise to change "don't ask, don't tell." But with two wars and other problems facing the country, many say now isn't is time to deal with this issue.

(on camera): Do you buy that argument, that this isn't the right time to change policy?

CHOI: An absolutely baseless argument. We're in two wars right now. We're kicking out soldiers that are capable. This is the time to retain them, not fire them.

UNIDENTIFIED MALE: You know, I think you know a lot of...

ROWLANDS (voice-over): Some believe Lieutenant Choi could help force Washington to act.

RICK JACOBS, FOUNDER, COURAGE CAMPAIGN: Oh, I think he's the right guy at the right time telling the right story, because it's a story of truth and power.

ROWLANDS: At one point, Choi stood in the street saluting in the direction of the commander-in-chief, who says he'd like to stay in the military if "don't ask, don't tell" is changed.

ROWLANDS: Lieutenant Choi was not able to meet with the president, but he says he's hoping that Washington and the rest of the country gets the message that he and many others will continue this fight until the law is changed.

Ted Rowlands, CNN, Beverly Hills.

(END VIDEO TAPE)

BLITZER: Former President George W. Bush is only hours away from breaking the near total silence he's maintained since leaving office.

What will he say in his speech tonight, looking back over his eight years in the White House?

Plus, the self-proclaimed world's biggest toy store is about to get a lot bigger -- what Toys"R"Us is about ready to do.

(COMMERCIAL BREAK)

BLITZER: We're back with Fredricka Whitfield, who is monitoring some of the other important stories incoming into THE SITUATION ROOM right now.

What's the latest -- Fred?

WHITFIELD: Hello again, Wolf.

Authorities at Los Angeles International Airport forcibly removed a woman from an area near Air Force One shortly before President Obama's arrival there. The woman, who identified herself as Brenda Lee, said she wanted to deliver a letter to the president opposing gay marriage. She was asked to leave and airport authorities removed her when she refused.

Former Cuban leader Fidel Castro is taking former Vice President Dick Cheney to task for defending so-called enhanced interrogation techniques which some say are torture. In an opinion piece, Castro writes that torture should never be used against prisoners, although his own government was accused of human rights abuses, including torturing political prisoners.

And a new law in Nebraska is clearing the way for execution by lethal injection. The state was the last to rely solely on electrocution. But the Supreme Court ruled that method unconstitutional last year. There are 11 men on Nebraska's death row, with the last execution in 1997.

And a frightening situation in California. That building that you're about to see right there, with a car sticking out of it, is a busy preschool. Investigators say a mother was dropping off her child today when her car jumped the curb and plowed through a doorway. Authorities say five children were taken to the hospital, two with serious injuries. Police aren't sure exactly what caused that accident.

And you may remember FAO Schwarz, the high end toy company immortalized in the movie "Big." Well, the largest American toy retailer, Toys"R"Us, is buying it. Analysts say FAO Schwarz struggled for years amid competition from discount stores. According to company executives, this deal will let Toys"R"Us work with smaller toy vendors and operate a marquis store on New York's Fifth Avenue -- and, Wolf, I'm sure you've been in the FAO Schwarz.

BLITZER: Yes.

WHITFIELD: It is a very unique experience, so let's hope, I guess, they won't lose that kind of aura...

BLITZER: You remember the music...

WHITFIELD: ...once it becomes...

BLITZER: ...the theme little music they do when you walk into FAO Schwarz?

WHITFIELD: I don't remember.

What is it? BLITZER: I'm not going to hum it for you...

WHITFIELD: Oh, come on.

BLITZER: But I want you to go find it and we'll play it later, all right?

WHITFIELD: But you like the music?

BLITZER: Oh, I love the music. It was similar to the music when you go to Disney World. It's very similar.

But, stand by. We'll get it for you.

WHITFIELD: OK. Very good.

BLITZER: Our team is working on that right now.

We're also awaiting President Obama.

He's in the Oval Office right now. He's pushing for Middle East peace with the Palestinian Authority president. We're going to bring you that as soon as we get it. Our own White House correspondent, Dan Lothian, is inside the Oval Office with them.

And President Obama will soon be heading to Egypt for a promised address to the world's Muslims.

What should he say?

Paul Begala and Ed Rollins -- they're standing by.

