MR. HADLEY: I think you all have a copy now of the speech the President is going to give this afternoon. Let me just say a word -- a few comments about that, and then a little bit about the conversations the President has had today and last evening.

I think you'll see from the speech that it is -- its tone is one of optimism about what is possible in the Middle East; that the transformation to freedom, democracy, open markets and prosperity that occurred in Asia and Europe in the 20th century is possible in the Middle East in the first half of the 21st century.

The speech makes clear that to do this there needs to be economic reform, opening of economies, encouraging entrepreneurship. There needs to be investing in people of the region, particularly through education, and then of course the promotion of freedom -- economic freedom, but also political freedom, as critical for enduring prosperity.

I think the speech is a challenge to -- also to the young people of the region -- the enormous opportunity that is before them. Certainly there are challenges, but there's a real opportunity for them to make a very different looking Middle East. He indicates that America will support them in that effort.

And finally, he articulates his vision for the region 60 years from now. And as you will note, it is the same vision that he articulated at the end of his speech at the Knesset.

The key element of that vision, of course -- a key element of that vision is the creation of a Palestinian state. And in the speech the President reaffirms, as he has so often, his strong commitment to the establishment of a democratic Palestine, the two-state solution, and his strong commitment to support the process that could result in the establishment of agreement between the Israelis and Palestinians that would outline the contours of a Palestinian state and the basis for a permanent peace.

He will reaffirm the process he launched in Annapolis, which, as you know, involves negotiations among the parties. It also involves building the institutions of the Palestinian state, and also implementing the road map obligations by Palestinians largely in the area of security, by Israelis in the area of settlements and outposts, to show that progress and peace are possible.

And the President used his meetings here in Sharm el Sheikh to advance that process, and advance those three objectives. He heard last night from President Abbas and his negotiating team about the status of their negotiations with the Israelis. I think he remains optimistic that an agreement can be reached before the end of the year, and he is certainly committed to that, based on what he heard both here in Sharm el Sheikh and what he heard in Israel. He remains committed and optimistic on the negotiations.

He had an opportunity to meet with Palestinian Prime Minister Fayyad to talk about the institution building and road map implementation from the standpoint of the Palestinian side. And what he heard was a commitment to Palestinians taking greater responsibility for security of their own people. As you know, there is an effort going on right now in Jenin where the Palestinian Authority is taking greater responsibility in the Jenin district. That is providing greater security to the people of Jenin, and the Prime Minister spoke about how what needs to follow on behind that greater security is tangible efforts to increase economic activity.

The President, I think, was encouraged by what he heard. What Prime Minister Fayyad is doing is very much worthy of support. And that's one of the things -- one of the messages he took to the various Arab leaders that he has met here in Sharm el Sheikh -- that the Palestinian Authority's efforts are real, they are deserving of support, diplomatic support, but they are also very much deserving of financial support. And the countries of the region need to do what we are doing, which is to make a dramatic increase in financial contributions to the Palestinian Authority so it can pursue the initiatives that it has underway.

He is also urging the Arab leaders he has met with to provide political support to President Abbas for the negotiating effort. It will be very important that whatever President Abbas agrees to with the Israelis as a result of those negotiations have the strong support of Arab leaders if this process is going to succeed, as we all hope it succeeds, to lead to a permanent Palestinian -- permanent peace between Palestinian and Israelis and a reconciliation between Israel and the Arab nations.

In all of these discussions, and I think one of the dominant themes of the trip, has been Iran. The President has talked about, and you've heard him talk about, there is a struggle going on in this region between the forces of change and progress and reform, and those that are supporting terror and the killing of civilians as a tool to achieve political power.

And one of the things I think that was clear on this trip, whether the President was talking to Israelis, Palestinians or Arab leaders, there is now a consensus understanding that that is what is going on in this region, and that Iran is very much behind that struggle -- it is Iran that stands behind what we see Hezbollah doing in Lebanon, what we see Hamas doing in the Palestinian Territories, and what we see illegal Shia militia doing in Iraq. And increasingly we see Iran's hand in the struggle in Afghanistan.