Plus, at one time it looked like he would be Sarah Palin's son- in-law. Now, the father of her grandchild talks about his rocky relationship with Alaska's first family.

(COMMERCIAL BREAK)

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

Happening now, it has the highest number of suicides at any military base this year -- the home of 101st Airborne in Fort Campbell, Kentucky is taking an extraordinary step -- a three day suicide stand-down to focus on keeping soldiers from taking their lives.

Concerns about where President Obama's Supreme Court pick stands on the hot button issue of abortion -- some abortion rights groups are questioning whether Judge Sonia Sotomayor will be a reliable vote to uphold "Roe v. Wade."

And did French President Nicolas Sarkozy deliberately snub Britain's Queen Elizabeth?

A new feud between Britain and France over the 65th anniversary of D-Day. I'm Wolf Blitzer.

You're in THE SITUATION ROOM.

While his former vice president has been out there speaking very publicly since leaving office, former President George W. Bush has largely been silent -- at least until now. In just a few hours, he'll be delivering a speech to the Economic Club of Southwest Michigan.

Let's bring in our senior political correspondent, Candy Crowley.

She's taking a look at the story for us.

Why are we hearing from the former president now?

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: Well, you know, when he left office, he said three things about his post- presidency.

Number one, that he needed to make some money.

Number two, that he would, in fact, not criticize Barack Obama.

And number three, that he wanted to ride off into the sunset.

This, Wolf, is number one, about making some money. They are going to pay him. They weren't sure whether it was going to charity or directly to president -- former President Bush. Nonetheless, this is his first speech stateside. He had made a speech earlier in Canada.

Nonetheless, this will be closely watched. We're told by the organizers that the former president will talk about his eight years in office. But, again, I think the one thing you will not hear is anything bad about Barack Obama.

BLITZER: All right. Now, in addition to this speech today, tomorrow he goes to a joint appearance with the former president, Bill Clinton.

CROWLEY: Back to Canada again for former President Bush and for former President Clinton. An interesting relationship between these two men. They are going and paired up. They're calling it the Clash for Cash up in Canada. It's put on by one of those motivational groups.

There will be time for each of the former presidents to talk for about 10 minutes. Then there will be a panel discussion between the two of them and the moderator. And then open for questions.

But, again, the clash -- I'm not sure I expect a clash from these two.

BLITZER: Yes. The -- the final question I wanted to ask you, Candy, the role that the former president Bill Clinton is playing in the Obama administration. What do we know about this? CROWLEY: Well, what's interesting is, there hasn't been much communication as far as we can tell between former president Clinton and current president Barack Obama. Not all that unusual, generally, when presidents come into office, they establish their own power base.

They have people around them who are advising them. You recall when former President Bush called on Bill Clinton, when he called on his own father, it was for a specific role. So if there is to be a specific role, I'm sure the two will talk, but at the moment, this is the Obama administration.

BLITZER: Candy Crowley, thanks very much.

ANNOUNCER: This is "CNN Breaking News."

BLITZER: All right. We're getting some breaking news that's just coming in from the Associated Press over at the White House. The president, as you know, has been meeting with the Palestinian authority president, Mahmoud Abbas.

The AP now reporting that the president saying in that meeting that Israel must meet obligations to halt West Bank settlement activity. The AP also saying that the Palestinians quoting, President Obama must meet obligations for peace including West Bank security.

We're about to get the videotape from the oval office to hear precisely -- precisely what the president said about these sensitive issues, coming only a few days before the president heads to Egypt, to Cairo to deliver a major address to the Arab and Muslim world.

Let's talk about this a little bit with our CNN political contributors, Democratic strategist Paul Begala and Republican strategists Ed Rollins.

They're still in the oval office, apparently. AP just breaking the story, though, and as I say, we're going to get the videotape. Our own Dan Lothian is in there as well.

Paul, you worked at the White House. Ed, you worked at the house. I think it's fair to say that when it comes to sensitivity, Israel, Palestine, the Israeli-Arab conflict, about as sensitive an issue for a president as it gets.

PAUL BEGALA, DEMOCRATIC STRATEGIST: Oh, yes, Wolf. It's the ultimate diplomatic minefield. And yet it's part of the job. You know every president since 1948 gets -- you know, gets the Air Force One, gets the White House and gets the Middle East peace or lack of Middle East peace.