It is a serious challenge to the bright prospect that the President, the Israelis, the Palestinian leaders and the Arab leaders the President met with here -- it is a great challenge to the vision that I think all of them share. But it is a challenge that we can confront, and is a challenge that we can succeed in overcoming.

Iraq is on the front line of that challenge. Iran, as you know, is very much behind activity in southern Iraq, which is directed against the Iraqi government. And the Iraqi government in recent weeks has shown a real confidence and initiative in dealing with the illegal militias' challenge, both in southern Iraq and in Sadr City, and they are having success.

So one of the first places to deliver a bit of a setback to Iran is actually for the Iraqi government to succeed in what it is doing to take on illegal militia in the southern part of the country and in Sadr City. And one of the things that the President did on this trip was to urge very much for the Arab leaders to embrace this new government, to give it diplomatic support, to make that support tangible in terms of receiving and inviting visitors from the Iraqi government, returning ambassadors, doing debt forgiveness, and the like. And that was a strong part of his message here.

Lebanon, there also is an opportunity. As you know, there are negotiations going on among the major Lebanese factions, being brokered by Arab leaders and by the Arab League. This can lead to an end to the political stalemate, but only if it does not reward Hezbollah, and if it supports the elected government that was put in office by the people of Lebanon. And part of that opportunity is the fact that the people of Lebanon are realizing that in the events of the last 10 days, Hezbollah was not, as they claimed, defending Lebanon against Israel; Hezbollah was using its militia against the Lebanese government and against the Lebanese people. And that is the context in which those discussions need to occur.

And finally, in the Palestinian Territories, there is a struggle between those Palestinian leaders who want peace, and those Palestinian leaders -- Hamas -- that are in control of Gaza, and have shown themselves clearly opponents of peace, and using their ability to attack Israel, particularly by rockets and missiles, as a way of trying to derail the peace negotiations that are going forward.

Again, this is an opportunity in the standing up of a Palestinian state and giving a positive alternative to the vision of Hamas to deal a setback to Iran, and bring stability and peace to the region. And again, it is important for, as the final part of his message, that all the regional states who share the concern about what's happening in the region, are willing to make strategic investments in peace and a better future for the Middle East by supporting the Lebanese government, by supporting Salam Fayyad and President Abbas of the Palestinian Authority, and by supporting Iraq in its struggle against illegal militias in the southern part of its country.

Finally, and then I'll stop, the President also had an opportunity for a first meeting with the new Prime Minister of Pakistan. As you could tell from the footage of the briefing that the two leaders and the statements the two leaders made after the meeting, it was a very positive meeting. As he did in the press conference, the Prime Minister of Pakistan made clear that in his view, Pakistan, the United States, and really all of humanity is threatened by extremism and terror. He noted that he had lost his own leader, Benazir Bhutto, to terror, and that fighting terror was something that Pakistan did for its own future and for its own reasons and purposes, and that he would fight to bring peace and stability to Pakistan.

The President -- the Prime Minister also expressed appreciation to the President and the American people for the support they gave to Pakistan during the period, and that resulted in free and fair elections. He thanked the President and the American people for supporting the transition to democracy in Pakistan. And the President made very clear that he supports this new democratic government in Pakistan, that his objective is to have good, close and continued relations with Pakistan, and that he was confident we would have good relations with this new government, that good U.S.-Pakistan relations were a vital part of our foreign policy.

And I'd be glad to answer any questions.

Terry. Read more Comment (0), Email this.

Q The President's words of encouragement and optimism, and the objectives that he said, they all

MR. HADLEY: A couple things. One, in January there was a commitment to negotiate, but no negotiations. What we have now is the negotiation is ongoing, extremely intensive at several levels between Israelis and Palestinians, and tangible progress in dealing with the hard issues that are required before an agreement is reached. Is it done yet? No. Are we making progress? The President's view is yes, we are making progress.

Second, the Palestinian Authority, in terms of building its own institutions, taking responsibility for security, and then trying to bring economic life and a better life for their people, we have seen six months of progress in that school. What is happening in Jenin is one element of that. There are a number of elements going on, but it is one element. And it is in some sense an experiment that if it succeeds can be a model that can spread throughout the West Bank.

So we see concrete progress in what Prime Minister Fayyad's government is doing in terms of building the institutions of a Palestinian state, and bringing better governments -- governance to their people.

And third, I think there is among Palestinians, Israelis, and Arab leaders in the region, a much better appreciation for what is at stake in the Middle East more broadly; that the challenge that Iran is presenting through its various surrogates -- you know, Syria, Hezbollah, Hamas, and the illegal militia in southern Iraq -- have greater appreciation for that, and a greater understanding that we -- that greater effort is going to be required if that threat is going to be met. It has not resulted in the concrete expression of support for the forces of change and reform and peace that we would have -- we would hope, and that's one of the reasons the President came to urge that we all need to do more, the Arab states here and the United States, and he indicated his commitment to doing more, as well.

So I think it's significant progress here over the last five months in the ways that I've described. Read more Comment (0), Email this.

MR. HADLEY: Well, I guess what I would say, and what we said when we went into this trip and I was asked this question, we said very clearly we are seeing progress, but we are not at the point where the President is going to have a meeting with President Abbas and Prime Minister Olmert to try to declare a vision. There was some talk about a meeting with those three leaders -- maybe later then with other Arab leaders. And we had said very clearly, progress is being made, but we are not at a point so that would be appropriate, would advance the process.

And as we said, the purpose of this meeting was, one, to go to Israel and join in celebration of Israel's 60th anniversary and make clear America's commitment publicly to the Israeli people, to the future of Israel. We think that was a very important thing to do, a very important accomplishment. Secondly, the President wanted again to return to the region and to show his continued support for the effort to negotiate a Palestinian peace. A number of people were writing and saying that the President had abandoned that commitment, that he was -- no longer thought it could be achieved by the end of the year; that we had stepped back from that effort. And one of the things the President wanted to do on this trip in the region, to the people engaged in that effort, is to say, it has my full support, and I still it can and should be done by the end of this year. The President thought that was an important thing to do, and coming here was the best place to do it.

And finally, he wanted to participate in this conference -- he will this afternoon -- and sketch out again in the region, to the people of the region, that there is a vision for a better future in the Middle East. You have all been writing that there's a sense of pessimism in the region and low expectations. And the President wanted to both come and articulate what the challenge facing to the -- facing the region is, and also to give some hope, and a vision of what the Middle East could be.

And finally, he wanted an opportunity, face to face with the key Arab leaders in the region, to share with them and hear from their views of the challenge the region is facing. He found, I think, a surprising level of agreement, and he wanted then to urge them to do more to meet that challenge at the same time he pledged to do more on behalf of the United States.

So it's not the -- I think that's what we set out to achieve, it's what I talked about in the briefing before the trip, and I think that's what we have achieved.

Michael. Read more Comment (0), Email this.

MR. HADLEY: Michael. Read more Comment (0), Email this.

MR. HADLEY: Bill. Read more Comment (0), Email this.

MR. HADLEY: That is a peace agreement. Read more Comment (0), Email this.

MR. HADLEY: The President never said it would be implemented on his -- during his term -- quite the contrary. The President -- the President and all the parties agreed that implementation of the peace agreement and the standing up of the Palestinian state would be subject to the road map; that the road map obligations would have to be formed before the Palestinian state would come into existence.