I think that this president is trying to win his way through that mine. Maybe the most important thing is what we used to call the Middle East peace process. That is, America is reengaged in the Middle East right now and that can only be good.

America is a force for good. I think we are seen as an honest broker. Very close ally of the Israelis, but we're also trying to make sure that the Palestinians get their two-state solution.

And I think the president has shown a lot of courage early in his term when he's got a lot else on his place to make sure he deeply engages in the Israeli-Palestinian question.

(CROSSTALK)

BLITZER: You know, Ed -- I was going to say, all right, but finish your thought and I'll ask you a question.

ED ROLLINS, CNN CONTRIBUTOR: No, I was going to totally agree. You know President Bush stayed away from this issue. He watched his father get bogged down in it and I think to a certain extent it takes great courage.

Also, the area is so critical today. I mean there's so much unrest and obviously, we made a very heavy investment in Iraq to create a democracy there, so I think the visit next week to Egypt and what have you is all very important.

BLITZER: Yesterday, the secretary of state Hillary Clinton minced no words at all saying the Israelis must not only stop new settlement activity on the West Bank but they have to freeze all current settlement activity.

And not even allow what the Israelis call natural growth on those settlements on the West Bank. In other words, building some more apartment buildings or whatever. They have to stop all activity right now. That was about as tough as a statement as the U.S. has made on settlements in a long time.

And the Israeli government, the Prime Minister Benjamin Netanyahu reacted basically by saying they're going to continue what they call the natural growth activity, although they won't build new settlements and a few of the smaller outposts they will dismantle.

This is a sensitive source of friction potentially between the U.S., the Obama administration and the Israeli government.

BEGALA: It is, that phrase natural growth is when I know you know very well, Wolf, nobody knows the Middle East better than you do. And that's where President Obama and secretary of state are trying to draw the line.

I do think it's an encouraging sign, though, that after he met with the president, Prime Minister Netanyahu did dismantle -- it's a small settlement but it was an important, symbolic moment, right for Bibi Netanyahu, the prime minister, who comes from a very hawkish part of Israeli politics. To step in and dismantle a settlement, I think it was an important gesture, it's just a gesture, but important gesture toward peace.

ROLLINS: All politics are local whether it's Israeli or American politics and obviously, he has a very precarious unity government in which his party isn't even the majority party. So I think, to a certain extent, Israeli politics are a little bit more sensitive to any steps on the settlement.

The speech next week, obviously, to Mubarak, which is a speech beyond Egypt. Mubarak has been a very important ally of our, but it's to the Muslim world and it's going to be interpreted in the way he lays out his thought process on how you have Palestinian-Israeli settlement.

Or basically it's beyond that. Many people want him to make a speech about human rights and about democracy, religious freedoms. Others will want him to basically enforce the 81-year-old Mubarak who's been a very strong ally and has really been a linchpin in keeping peace in the Middle East.

BLITZER: And as I say we're waiting for the videotape of exactly what the president said in the oval office with the Palestinian authority president. As soon as we get that tape, we're going to be playing it for our viewers.

Paul, what does it say to you that before he goes to Cairo to deliver this promised major address to the Arab and Muslim world, he stops off to see King Abdullah in Saudi Arabia?

BEGALA: Well, another Arab leader who has been an ally of America in the war against terror. Very important, I think, to shore up King Abdullah, but I think Ed is right about the importance of the speech in Cairo.

You know great presidents understand what Ed just said a moment ago, all politics is local.

Ronald Reagan, when Ed was working for him, he went to the heart of the Soviet Union and yes, he called them the evil empire and he also spoke directly to the Soviet people. He went over the heads of that evil communist government, spoke directly to the people there, and I think made a real connection.

I saw President Clinton. He went to Israel and then the Palestinian authority back to back and spoke to the people of those territories and of the state of Israel. And I think the fact that our new president is going straight into the heart of the Arab world, and speaking to them, and I think he will, as he did in his inaugural address.

He is keenly aware of his own power and popularity in the Arab and Muslim world and I think he's leveraging that for America's good.

BLITZER: He promised when he as a candidate, Ed, as you remember, he would address the Arab world, the Muslim world. The first interview he gave, the first television interview he gave was with Al Arabiya.