That is something the President has said. That was something that was in the understandings at the time of Annapolis. And what was also said at that time by Israelis, Palestinians and Americans was, that would be a process that would take years. So what we wanted to do, and what is the President's -- still his objective is an agreement for a Palestinian state that is the core of a peace agreement between Israelis and Palestinians that would ultimately end the conflict. Read more Comment (0), Email this.

MR. HADLEY: Sir. Read more Comment (0), Email this.

MR. HADLEY: I didn't say hard issues. I'm not sure I used the word "tangible progress." I was asked what concrete accomplishments we've had and I tried to give the answer to those concrete accomplishments. Read more Comment (0), Email this.

MR. HADLEY: Right. Read more Comment (0), Email this.

SECRETARY RICE: I thought that I might just come back and recap a little bit some of the impressions of the trip and some of what we were able to do here, what the President was able to do here, and then I'll take your questions. I'll be pretty brief.

I think first and foremost, of course, the President came to celebrate Israel's 60th. And Israel is a remarkable place. If you looked at the pictures of those Israelis arriving at the time of the partition, and you look at Israel now, you can't help but be impressed by all that's been achieved.

But the President didn't really want to dwell on the last 60 years, he wanted to really talk about laying the foundation for the next 60 years, and what a different Middle East Israel could find itself in. And it's why he used the same language in both speeches at the end about the vision for the future.

And that Middle East would be one, of course, in which there is a democratic Palestinian state. And so the President had an opportunity to talk with the Palestinians, to have a sense of where they are, and with the Israelis where they are in terms of the negotiations. And I know myself, when you have a chance to really sit with them and listen to them, you can start to help them think about points of convergence that they themselves may not see.

And so he had extensive discussions with all of the Israeli leaders and with all of the Palestinians about how to continue to move the negotiations forward. I don't want to speak for him, but I think he found that they are going about this in a serious, systematic and really quite intensive way. It's by far the most serious negotiations that Israelis and Palestinians have had on all the issues that would lead to the creation of a Palestinian state.

He reaffirmed that it is the goal, as it was at Annapolis, to have an agreement that would define and create the Palestinian state, solve the major issues that have to be resolved in order to have a Palestinian state, and then be in a position to begin implementing, which obviously would take some time. But even on the implementation, since it's subject to the road map, we're continuing to move forward on road map implementation as well: training the Palestinian security forces, removing road blocks, et cetera.

So a lot of work on the Palestinian-Israeli issue. A lot of work also with the regional powers, the Arab leaders, really on four issues: support for the Palestinians and Israelis, and particularly financial and other support for the Palestinians -- I think you probably caught the line in his speech about these countries needing to fully support the Palestinians; secondly, to talk about the situation in Lebanon, how to support the democratic government there; third, to talk about Iraq. And these all have to be seen in a regional context, where I think you have a very common view of what needs to -- of what the situation is and the role of Iran as a destabilizing force through its proxies -- Hezbollah, Hamas in Gaza, and Jaish al Mhadi in southern Iraq. And so he had an opportunity to do that.

And then also a chance to talk about reform, and what a different place this could be. One of the most interesting meetings really was with the Pakistanis, who are fresh from their democratic elections. The first words from the Pakistani Prime Minister was, thank you for standing for free and fair elections, which the United States has, and listening to their agenda about social and economic reform.

So it was a -- really I think a very fruitful trip, productive trip. It's not the last time that the President is going to be with these leaders. It's not the last time that he's going to have an opportunity to press this agenda forward. But it was yet another opportunity for him to make sure that everybody understands America's very firm commitment to all these goals. So that was the nature of the trip. Read more Comment (0), Email this.

MR. HADLEY: Correct. Read more Comment (0), Email this.