Not NBC or CNN or some American television network. It was Al Arabiya. Hisham Milhem, the Washington bureau chief doing that interview. And that spoke volumes, I thought.

ROLLINS: Well, I think so too, and as you know better than anybody, Wolf, because you're the expert on this, Muslims are divided. The Sunnis, obviously, many of the Arab leaders are including the Egyptians and then the Shiites in Iran, and I -- and they're always worried about each other.

So I think, to a certain extent, this speech will be a critical speech. And I think it has to be as important as any speech he's given to date that will have great impact. It'll be interpreted ever which way and I think to a certain extent, you know he's got -- once again he's got local politics, just as we stated earlier, in which human rights and democracy are a very important part of his overall message, very important message to the Iraqis and in the neighboring areas.

But he still has to make sure that Mubarak and others that are there and our bench staunch allies don't get offended by that.

BLITZER: And he says -- and according to the Associated Press in this meeting he's having now with President Abbas, Paul, that he hopes next week's speech in Cairo will help improve U.S. relations with the Muslim world. And there's obviously a lot of room for improvement.

BEGALA: Well, right. And he wants to show a more welcoming, more understanding, more simpatico face of America. At the same time, standing strong for America's national interests. And I think he will be able to do spread that, to do both of those things.

It is critically important actually that those Arab and Muslim leaders know, and they do, that Barack Obama is as popular or more popular among their citizens than they are. That's what Ed means, I think, and certainly what I mean when we say all politics is local.

Most Arab leaders look at this president and they say, my goodness if we had a free election in my country, he might beat me. I better be careful about crossing America. Not only are they are a military but now he's bringing moral and political power to bear as well.

BLITZER: And then there's no doubt, Ed, because so many Arabs have said to me, and Muslims, that when they look at President Obama, they recall his name as Barack Hussein Obama, which is a source of tremendous pride for them. But go ahead and make your final thought.

ROLLINS: Well, as it should be. And I think the key thing, once again, is you have an older generation. Mubarak has been a solid ally. And you have a younger generation, that -- with someone like President Obama as the role model. They would like to have someone like that elected to the next generation and he has to certainly encourage the hope.

BLITZER: We're waiting for the tape. We're going to play it for our viewers as soon as we get it.

Paul Begala, thanks very much. Ed Rollins, terrific article on CNN.com today. I recommend our viewers go to CNN.com.

ROLLINS: Thanks. Thanks very much. BLITZER: And read Ed's piece. And hopefully Paul will be writing a piece in the next few days, as well, right, Paul?

BEGALA: Absolutely. And this time I would agree with Ed so maybe I should save the pixels or ink or whatever we use on the CNN.com.

ROLLINS: Paul, you're always a great guy.

BEGALA: It's a great piece, Ed. Really.

ROLLINS: Thanks, thanks.

BLITZER: Thanks, guys, very much.

Uniforms, weapons, bullet proof helmets. Everything Iraqi police officers need is on sale at this market but it's also open to terrorists. We're going to take you to an eye-opening tour.

Plus, new revelations about Alaska's first family from the young man who almost became Sarah Palin's son-in-law. Levi Johnston talking candidly and posing for some intimate photos. We have it, we'll show it to you right here on THE SITUATION ROOM.

(COMMERCIAL BREAK)

ANNOUNCER: This CNN Breaking News.

BLITZER: We're about to get the videotape from inside the oval office, the president of the United States meeting with the president of the Palestinian authority. There you see Mahmoud Abbas just leaving the west wing of the White House. This is videotape that's just coming in right now.

Only a few moments ago, Mahmoud Abbas wrapping up a lengthy meeting in the oval office with President Obama. They met privately at first, and then they had an expanded meeting with the vice president, the secretary of state among others participating in that meeting.

He's getting ready to leave the White House and head off to other meetings Mahmoud has scheduled here in Washington. The news coming out of this even over in the oval office, this meeting between the Palestinian and U.S. president, includes some strong and important words from the president of the United States urging the Israelis, for example, to stop all settlement activity on the West Bank, but also urging the Arabs and the Palestinians to honor all previous commitments in terms of trying to negotiate a peace agreement with Israel.

So strong words, but all those words will be carefully, carefully weighed. We also know that both presidents took questions from reporters. As soon as we get that videotape, we're going to bring it to you right here in THE SITUATION ROOM. Stand by for that.

Meanwhile, Baghdad's open air market have been frequent terror targets, bombs have taken a devastating toll. As security has improved business is booming, but one key concern remains. Terrorists can be bargain hunters, too.

CNN's Cal Perry takes us inside a famous Baghdad bazaar.

(BEGIN VIDEOTAPE)

CAL PERRY, CNN CORRESPONDENT (on camera): Here we are in central Baghdad at the thieves market. The reason they call it that is that it started on the street. People used to say if you have something stolen or you have something lost, where can you find it? You can come here, buy it at this market.

Before that, under Saddam Hussein, it was really because of the black market that began because of the sanctions that the U.S. had. This is a microcosm of Iraq, because you can find anything here in this market.

Now one of the things that's been a huge concern to U.S. military commanders and Iraqi military commanders is that you can buy Iraqi police uniforms, weapons, knives. You can buy ammunition, Iraqi army helmets. You can buy Iraqi army hats, the insignias of the Iraqi army and the Iraqi police.

So one of the things that's of huge concern is that people are buying these uniforms, they're putting them on, they're acting like police. They're setting up check points and they're carrying out attacks.

And as we continue through here, you can see, as far as you go, they have the actual insignias, patches, ammo belts, pretty much anything you want you can buy including officer tags. But more than just, you know, Iraqi uniforms, the security stuffs, a lot of young people come here because they can buy cheap clothing. Stuff that you can get off the street, Adidas stuff, a lot of this stuff is fake, obviously, a lot of is bootleg sort of gear, bags, clothes.

As I said, you can find absolutely anything in this market. We'll take you to the other side. From your cheap jewelry to your stick-on tattoos. These are your fake tattoos, Iraqi -- obviously the Iraqi flag here (INAUDIBLE), country, we've got football, different dragon things like that to the staple of any good black market, your bootleg movies, including your pornography.

Like I said, Baghdad thieves market. A place where you can find absolutely anything.

Cal Perry, CNN, Baghdad.

(END VIDEOTAPE)

BLITZER: Let's go the oval office. The president of the United States meeting with the president of the Palestinian authority.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We just completed an extensive conversation, both privately as well, as with our delegations about how we can advance peace in the Middle East and how we can reaffirm core principles that I think can result in Palestinians and Israelis living side by side in peace and security.

As I've said before, I've been a strong believer in a two-state solution that will provide the Israelis and Palestinians the peace and security that they need. I am very appreciative that President Abbas shares that view and when Prime Minister Netanyahu was here last week, I reiterated to him that the framework that's been provided by the road map is one that they could advance the interests of Israel, can advance the interest of the Palestinian people, and can also advance the interests of the United States.

If we are a stalwart ally of Israel and it is in our interest to insure that Israel is safe and secure, it is our belief the best way to achieve that is to create the conditions on the ground and set the stage for a Palestinian state as well.

And so what I told Prime Minister Netanyahu was is that each party has obligations under the road map. On the Israeli side, those obligations include stopping settlements. They include making sure that there is a viable, potential Palestinian state.

On the Palestinian side, it's going to be important and necessary to continue to take the security steps on the West Bank that President Abbas has already begun to take working with General Davis. We've seen great progress in terms of security on the West Bank.

Those security steps need to continue because Israel has to have some confidence that security on the West Bank is in place in order for us to advance this process. And I also mentioned to President Abbas in a frank exchange that it was very important to continue to make progress in reducing the incitement and anti-Israel sentiments that are sometimes expressed in schools and mosques, in the public square, because all those things are impediments to peace.

The final point that I made was the importance all countries internationally, but particularly the Arab states, to be supportive of a two-state solution. And we discussed how important it is that the Arab states, building off of some of the recognition of the possibilities of a two-state solution that are contained in the Arab peace initiative, continue to provide economic support as well as political support to President Abbas' efforts, as he moves the Palestinian authority forward, as he continues to initiate the reforms that have taken place and as he hopefully is going to be table to enter into constructive talks with the Israelis.

So, again, I want to thank President Abbas for his visit, and a very constructive conversation. I am confident that we can move this process forward, if all the parties are willing to take on the responsibilities and meet the obligations that they've already committed to.