Q Can I ask you about President Abbas? Both in him talking directly to reporters today after he

SECRETARY RICE: The President had a chance to talk to them about it, and I think he told them, stay tuned to the bookend speech, because this is a really two-speech trip, not a one-speech trip. And the President also, in the Knesset speech, talked about the need for, if we're going to reach this different Middle East, for leaders to take difficult choices. And at the end, he talked about the vision of the Palestinian state -- the Palestinians living in their own homeland, which they deserve, and then today had a chance to elaborate on that vision for the Palestinians. And there was one line that he himself chose, that says, I believe that the Palestinian people will do this, in effect, I believe in the Palestinian people; I believe they will build a democracy.

But it was really an expression of belief in the Palestinians. And when you talk with Salam Fayyad or with the people around Mahmoud Abbas or with President Abbas himself, you recognize that this is a very good and dedicated group of people. They just need some help. Read more Comment (0), Email this.

MR. HADLEY: And I've also said that it is important for the success of those negotiations that the details be kept confidential. That's what the parties want -- that it is going to be harder to negotiate if where the negotiations are is out in the media. The issues that the parties have said they want to make progress on, and we believe they are making progress on, are pretty well known to you -- issues of territory, issue of refugees, issues of security, issues of Jerusalem. Read more Comment (0), Email this.

Q But the impression that the President left behind in the Arab world was that he's extremely pro

SECRETARY RICE: Toby, I haven't heard how they're viewing it. I know that these allies know they have a very strong ally in President Bush. You know, it would have been interesting to see if that was a view from Iraqis, for instance, who've been liberated from Saddam Hussein. So when we talk about leaders here, we need to recognize that leaders -- there are emerging democracies in this region, and in the broader Middle East, like Afghanistan, who understand fundamentally that if they're going to make it to a more reform-oriented, modern, progressive states, the United States of America is standing with them.

And these are discussions that the President and I and all of us have with Arab leaders all the time. The Middle East needs change. It needs reform. This is not the first time the President has said it. It's not the last time that he's going to say it. We do it in a spirit of respect for them and for their traditions, but also in an understanding that when you have a region that's producing fewer patents than South Korea alone, you have a problem. But it's not just something the United States has said. You remember, the Arab Human Development reports that talk about the need for change.

But, you know, the President isn't pro-this or pro -- the President is pro-democracy and pro-peace -- and pro-peace. And he has stood for a Palestinian state, he's pressed, through Annapolis, to bring together the coalition of states that can support it, and now he's pressing both sides to come to an agreement. And that's being in favor of both sides, because both sides need a say. Read more Comment (0), Email this.

MR. HADLEY: Sir. Read more Comment (0), Email this.

Q The President often says that he believes the contours of a state can be defined by the end of

SECRETARY RICE: Well, Sheryl, I'd like to ask those people, when have the conditions on the ground been right for a Palestinian state, and therefore why haven't we had one? You know, I listen to the argument that the conditions are not good now, and I say, all right, well then when were the conditions better -- when Yasser Arafat passed up a deal that might have actually created the state and instead launched the second intifada? Were the conditions better then? Look, if you wait for the perfect conditions in the Middle East, it will never -- they will never come. There will always be puts and takes.

What you have right now though is you have dedicated leaders on both the Palestinian side who have given up -- who have -- who don't support violence, who believe negotiation is the way, who are working hard for their people in the West Bank in places like Jenin and Nablus. You've got Israeli leadership that is broader from -- in terms of the political spectrum, for a two-state solution, than you have ever had. When Ehud Barak was doing this at Camp David in 2000, Likud was opposed, including Ariel Sharon. Ariel Sharon is the one in 2003 who then said we have to divide the land. And so you now have a much broader political base in Israel for the two-state solution.

So I think that's what the President is looking at. And he's looking at the fact that frankly the states of the region, seeing that there is a problem in the region, but maybe it's not Israel, may be ready finally to give their full support to resolving this problem.

The final thing I'll say is, a lot of analysts aren't in the room with these people when they talk about what it is they're actually doing. I was with them for two-and-a-half hours. I know how seriously they're negotiating. But they're not going to come out and talk in front of the cameras about what it is they're doing. And if they did, the negotiations would be dead on that day. Read more Comment (0), Email this.