And if they keep in mind not just the short-term, tactical issues that are involved, but the long-term, strategic interests of both the Israelis and the Palestinians to live side by side in peace and security. So, thank you, again, Mr. President.

MAHMOUD ABBAS, PALESTINIAN AUTHORITY PRES. (Through translator): Thank you. Thank you very much, Mr. President, for receiving us here at the White House. We came here to tell you, first of all, that we congratulate you for the confidence that was expressed by the American people in electing you the president of the United States, and we wish you all success in your mission.

Mr. President, you are prepared to the international commitment as is stipulated in the roadmap. I'd like to take this opportunity to reaffirm to you that we are fully committed to all of our obligations under the roadmap, from the A to the Z.

And we believe, like you, Mr. President, that carrying out the obligations of all parties under the roadmap will be the only way to achieve the durable, comprehensive, and just peace that we need and desire in the Middle East.

Mr. President, I believe that the entire Arab world and the Islamic world, they are all committed to peace. We've seen that through the Arab League of Peace initiative that simply talks about land for peace as a construct.

I believe that the Israelis will withdraw from all occupied Palestinian, Syrian, and Lebanese land. The Arab world will be ready to have normal relationships.

On our part, we are carrying our security responsibility in the West Bank and have law and order in that areas under our control, because we believe that it is in our interests to have security. It's in the interests of civility in the region.

And here I would like to pay tribute and thank you to General Dayton and all those who worked with him in helping and supporting and training our security organizations to carry out their duties and responsibilities.

Mr. President, I believe the time is of the essence. We should capitalize on every minute and every hour in order to move the peace process forward, in order to cement this process, in order to achieve the agreement that would lead to peace.

Thank you very much.

OBAMA: Thank you. We got time for a couple questions. Julianna?

UNIDENTIFIED FEMALE: Thank you, Mr. President. I want to ask you a question about your speech next week. Reducing the U.S. dependence on foreign oil is the cornerstone of the policy, when you meet in Riyadh with King Abdullah next week, what message will you take to him about U.S. oil policy (INAUDIBLE)?

OBAMA: Well, you know, Saudi Arabia has been an important strategic partner in providing us with our critical energy needs. We appreciate that. It's a commercial relationship as well as a strategic relationship.

And, you know, I don't think that it's in Saudi Arabia's interests or our interests to have a situation in which our economy is dependent on -- or, better yet, is disrupted constantly by huge spikes in energy prices. And it's in nobody's interests, internationally, for us to continue to be so heavily dependent on fossil fuels that we continue to create the greenhouse gases that threaten the planet.

So, in those discussions, I'll be very honest with King Abdullah, with whom I've developed a good relationship, indicating to him that we're not going to be eliminating our need for oil imports in the immediate future. That's not our goal.

What our goal has to be is to advance the clean-energy solutions in this country that can strengthen our economy, put people back to work, diversify our energy sources, and, you know, interestingly enough, you're seeing the Saudis make significant investments both in their own country and outside of their country in clean energy as well, because I think they recognize that, you know, we've got finite -- we have a finite supply of oil.

There are going to be a whole host of countries, like China and India, that have huge populations, need to develop rapidly. If everybody is dependent solely on oil as opposed to energy sources like wind and solar, if we are not able to figure out ways to sequester carbon and that would allow us to use coal in a nonpolluting way -- if we don't diversify our energy sources, then all of us are going to be in trouble.

And so I don't think that will be a difficult conversation to have.

(CROSSTALK)

UNIDENTIFIED MALE (Through translator): Mr. President, what if Israel keeps declining to accept the two-state solution and (INAUDIBLE), how would the U.S. would intervene in the peace process?

OBAMA: Well, I think it's important not to assume the worst, but to assume the best. And in my conversations with Prime Minister Netanyahu, I was very clear about the need to stop settlements, to make sure that we are stopping the building of outposts, to work with the Palestinian authority in order to alleviate some of the pressures that the Palestinian people are under in terms of travel and commerce so that we can initiate some of the economic development plans that Prime Minister Netanyahu himself has said are so important on the ground.

And, you know, that conversation only took place last week. I think that we don't have a moment to lose, but I also don't make decisions based on just a conversation that we had last week. Because obviously Prime Minister Netanyahu has to work through these issues in his own government, in his own coalition, just as President Abbas has a whole host of issues that he has to deal with.