MR. HADLEY: There's always -- was conversations about Syria, because Syria is in some sense a part of this threat. It's one of the instruments through which Iran is posing this challenge to the region. I don't believe that the North Korea issue came up at all.

Sir. Read more Comment (0), Email this.

Q So are you indicating that privately they may be making some progress that we just don't know about

SECRETARY RICE: Ed, all that matters is that they make progress and that they get a treaty, a peace treaty. That's what matters. We're five months after Annapolis. We are not at the end of the year. And the parties, five months before Annapolis, were not even willing to talk about the core issues -- borders, refugees, Jerusalem, the settlements. Now they are.

And so, yes, there is more. I can tell you for certain that there is more going on in private, but that's the way people actually negotiate. They don't -- if -- because these are very sensitive issues for both sides and if a position that may or may not hold gets exposed prematurely, it's going to produce nothing but trouble for the negotiations. I don't know if you remember, but the most successful agreement between the Palestinians and Israelis was Oslo. Nobody even knew they were negotiating, and it suddenly came out that they had an agreement.

So I think they're very wise to -- I'm not -- I don't want to suggest that they are ready to make an agreement and you just don't know it -- that's not the point. But I do know how seriously they are discussing all of the key issues -- that they're deep discussions; that they're professional discussions; that they're trying to see where they can overcome areas of difference. And I think you're going to see them intensifying those discussions over the next several months. Read more Comment (0), Email this.

Q You keep talking about the commitment. What is the administration prepared to do next? What's

MR. HADLEY: Well, part of it is what the parties themselves are doing. For example, when Secretary Rice was in the region here a week and a half ago, she had a meeting with Prime Minister Fayyad and Israeli Defense Minister Barak, and out of that meeting came an announcement from the Israeli side of a number of checkpoints that would be -- checkpoints and roadblocks that would be adjusted. There were -- a commitment to issue work permits for I think 5,000 Palestinians to work in Israel.

So the parties themselves have a mechanism now by which they are beginning to agree upon and make announcements of progress. The experiment I talked about in Jenin has as an element a understanding between Israelis and Palestinians by which as the Palestinians step forward and can show that they can effectively provide security, the Israelis will be able to change their role and step back a bit. That is, of course, one of the core things in the road map, which is the Palestinian Authority building the institutions and then using those institutions to fight terror.

So there is a process now by which the parties themselves are beginning to work out arrangements that implement the road map, but they're doing it in an interesting way -- in some sense, sort of step by step or area by area. And we of course are part of that process in a very active way. General Keith Dayton, as you know, is very much involved in strengthening the Palestinian security organizations, particularly the PSO -- Palestinian Security Organization -- and the Presidential Guard.

There are other groups. For example, the Germans are being very active with Palestinian police. You also know that General Fraser is here to facilitate the conversations between Israelis and Palestinians on road map implementation. General Jones is in the region trying to help the Israelis and Palestinians think through the security concept that will ensure that a new Palestinian state and Israel can both be secure in this fairly tumultuous region.

And finally, Secretary Rice, as you know, has been to this region sort of every couple to three weeks, and my expectation is that that will continue as we try and encourage and support the parties as they find their way forward here. But again, as the President has said so many times, we can support the parties, but in the end of the day, the parties are the ones that need to sit down and working this through. And the good news of this is that that's what we're seeing the parties do, both in terms of the negotiations for the agreement and also for implementation of the road map. Read more Comment (0), Email this.

SECRETARY RICE: No. (Laughter.) Read more Comment (0), Email this.

MR. HADLEY: Yes, sir. Read more Comment (0), Email this.

SECRETARY RICE: What I said is that you can help them see where points of convergence may be. Read more Comment (0), Email this.

MR. HADLEY: I think the President will come back here when there is work for him to do to advance the process. And the President made a judgment that this was useful to advance the process. I tried to describe how we think he thinks he has done so. I think the President is open, again, as he's -- as he committed to do what needs to be done to try and get success here.

Sir. Read more Comment (0), Email this.

SECRETARY RICE: I think there are some places where they see things similarly. It doesn't mean that they found a solution, but sometimes recognizing, each side recognizing that they're looking at the same problem and not a different problem is the beginning to get to a solution. And I just can't tell you how really impressive they are as negotiators. Read more Comment (0), Email this.

Q When the President went into Iraq in '03, one of the things you were subsequently criticized for

MR. HADLEY: I'm not sure I'd accept your characterization. I think the President has been talking for a long time about the struggle against extremism, which Iran is behind a lot of. It was going to take a long time. He has talked about, in the way he does today, that what we were able to do with the people of Europe and with the people of Japan at the last half of the 20th century is something we can do with the Middle East in the first half of the 21st century.

Recognition of -- as he had said many times, we've been engaged in Europe and Japan for a long time in that process. Now, our role changed over time. The Middle East is very different than Europe or Japan, so the role is going to look differently. But this is a long-term challenge, very much comparable to the challenge in terms of difficulty and complexity and the time it's going to take, to the challenge the President -- to the challenge the nation faced at the end of World War II in Japan and Europe.

And with respect to Iraq specifically, we've been saying for a long time now that Iraq will not be done on the President's watch, and our goal is to give to the next administration an Iraq project that has a sound strategy, that we're succeeding in that strategy, and that a next administration will stay with the project until the Iraqi people are able to bring success.

Michael. Read more Comment (0), Email this.

SECRETARY RICE: I think the President will have to determine whether it is of value for him to come back, but he's committed to this and I think he'll do what he needs to. Read more Comment (0), Email this.

Q Could I follow up on your comments on Iran? Can you point -- what progress can you point to in

MR. HADLEY: Yes, I think I can, though I would say that this is also going to be a long and difficult problem, and that Iran has over the last several years gotten much more active, and it needs to be understood. The fact that the Iraqi Prime Minister Maliki has decided to take on the problem of illegal militia in the south is a major development. It's been a problem for at least two years.

I've said many times that we're three security challenges in Iraq: sectarian violence, al Qaeda, and the illegal militia. And the first two have been -- we've been actively dealing with over the last couple of years. This was the sort of third one that was still open. And Maliki has taken the leadership to deal with that problem. That's a good thing, because it shows the confidence of the government and their forces capable to do it. They are, as you know, making progress in Basra against the illegal militia. The government is now in control of the port. So I think that is a place where Iran has chosen to support forces against freedom and against progress, and that we have a strong ally with our support that is confronting those forces backed by Iran, and is succeeding.

Lebanon, obviously Hezbollah, made a move in the last 10 days, and at one level it had tactical success that you have spoken about in their ability to terrorize the Lebanese people and threaten the government, and that looks like a tactical success. One of the things that's interesting is that people in the region and people in Lebanon are now suggesting that it perhaps was a strategic failure, because it stripped away the rationale that Hezbollah has used to protect its militia from being disbanded and brought under the authority of the government.

And that rationale was, the militia was needed to defend Lebanon against Israel, and what we saw in the last 10 days, and what the Lebanese people are beginning to say is, hey, this militia was used against us and against our duly-elected government. And that is an opportunity for the Lebanese forces of democracy and freedom, and for those in the region that support it, to hold Hezbollah to account and hopefully to clip its wings a little bit. We will have to see. This is a story very much in progress.

And finally, in terms of Hamas -- yes, Hamas is in control of Gaza. Its administration there I don't think is bringing hope, optimism, and confidence to the people of Gaza. And what we hope, of course, is to, through this negotiation and what the President has said many time, is have a vision for a Palestinian state; that President Abbas can then go to the people in the West Bank and to the people in Gaza and give them a choice: Do you want to continue life under Hamas or do you want to come and join the prospect for a peaceful Palestinian state?

Again, work in progress. And at this point in time, I think we are going to try and to -- have to deal with the threat Hamas poses, try to counter, as the Israelis are, their efforts to derail this peace process, so that we can present to the people -- so that President Abbas can present to the people of Gaza the stark choice I described. Read more Comment (0), Email this.

Q Quick Iran question. At every stop, Bush raised concerns about Iran. Leaders raised concerns

SECRETARY RICE: Well, let me go at this question in the following way -- Iran has significant vulnerabilities -- significant vulnerabilities. They demonstrated one of those vulnerabilities in southern Iraq when they backed the special groups in Basra that ended up being overrun by the Iraqi security forces. Now if you think for a minute that the Iranians coming out the next day and saying, oh, no, those people in Basra, those were just criminals -- come on; they were armed and trained by Iran, and they got beat in southern Iraq.

And the United States forces supporting the Iraqi forces are going after their networks, going after their people who are doing the training. We've picked up Quds Force operatives. When we've picked up Quds Force operatives, the Iranians have rightly wondered what they're saying about the rest of their operations. So they have a problem in southern Iraq now because the Iraqis are not very pleased that they are meddling in the affairs of Iraq with Shia splinter groups. So that's a vulnerability.

In Lebanon, yes, Hezbollah made a show of military power, if you want to call it that, but in doing so it exposed that it is actually not the great resistance movement. They didn't attack to the south, they attacked Lebanese. And they made it very clear that what they are is an arm of Iran. That's a vulnerability.

Iran is having great difficulty accessing the international financial system because of the designations first that the U.N. has done through three Security Council resolutions -- where the Iranians cannot claim, by the way, that it's the United States going after them, it's the Security Council; but also because of the collateral effects of designations that the Treasury has made that are making people choose between their Iranian business and their American business. And it's no contest. That's a vulnerability. That's part of why you're seeing inflation and economic problems and daily criticism of Ahmadinejad about what he's doing to Iran.

Finally, Iran has vulnerabilities because everybody in the region resents their efforts to aggressively interject themselves into Arab and Gulf affairs. When we get together as something like the GCC plus now Egypt, Jordan and Iraq, it is a strong signal that there is a strategic alignment in the Middle East that wants to challenge Iran.

Now, let me just close with the following sort of strategic picture, because I don't mean to suggest -- Iran is a problem and it's a dangerous state and it has to be taken very seriously, but it has its vulnerabilities. We have our strengths and we can play to our strengths to make Iran's vulnerabilities -- to exploit their vulnerabilities.

I know I've heard a lot about how emboldened Iran should be, but if you were Iran and you had an emerging democratic Iraq with an American presence and probably in American long-term strategic relationship agreement, and you look to another border and you've got democratic Afghanistan with American and NATO forces and a long-term strategic relationship agreement, and you've got strengthened strategic cooperation in -- with America's traditional allies in the Gulf -- Saudi Arabia, UAE, Bahrain -- and you've got stronger American relations in central Asia -- you know, that's not such a great geostrategic picture for the long run. MS. PERINO: Thanks everyone. Read more Comment (0), Email this.

Q Can I follow up quickly? Were there specific tactical things that you discussed with your moderate

MR. HADLEY: There were a lot of discussions of ideas about what to do, and I'm not going to -- in a position really to go into them.

Sir, last question. Read more Comment (0), Email this.

SECRETARY RICE: I think the important thing is that the President significantly advanced the discussion about really using the strengths that this community of states has. And one of the pieces is the more that the Arab states embrace Iraq, the more Iraq will be strong in its Arab identity and will be a bulwark against Iran, because you know that these are Iraqi nationalists. And I think the Iranians because of the way they dealt with southern Iraq have helped us to advance that cause, as well. Read more Comment (0), Email this.

MR. HADLEY: I'm sorry? Read more Comment (0), Email this.